805012--3/30/2010--ENVIRONMENTAL_POWER

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Risks Relating to Our Business We have experienced losses to date, and we anticipate that we will continue to experience losses through at least 2012, which means that we will have to raise significant additional financing during the first half of 2010 in order to continue our business operations. The opinion from our independent auditors as of December 31, 2009, stated that there is substantial doubt at December 31, 2009, about our ability to continue as a going concern. As a result of our failure to make certain payments, we and our subsidiaries are currently in default under various obligations, and we cannot determine the remedies our creditors may exercise. Our sole operating business, Microgy, has limited operating history from which to evaluate its business and products. 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 renewable natural gas; as a result it may have some exposure to volatility in the commodity price of natural gas. We expect revenues from sales of greenhouse gas sequestration credits and other environmental attributes, but the market for such attributes is nascent and may not develop in a manner that allows us to profit from the sales of such credits to the level projected, or at all. In connection with financial closings on projects, we have pledged all of our interests in our facilities in Texas and California as security for the loans relating to Microgy Holdings tax-exempt bond financings in those jurisdictions, and our subsidiary, Microgy Grand Island, LLC, has entered into a financing lease with respect to the Grand Island facility. We are in default on these loans and the bondholders could seek to initiate foreclosure proceedings on these assets. Microgy faces competition in the renewable energy market as well as for the resources necessary to operate its facilities. Extreme weather events may have a material adverse effect on the operation on our facilities. It is possible that we may expend large sums of money on individual projects to bring Microgy s products to market and that the revenue that Microgy derives from these products from new projects 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. Microgy s facilities are likely to be subject to numerous governmental regulations. Microgy s facilities may become subject to regulations or taxes based on carbon or other emissions. Our operating results are difficult to predict in advance and may fluctuate significantly, which may result in a substantial decline in our stock price. 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 value of our common stock or make it more difficult for a party to acquire a controlling interest in our company. 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. If we fail to continue to meet all applicable continued listing requirements of The Nasdaq Capital Market and Nasdaq determines to delist our common stock, the market liquidity and market price of our common stock could decline. The market price for our common stock has been and may continue to 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--3/30/2010--ENVIRONMENTAL_POWER_CORP