64463--3/27/2008--MECHANICAL_TECHNOLOGY

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{product, market, service}

{customer, product, revenue}

{property, intellectual, protect}

{operation, international, foreign}

{condition, economic, financial}

{product, liability, claim}

{product, candidate, development}

{capital, credit, financial}

{interest, director, officer}

{stock, price, share}

{personnel, key, retain}

{acquisition, growth, future}

{control, financial, internal}

{operation, natural, condition}

{stock, price, operating}

We have incurred recurring net losses and anticipate continued net losses as we execute our commercialization plan for our portable power source business. We have received a going concern report from our independent auditors. Our common stock may be delisted from The Nasdaq Global Market, which may adversely affect our ability to raise capital and stockholders ability to sell their shares. We currently derive all of our product revenue from our test and measurement instrumentation business, but our principal focus is the development and commercialization of our portable power source business. We have not generated any product revenue from our portable power source business and currently have no portable power source commercial products. We currently do not have sufficient funds to commercialize our portable power source products. If current U.S. Department of Transportation, Federal Aviation Administration, and certain international regulations do not change, passengers will be unable to carry methanol in the passenger compartments of airplanes, which would adversely affect our sales and results of operations. Our portable power source products may not be accepted by the market. Market acceptance of our customers products that utilize our portable power source products may decline or may not develop and, as a result, our sales will be harmed. If we fail to build and maintain relationships with our customers and do not satisfy our customers, we may lose future sales and our revenue may stagnate or decline. We have no experience manufacturing portable power source products on a commercial scale. We will rely on others for our production, and any interruptions of these arrangements could disrupt our ability to fill our customers orders. We will depend on third parties to maintain satisfactory manufacturing yields and delivery schedules, and their inability to do so could increase our costs, disrupt our supply chain, and result in our inability to deliver our portable power source products, which would adversely affect our results of operations. We plan to rely on third-party suppliers for most of our manufacturing equipment. Shortages of components and raw materials may delay or reduce our sales and increase our costs, thereby harming our results of operations. We will be subject to lengthy development periods and product acceptance cycles, which can result in development and engineering costs without any future revenue. We will not have long-term purchase commitments from our customers, and their ability to cancel, reduce, or delay orders could reduce our revenue and increase our costs. Variability of customer requirements resulting in cancellations, reductions, or delays may adversely affect our operating results. If we are unable to adequately protect our intellectual property, our competitors and other third parties could produce products based on our intellectual property, which would substantially impair our ability to compete. We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from selling our products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief. Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information, which could limit our ability to compete. Our efforts to develop new technologies may not result in commercial success, which could cause a decline in our revenue and could harm our business. We may not be able to enhance our product solutions and develop new product solutions in a timely manner. If we do not keep pace with technological innovations, our products may not be competitive and our revenue and operating results may suffer. New technologically solutions that achieve significant market share could harm our business. Our inability to respond to changing technologies will harm our business. International sales and manufacturing risks could adversely affect our operating results. Our business may suffer if international trade is hindered, disrupted, or economically disadvantaged. Our operating results could be adversely affected by fluctuations in the value of the U.S. dollar against foreign currencies. We expect that a majority of our manufacturing subcontractors will be located in Asia, increasing the risk that a natural disaster, labor strike, war, or political unrest in those countries would disrupt our operations. Continuing uncertainty of the U.S. economy may have serious implications for the growth and stability of our business and may negatively affect our stock price. The electronics industry is cyclical and may result in fluctuations in our operating results. Our strategic alliances may not achieve their objectives, and their failure to do so could impede our growth. Product liability claims against us could result in adverse publicity and potentially significant monetary damages. We expect to face intense competition that could result in failing to gain market share and suffering reduced revenue from our portable power source products. We depend on key personnel who would be difficult to replace, and our business will likely be harmed if we lose their services or cannot hire additional qualified personnel. Our operating results may experience significant fluctuations.

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64463--3/27/2008--MECHANICAL_TECHNOLOGY_INC