Edgar Filing: ENVIRONMENTAL POWER CORP

As filed with the Securities and Exchange Commission on June 19, 2002.

Registration No. 333-85332

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Amendment No. 1

FORM S-2
REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

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ENVIRONMENTAL POWER CORPORATION

(Name of registrant as specified in its charter)

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Delaware 04-2782065
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification No.)
organization)
JOSEPH E. CRESCI
One Cate Street, Fourth One Cate Street, Fourth
Floor Floor
Portsmouth, New Hampshire Portsmouth, New Hampshire
03801 03801
(603) 431-1780 (603) 431-1780
(Address, including zip (Name, address, including
code, and zip code, and
telephone number, telephone number,
including area code, including area code,
of registrant's principal of agent for service)
executive offices)

With copies to:
Steven I. Himelstein
Dorsey & Whitney LLP
250 Park Avenue New York, New York 10177

Approximate date of commencement of proposed sale to the public: As soon as
practicable following the date on which the Registration Statement becomes
effective.

If any of the securities being registered on this form are offered as a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof pursuant to Item 11(a)(i) of
this Form, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered(1) per share offering price fee(5)
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Common Stock.................... 14,551,683(2) $0.52 $7,566,875 $696
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Common Stock Underlying Options. 116,962(3) 0.52 60,821 6
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Common Stock Underlying Warrants 821,170(4) 0.52 427,008 40
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Total........................... 15,489,815 Shares XXX 8,054,704 $741
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(1) In accordance with Rule 416, there are hereby being registered an
indeterminate number of additional shares of common stock which may be
issued as a result of the anti-dilution provisions of the options and
warrants.
(2) Registered for resale.
(3) Registered for resale upon exercise of outstanding options.
(4) Registered for resale upon exercise of outstanding warrants.

(5) The registration fee was calculated in accordance with Rule 457(c) and is
based on the average of the bid and asked prices of the registrants' common
stock, as reported on the OTC Bulletin Board on March 27, 2002. The fee
table has been revised to reduce the number of shares being registered from
16,994,456 to 15,489,815. A filing fee of $814 was previously paid as a
part of our filing on April 1, 2002. Accordingly, no fee is being submitted
herewith.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell their securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell the securities and it is not soliciting an
offer to buy the securities in any state where the offer or sale is not
permitted.

Subject to completion, dated June 19, 2002.

PROSPECTUS

ENVIRONMENTAL POWER CORPORATION

15,489,815 shares of common stock

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This prospectus describes the registration of 14,551,683 shares of common
stock, 116,962 shares of common stock issuable upon the exercise of outstanding
options and 821,170 shares of common stock issuable upon exercise of
outstanding warrants. We will be issuing, in private transactions, the shares
of common stock issuable upon exercise of the options and warrants.

We do not know if any or all of the options or warrants will be exercised.
The selling shareholders will have to exercise the options and warrants in
order to publicly sell the underlying shares of common stock that are offered
for resale in this prospectus.

The common stock is quoted for trading on the OTC Bulletin Board under the
symbol "POWR." The address of our principal executive offices is One Cate
Street, Fourth Floor, Portsmouth, New Hampshire 03801 and our telephone number
is (603) 431-1780.

Investing in the common stock involves certain risks. See "Risk Factors"
commencing on page 3 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

The date of this prospectus is , 2002.

TABLE OF CONTENTS

Page
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RISK FACTORS........................................ 3
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS 12
USE OF PROCEEDS..................................... 12
SELLING SHAREHOLDERS................................ 12
PLAN OF DISTRIBUTION................................ 18
DESCRIPTION OF SECURITIES........................... 19
DOCUMENTS INCORPORATED BY REFERENCE................. 20
WHERE CAN YOU FIND ADDITIONAL INFORMATION........... 20
LEGAL MATTERS....................................... 20
EXPERTS............................................. 20
INDEX TO PRO FORMA FINANCIAL INFORMATION AND MICROGY
FINANCIAL STATEMENTS.............................. 21

RISK FACTORS

An investment in our common stock is speculative and involves a high degree
of risk. You should purchase the common stock only if you are sophisticated in
financial matters and business investments. You should carefully consider the
following factors before purchasing our common stock.

