805012--3/30/2007--ENVIRONMENTAL_POWER

related topics

{stock, price, share}

{debt, indebtedness, cash}

{gas, price, oil}

{cost, regulation, environmental}

{control, financial, internal}

{property, intellectual, protect}

{stock, price, operating}

{interest, director, officer}

{customer, product, revenue}

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 2008. Microgy cannot predict when any facility will be completed, what Microgy s costs will be or, consequently, whether Microgy or any facility developed by Microgy will be profitable. If we are unable to obtain needed financing for Microgy s facilities, the value of our Microgy investment may be reduced significantly. If Microgy is unable to obtain sufficient manure and substrate for its facilities at an acceptable cost, such facilities, and Microgy as a whole, will likely not be profitable. Microgy is expected to derive a significant portion of its revenues from the sale of gas as a commodity; as a result, it will be exposed to risk relating to volatility in the commodity price of natural gas, which could have a material adverse impact on its profitability. We expect Microgy to derive substantial revenues from sales of carbon sequestration credits and other environmental attributes, but the market for such attributes is nascent and may not develop in a manner that allows Microgy to profit from the sales of such credits to the level projected, or at all. We have pledged all of our interest in our facilities in Texas as security for the loan relating to Microgy Holdings tax-exempt bond financing in Texas. Microgy faces competition in the renewable energy market as well as for the resources necessary to operate its facilities. Microgy is a small company, and the entrance of large companies into the alternative fuels and renewable energy business will likely harm its business. Because the market for renewable energy is unproven, it is possible that we may expend large sums of money to bring Microgy s offerings to market and that the revenue that Microgy derives from these offerings 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 using Microgy s technology; conversely, others who have filed for patent or other protection might be able to prevent Microgy from using its technology. If Microgy s relationship with the licensor of its technology was terminated for any reason or such licensor ceased doing business, our Microgy business would be negatively impacted. Because all of the cash flow we receive from Buzzard is currently dedicated to the repayment of loan obligations, we are entirely dependent upon the capital we raise and Microgy s cash flow to fund the continuing development of Microgy. Microgy s facilities are likely to be subject to numerous governmental regulations. As producers of carbon dioxide, Microgy s facilities may become subject to regulations or taxes based on carbon emissions. Cash distributions resulting from the Scrubgrass operations have been dedicated to the repayment of the ArcLight loan. Certain projections provided by the operator of the Scrubgrass facility indicate a shortfall in revenues available to make certain rental payments which become due commencing in June 2006; as a result, Buzzard may default on its lease obligations If our subsidiary EPC Corporation defaults on its obligations under the loan agreement with ArcLight, we may lose ownership of EPC Corporation and, thereby, the leasehold interest in the Scrubgrass facility. We do not control the management of the Scrubgrass facility, our primary revenue-generating asset. Buzzard s current power generation revenue is derived from only one customer A large increase in interest rates may adversely affect Buzzard s and EPC Corporation s operating results. Poor quality fuel and other materials may expose us to environmental liability and reduce Buzzard s operating results. If Buzzard violates performance guarantees granted to Penelec, Buzzard will be required to provide Penelec with an incentive payment. Buzzard s power producing activities could be subject to costly regulations and tariffs. Risks Relating to Both Microgy and Buzzard Our operating results are difficult to predict in advance and may fluctuate significantly, which may result in a substantial decline in our stock price. Our facilities may be subject to numerous governmental regulations. Risks Relating to Our Capital Stock We have numerous outstanding shares of restricted common stock, as well as options, warrants and shares of preferred stock exercisable or convertible into a substantial number of shares of our common stock; the resale of outstanding restricted shares, as well as the exercise or conversion of these securities and the resale of the underlying shares, may adversely affect the price of our common stock. The issuance of preferred stock may adversely affect the price of our common stock. Our management and directors, as well as the holders of our series A preferred stock, are able to exercise significant control over our management and affairs. The lack of a developed trading market may make it difficult for you to sell shares of our 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 the value of your shares. Our outstanding series A preferred stock has rights and preferences superior to that of our common stock, may impair our ability to raise additional financing, may harm our financial condition if we are required to redeem it and could have the effect of discouraging an acquisition or reducing the amount of proceeds available to common stockholders upon such an acquisition. We do not intend to pay cash dividends on our common stock.

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805012--3/30/2007--ENVIRONMENTAL_POWER_CORP