805012--3/28/2006--ENVIRONMENTAL_POWER

related topics

{stock, price, share}

{gas, price, oil}

{debt, indebtedness, cash}

{control, financial, internal}

{cost, regulation, environmental}

{cost, contract, operation}

{property, intellectual, protect}

{stock, price, operating}

{operation, natural, condition}

Microgy has very little operating history from which to evaluate its business and products. Microgy has experienced losses to date and we anticipate it will continue to experience losses into at least 2006. Microgy has little experience in project development, and the marketplace for Microgy s systems is complex, still developing and subject to change; therefore, we cannot predict how all projects will be developed, what Microgy s costs will be or, consequently, whether Microgy or any project undertaken by Microgy will be profitable. If we are unable to obtain needed financing for Microgy s projects, the value of our Microgy investment may be reduced significantly. If we are unable to obtain sufficient manure and other waste resources for use as substrate for Microgy s renewable energy projects, Microgy will not likely operate profitably. As Microgy focuses a significant portion of its development efforts on projects devoted to the sale of gas as a commodity, we will be increasingly exposed to volatility in the commodity price of natural gas, which could have a material adverse impact on our profitability. Our projects involve long development cycles that result in high costs and uncertainty. The market for anaerobic digester technology is crowded, and our market share may not be sufficient to be profitable. We are a small company, and the entrance of large companies into the alternative fuels and renewable energy business will likely harm our business. Because the market for renewable energy and waste management is unproven, it is possible that we may expend large sums of money to bring our offerings to market and the revenue that we derive may be insufficient to fund our operations. Because we have not filed patents to protect Microgy s intellectual property, we might not be able to prevent others from employing competing products. Conversely, others who have filed for patent or other protection might be able to prevent us from employing our products. If our relationship with the licensor of our technology was terminated for any reason or such licensor ceased doing business, our Microgy subsidiary would be negatively impacted. The large number of tasks that need to be accomplished for the development of projects based on our system increases the possibility that such projects will incur costly delays. Because all of the cash flow we receive from Buzzard is currently dedicated to the repayment of our loan with Arclight, we are entirely dependent upon the capital we raise to fund the continuing development of Microgy. The composition of effluents from our facilities is not certain and may expose us to liability. We currently rely on the Scrubgrass plant for almost all of our operating revenues, and the cash distributions resulting from the Scrubgrass operations have been dedicated to the repayment of the Arclight loan. If we default on our obligations under our loan agreement with Arclight, we will lose ownership of our subsidiary, EPC Corporation, and, thereby, the leasehold interest in the Scrubgrass facility. We do not control the management of the Scrubgrass plant, our primary revenue-generating asset. Our current power generation revenue is derived from only one customer, the loss of which would severely harm our financial condition and the value of your investment. A large increase in interest rates may adversely affect our operating results. Poor quality fuel and other materials may expose us to environmental liability and reduce our operating results. If we violate performance guarantees granted to Penelec, we will be required to provide them with an incentive payment. Risks Relating to Both Microgy and Buzzard Our products and services may be subject to numerous governmental regulations. Our power producing activities could be subject to costly regulations and tariffs. Risks Relating to Our Common Stock We have numerous outstanding options and warrants which may adversely affect the price of our common stock. The issuance of preferred stock may adversely affect the price of our common stock, which could cause a reduction in the value of your investment. The sale of a substantial number of shares could cause the market price of our common stock to decline. Our management and directors will continue to exercise significant control over our management and affairs. The lack of a developed trading market may make it difficult for you to sell your common stock. The market price for our common stock may be volatile. We will require and are actively seeking significant additional financing, which may result in our issuing a significant number of shares of our common stock or preferred stock, which in turn may dilute your investment.

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805012--3/28/2006--ENVIRONMENTAL_POWER_CORP