Microgy Cogeneration Systems, Inc., a company that we recently acquired, has
very little operating history from which to evaluate its business and products.

Microgy was formed in 1999 and is still in the development stage. Microgy
intends to develop facilities which use environmentally friendly anaerobic
digestion and other technologies to produce bio-energy from animal and organic
wastes. Because a large part of our future business is anticipated to involve
Microgy's bio-energy projects, your investment decision will likely be based in
large part on an enterprise with very little operating history upon which to
judge. We are unable to determine whether our investment in Microgy will prove
to be financially advantageous.

Microgy has experienced losses to date and we anticipate it will continue to
experience losses in the foreseeable future.

Microgy had accumulated losses of approximately $2.6 million through March
31, 2002. We expect our Microgy subsidiary to continue to incur losses, reduce
our earnings or, as the case may be, add to our earnings deficit as we seek to
develop its business. These ongoing losses will likely adversely affect our
financial condition into the foreseeable future.

We have not completed our plans for deployment of our anaerobic digester
technology and therefore, cannot predict its related costs or outlook for
profitability.

The strategic implementation planning necessary to determine our course of
action for deployment of our anaerobic digester technology has not been
completed. Accordingly, no decision has been made as to whether we will sell,
install and operate, or develop and own the related facilities. In addition, we
do not have experience in, or a basis for, predicting the general and
administrative and other costs associated with developing anaerobic digester
facilities. Because of this we are unable to determine when or if these
facilities will generate a profit. If the organizational, structural, staffing
and other overhead costs associated with the anaerobic digester facilities
outstrip any profits, the value of your investment will be adversely affected.

If we are unable to obtain needed financing for Microgy's anaerobic digestion
bioenergy projects, the valuation of our Microgy investment may be reduced
significantly.

We are considering corporate, project and group financing to fund the cost
of any development we may decide to pursue for our anaerobic digestion
bioenergy projects. In such event, we are likely to require financing with more
favorable rates and terms than are generally available and such financing may
be difficult to obtain. If we are unable to obtain such financing, our initial
valuation of our Microgy investment may be reduced significantly, and we may be
required to substantially curtail our business or close any anaerobic digester
projects. This financing will depend on the lender's or investor's review of
the financial capabilities of us as well as specific project or projects and
other factors, including their assessment of our ability to successfully
construct and manage the project.

Microgy's technologies could become obsolete before commercial deployment,
reducing the value of your investment.

We do not expect to commercially deploy Microgy's licensed anaerobic
digestion bioenergy technologies until we further develop Microgy's business
plan, decide on project structures and arrange necessary financing. Current
solutions or solutions that may be developed in the future by competitors could
make our anaerobic

digestion bioenergy technologies obsolete before they are commercially
deployed. Accordingly, we cannot guarantee that our technologies will ensure a
competitive position within the marketplace in the future. If we are unable to
obtain a competitive position in the agricultural and alternative power
generation markets, the value of your investment will be reduced. If we
experience delays in obtaining the technical information and specifics needed
to build our licensed anaerobic digester technologies, our business could be
harmed and the value of your investment could be reduced.

If we experience delays in obtaining the technical information and specifics
needed to build our licensed anaerobic digester technologies, our business
could be harmed and the value of your investment could be reduced.

The company from which we license intellectual property regarding our
anaerobic digestion bioenergy products still holds trade secret and other
proprietary information that is important to us. In the past, Microgy has
experienced delays in obtaining and completing information necessary to
successfully develop anaerobic digester projects. The inability to readily
obtain this information from our licensor could delay our product offerings,
make them more expensive to bring to market and reduce the value of your
investment.

The market for anaerobic digester bioenergy technology is crowded and our
market share may not be sufficient to be profitable.

There are many companies that offer anaerobic digester systems. We believe
that at least 60 companies offer complete systems or components to these
systems in the U.S. market. The presence of these companies may dilute our
market share to a degree that we are not profitable.

We currently rely on the Scrubgrass Project for all of our operating revenue.

We own a 22 year leasehold interest that commenced in 1994 in our Scrubgrass
Project, a waste coal fired electric generating facility in Pennsylvania.
Because all of our operating revenue currently results from the Scrubgrass
Project, we are dependent on its successful and continued operation.
Significant unscheduled shutdowns or large increases in interest rates at
Scrubgrass could reduce our cash flow. This may necessitate a substantial
curtailment of our operations and require the termination of any anaerobic
digester projects and would have an adverse effect on our results of operations.

We do not control the management of the Scrubgrass project, our primary revenue
generating asset.

We have a management services agreement with PG&E National Energy Group to
manage our Scrubgrass project and a 15-year operations and maintenance
agreement with PG&E Operating Services Company to operate the facility. Under
the terms of these agreements, there are provisions that limit our
participation in the management and operation of our Scrubgrass project.
Because we do not exercise control over the operation or management of our
Scrubgrass project, decisions may be made, notwithstanding our opposition, that
may have an adverse effect on our business.

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

Our current Scrubgrass project power generation revenue is earned under a
long-term power purchase agreement with one customer, Pennsylvania Electric
Company, or Penelec. We expect that the concentration of our revenue with this
customer will continue for the foreseeable future. If this customer goes out of
business or defaults on its payments to us, our financial condition will be
adversely affected.

A large increase in interest rates may adversely affect our operating results.

Our Buzzard subsidiary is leveraged with variable rate and fixed rate debt
obligations. Should market interest rates rise significantly, our operating
results will be adversely impacted.

Our long term Scrubgrass project power purchase agreement is subject to market
conditions in its later years which may affect our profitability.

Our Scrubgrass project generates electricity that is sold at rates
established under a long-term power purchase agreement with Penelec, approved
by the Pennsylvania Public Utility Commission. Contracted rates in the later
years of the agreement are determined with reference to then existing market
conditions. Therefore, low wholesale energy rates during the later years of the
power purchase agreement would negatively impact our profitability and could
affect our financial position.

Payment terms on our Scrubgrass project will change in 2003 and, if our working
capital is not increased to satisfy the change, our cash available for other
uses will be significantly limited.

In 2003, the payment schedule on our power purchase agreement will be
modified to allow Penelec more time to pay us for the power that we produce.
This will reduce our working capital and could limit our ability to service our
debt or allocate resources to other projects.

Our technology for generating power from waste coal at our Scrubgrass project
is relatively new and unproven and its effectiveness and efficiency cannot be
anticipated.

Our Scrubgrass project employs circulating fluidized bed technology to
produce electricity. Certain aspects of this technology, as well as the
conversion of waste products into electricity, are relatively new concepts and
have only been in existence in the United State over approximately the last 20
years. In addition, the long-term costs and implications of maintaining this
technology have not been established by historical industry data. Accordingly,
this technology carries greater risk of failure than proven power generation
technologies with more established histories.

We are a small company and the entrance of large companies into the alternative
fuels and renewable energy business will likely harm our business.

Competition in the traditional energy business from electric utilities and
other energy companies is well established with many substantial entities
having multi-billion dollar multinational operations. Competition in the
alternative fuels and renewable energy business is expanding with growth of the
industry and advent of many new technologies. Larger companies, due to their
better capitalization, will be better positioned to develop new technologies
and to install existing or more advanced renewable energy generators, which
could harm our market share and business.

If we are unable to obtain sufficient waste resources our renewable energy
technologies will not likely operate profitably.

The performance of our renewable energy technologies is dependent on the
availability of certain waste resources to produce the raw energy and meet
performance standards in the generation of power or fuel. Lack of these waste
resources or adverse changes in the nature or quality of such waste resources
would seriously affect our ability to develop and finance projects and to
efficiently operate and generate income. In such circumstances, our revenue and
financial condition will be materially and negatively affected. We cannot be
sure that waste resources, will be available in the future for free or at a
price that make them affordable for our waste to energy technologies.

Our reliance on licenses, agreements and business alliances links our fate to
the fate of these businesses, of which we cannot predict or control.

We intend to rely on a network of various licenses, agreements and alliances
with other businesses to provide important technologies and services for our
businesses. Specifically, we rely on third party companies for the operation
and maintenance of our Scrubgrass project and for the technology upon which we
base our proposed anaerobic digester projects. The termination of any of these
or other material license, agreement or business alliance will have a
detrimental impact on the success of one or all projects or categories of
projects and negatively impact our revenue. We cannot predict or control the
fate of these other businesses on which we rely.

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.

Neither we nor, it is believed, our primary licensor have filed any patent
applications on the intellectual property Microgy plans to use. Should we or
our primary licensor decide to file patent applications, there can be no
assurance that any patent applications relating to our existing or future
products or technologies will result in patents being issued, that any issued
patents will afford adequate protection to us, or that such patents will not be
challenged, invalidated, infringed or circumvented. Furthermore, there can be
no assurance that others have not developed, or will not develop, similar
products or technologies that will compete with our products without infringing
upon, or which do not infringe upon, our intellectual property rights.

Third parties, including potential competitors, may already have filed
patent applications relating to the subject matter of our current or future
products. In the event that any such patents are issued to such parties, such
patents may preclude our licensors from obtaining patent protection for their
technologies, products or processes. In addition, such patents may hinder or
prevent us from commercializing our products and could require us to enter into
licenses with such parties. There can be no assurance that any required
licenses would be available to us on acceptable terms, or at all.

We rely heavily on confidentiality agreements and licensing agreements to
maintain the proprietary nature of our base of technologies relating to
currently licensed technologies. To compete effectively, we may have to defend
the rights to our intellectual property from time to time. The defense costs
can be significant. As such, we may lack the financial resources to adequately
defend our intellectual property.

Our license for microturbine technology is from a small company that has not
completed the development of the technology and is therefore of an uncertain
value.

Our Microgy subsidiary has entered into a license agreement for applications
of microturbine technology which is owned and being developed by Electric Power
International, Inc., which itself is a small company with limited resources.
Electric Power International has not yet completed development of the
microturbine technology and may not have the resources available to do so. As a
result, the value of this license agreement is of uncertain value.

The large amount of obstacles necessary to overcome for the development of
power projects increases the possibility that such projects will incur costly
delays.

In our development of power projects for ourselves or on behalf of our
customers, we will be required to enter into or obtain some or all of the
following:

. site agreements;

. supply contracts;

. design/build or other construction related agreements;

. power sales contracts;

. various co-product sales agreements;

. waste disposal agreements;

. licenses;

. environmental and other permits;

. local government approvals; and

. financing commitments required for the successful completion of
development projects.

Our failure to accomplish any of these objectives could materially increase
the cost or prevent the successful completion of development projects and incur
the loss of any investment made. These events could adversely affect our
business and results of operations and the value of your investment.

System failure of our power generation projects will reduce our revenue.

Whether we have sold our facilities to customers or continue to own them,
our revenue and our performance under various agreements will depend on the
efficient and uninterrupted operation of our bioenergy plants and systems,
including automated control systems. Any system failure that causes
interruptions in our operations could have a material adverse effect on our
business, results of operations and financial condition. As we expand our
operations, there will be increased stress placed upon hardware and information
traffic management systems. There can be no assurance that we will not
experience system failures. In addition, our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins and similar events. Our systems and
operations will also face contamination due to the actions of farmers and
others who may have access to our sites. We do not presently have redundant
systems or a formal disaster recovery plan to mitigate the risk of losses that
may occur. There can also be no assurance that any business interruption or
property and casualty insurance that we would carry in the future would be
sufficient to compensate for any losses that may occur.

Scheduled and unscheduled shutdowns of our power generation projects will
reduce our revenue.

Our Scrubgrass Project and any future power generation projects we develop
will experience both scheduled and unscheduled shutdowns. Periodically, power
generation projects incur scheduled shutdowns in order to perform maintenance
procedures to equipment that cannot be performed while the equipment is
operating. Occasionally, our power generation projects may also incur
unscheduled shutdowns and be required to temporarily cease operation or operate
at reduced capacity levels following the detection of equipment malfunctions,
or following minimum generation orders received by the utility. During periods
when these projects shutdown or are operating at reduced capacity levels, we
may incur losses due to reduced operating revenue and due to additional costs
that may be required to complete any maintenance procedures.

Our power generation activities expose us to significant liability that our
insurance cannot cover.

Our power generation activities involve significant risks to us for
environmental damage, equipment damage and failures, personal injury and fines
and costs imposed by regulatory agencies. In the event a liability claim is
made against us, or if there is an extended outage or equipment failure or
damage at our power plant for which it is inadequately insured or subject to a
coverage exclusion, and we are unable to defend such claim successfully or
obtain indemnification or warranty recoveries, there may be a material adverse
effect on our financial condition.

Poor fuel and other materials quality will expose us to environmental liability
and reduce our operating results.

For our Scrubgrass project, we obtain waste coal primarily from coal mining
companies on a long-term basis because waste coal is plentiful and generally
creates environmental hazards, such as acid drainage, when not disposed of
properly. The waste coal is burned in the Scrubgrass project using a
circulating fluidized bed combustion system. During the circulating fluidized
bed combustion process, the waste coal is treated with other substances such as
limestone. Depending on the quality of the waste coal and the limestone, the
facility operator may need to add additional waste coal or other substances to
create the appropriate balance of substances which would result in the best
fuel or sorbent consistency for power generation and compliance with air
quality standards. Therefore, the cost of generating power is directly impacted
by the quality of the waste coal which supplies the Scrubgrass project. Certain
conditions, such as poor weather, can create situations where the facility
operator has less control over the quality of the waste coal. Poor fuel quality
may impact our future operating results.

The composition of effluents from our anaerobic digester facilities is not
certain and may expose us to liability.

We do not have experience in blending the wastes that will occur in our
anaerobic digester facilities. Such blends could result in unpredictable
regulatory compliance costs, related liabilities and unwanted materials in
waste effluents and coproducts, all of which could harm our financial condition.

Our sale of power into unregulated and retail markets will likely subject our
revenue to large swings or a prolonged depression of prices.

Electricity is a commodity available from a large amount of sources with no
pricing control. When we sell power under long term supply contracts or into
the unregulated wholesale and retail markets, we will be subject to very
competitive pricing pressures and market risks. Low energy rates would
negatively impact our profitability and could adversely affect our financial
condition.

Our products and services involve long sales cycles that result in high costs
and uncertainty.

The negotiation of the large number of agreements necessary to sell,
develop, install, operate and manage any of our facilities, as well as to
market the energy and other co-products and to provide necessary related
resources and services, involves a long sales cycle and decision-making
process. Delays in the parties' decision-making process are outside of our
control and may have a negative impact on our cost of sales, receipt of revenue
and sales projections. We estimate that it can take from six months to a year
or more to obtain decisions and to negotiate and close these complex agreements.

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 offering to market
and the revenue that we derive may be insufficient to fund our operations.

Our business approach to the renewable energy and waste management industry
may not produce results as anticipated, be profitable or be readily accepted by
the marketplace. We cannot estimate whether demand for our bio-energy products
will materialize at anticipated prices, or whether satisfactory profit margins
will be achieved. If such pricing levels are not achieved or sustained, or if
our technologies and business approach to the energy industry do not achieve or
sustain broad market acceptance, our business, operating results and financial
condition will be materially and negatively impacted.

If we violate performance guarantees granted to Penelec we will be required to
provide them with an incentive payment.

Our agreement for the sale of power to Penelec contains a provision that
requires our Scrubgrass project to provide Penelec a certain percentage of its
average output over a given period of time. If we do not comply with this
performance guarantee, we will be required to compensate Penelec with an
incentive payment. The payment of an incentive payment would have an adverse
effect on our financial condition.

Our products and services will be subject to numerous governmental regulations.

We expect to provide services involving government regulation, which will
subject us to certain regulatory policies and procedures. Compliance with these
regulations could be costly and harm our financial condition. Many of these
regulations cover air and water quality and related pollution issues. These
regulations are mandated by the United States Environmental Protection Agency
and various state and local governments. More specifically, our activities in
anaerobic digestion and/or nutrient management related to animal manure, and
other wastes, as well as the air emissions and waste effluent control from our
facilities will involve a permitting process and other forms of scrutiny from
these agencies. In addition, our activities will fall under a number of health
and safety regulations and laws and regulations relating to farms and zoning.

Our power producing activities could be subject to costly regulations and
tariffs.

Our Scrubgrass project and many of our planned bio-energy projects may or do
produce power for sale to the electric grid. As such, the sale of this power
may come under the regulations of various state public utility commissions.
These commissions set the price tariffs under which energy can be sold or
purchased and they set the design standards for the interconnection of power
producing equipment with the electric power grid. Most of our power projects
where electricity is sold to the grid will come under regulation by these
commissions. These regulations may impede or delay the process of approving and
implementing our projects. Substantial delays may materially affect our
financial condition.

Government regulations can be burdensome and may result in delays and
expense. In addition, modifications to regulations could adversely affect our
ability to sell power or to implement our chosen strategy for the sale of
power. Subsequent changes in the applicable regulations could also affect our
ability to sell or install new facilities or develop and install facilities in
an efficient manner or at all. Failure to comply with applicable regulatory
requirements can result in, among other things, operating restrictions and
fines which could harm our financial condition.

We depend on a small number of key executives and our business could suffer if
they were to leave.

We employ a small group of skilled individuals to accomplish our goals. We
believe our performance is substantially dependent on the continued employment
and performance of our senior management. Many of these individuals are not
currently subject to employment agreements or employee non-compete agreements.
If we fail to retain the services of one or more of these persons, our business
could suffer significantly. We do not maintain key-man insurance on the life of
any of our officers at this time.

Our plans to enter into the anaerobic digester market will require the
retention of skilled employees and contractors, the success of which cannot be
assured.

In order for us to enter into the anaerobic digester market we will be
required to hire and retain highly skilled employees and independent
contractors. It is anticipated that such persons will be difficult to locate
and engage. If we are not successful in hiring and retaining qualified persons,
our entrance into the anaerobic digester market will not likely be successful
and the value of your investment will be impaired.

Lack of trading market may make it difficult for you to sell our common stock.

The trading of our common stock is conducted on the OTC Bulletin Board
trading market. Trading activity in our common stock has fluctuated and has at
times been limited. We cannot guarantee that a consistently active trading
market will develop in the future, especially while we remain on the OTC
Bulletin Board. A holder of the common stock may find it difficult to dispose
of or to obtain accurate quotations as to the market value of our common stock.
Our common stock is defined as a "penny stock" by rules adopted by the
Securities and Exchange Commission. Brokers and dealers affecting transactions
in our common stock in many circumstances must obtain the written consent of a
customer prior to purchasing our common stock, must obtain information from the
customer and must provide disclosures to the customer. These requirements may
have the effect of reducing the level of trading of our common stock and reduce
the liquidity of your investment.

We have numerous outstanding options and warrants which may adversely affect
the price of our common stock.

As of December 31, 2001, we had outstanding options and warrants to acquire
up to approximately 1,542,499 shares of our common stock at prices ranging from
$0.43 to $3.08 per share. For the term of such options and warrants, the
holders thereof will have an opportunity to profit from a rise in the market
price of our common stock without assuming the risk of ownership. This may have
an adverse affect on the price of our common stock and on the terms upon which
we could obtain additional capital. It should be expected that the holders of
such options and warrants would exercise them at a time when we would be able
to obtain equity capital on terms more favorable then those provided by the
options and warrants.

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.

We are authorized to issue two million shares of preferred stock. The
preferred stock may be issued in series from time to time with such
designations, rights, preferences and limitations as our Board of Directors may
determine by resolution without shareholder approval. No shares of preferred
stock are currently outstanding and our directors have no current intention to
issue any new shares of preferred stock. However, the potential exists that
preferred stock might be issued which would grant dividend and liquidation
preferences over our common stock, diminishing the value of our common stock.

A significant sale of our outstanding restricted common stock into the market
could reduce the value of your investment.

A significant portion of our outstanding shares of common stock is
restricted from immediate resale but may be sold into the market in the near
future pursuant to this prospectus. This could cause the market price of our
common stock to drop significantly, even if our business is doing well. Any
reduction in the market price of our common stock would reduce the value of
your investment.

Management and directors will continue to control our management and affairs.

Assuming that no member of our management sells his shares in this offering,
management and directors will beneficially own approximately 70% of our
outstanding common stock. Consequently, such persons, as a group, may be able
to control the outcome of matters submitted for stockholder action including
the election of members to our board of directors and the approval of
significant change in control transactions. In addition, as a part of our
acquisition of Microgy we entered into a stockholder's agreement with the
principal former Microgy shareholders, Joseph E. Cresci and Donald A.
Livingston, in which it was agreed that such parties will vote their shares
through June 30, 2003 to cause the five existing directors (or replacements
designated by Messrs. Cresci and Livingston) to be elected to five out of eight
director positions and persons designated by Microgy's former principal
shareholders to be elected to three out of our eight director positions. This
may have the effect of delaying or preventing a change in control.

An active market for the common stock may not develop and the price for our
common stock may be volatile.

Prior to this offering our common stock was not traded in high volumes. An
active or liquid trading market in our common stock may not develop upon
completion of this offering, or, if it does develop, it may not continue.

The market price for our common stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
announcements of technological innovations or new projects and products by us
or our competitors, or our failure to achieve operating results consistent with
any securities analysts' projections of our performance.

The stock market has experienced extreme price and volume fluctuations and
volatility that have particularly affected the market price of many emerging
growth and development stage companies. Such fluctuations and volatility have
often been unrelated or disproportionate to the operating performance of such
companies.

We do not intend to pay dividends and you may not receive a return on
investment without selling shares.

Since we are utilizing available cash for working capital purposes,
including developing Microgy's business, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Therefore, you will
not receive a return on our investment in our common stock without selling your
shares since we currently intend to retain future earnings to fund our growth
rather than paying dividends.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Some of the statements contained in this prospectus under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" are forward looking. They include statements that
involve risks and uncertainties that might adversely affect our operating
results in the future in a material way. Such risks and uncertainties include:

. the ability to integrate and manage an acquired business;

. volatile and unpredictable plant outages and repair requirements;

. the unpredictability of the timing and loss of construction;

. general economic and industry conditions;

. government and regulatory policy fluctuations;

. increases in marketing and sales costs;

. intensity of competition for customers;

. the stability of the bio-energy market; and

. availability and cost of financing.

Most of these risks are beyond our control. Actual results may differ
materially from those suggested by the forward looking statements for various
reasons, including those discussed under "Risk Factors."

USE OF PROCEEDS

We intend to use the net proceeds from the exercise of the options and
warrants for working capital. It is uncertain when, if ever, we will receive
proceeds from exercise of the options and warrants.

. If all of the options to purchase common stock being registered are
exercised, we will receive proceeds of $360,243. Such options were
issued in exchange for Microgy options.

. If all of the warrants to purchase common stock being registered are
exercised, we will receive proceeds of $1,285,729. Such warrants, issued
in exchange for Microgy warrants, are exercisable through September 30,
2002.

SELLING SHAREHOLDERS

The following tables set forth certain information regarding the shares of
common stock owned as of June 1, 2002, by each selling shareholder as adjusted
to reflect the assumed sale by all selling shareholders of the shares of common
stock offered in this prospectus. The tables indicate:

. any position, office or other material relationship with us that the
selling shareholder had within the past three years;

. our estimate, assuming no gifts, pledges or sales pursuant to Rule 144,
of the number of shares of common stock owned by such selling
shareholder prior to the offering; and

. the maximum number of shares of common stock to be offered for such
selling shareholder's account and the amount and the percentage (if one
percent or more and calculated as if the selling security holder were
the sole seller of shares pursuant to this prospectus) of the shares of
common stock to be owned by the selling shareholder after completion of
the offering (assuming the selling shareholder sells the maximum number
of shares of common stock).

The selling shareholders are not required, and may choose not, to sell any
of their shares of common stock. Further, certain of the selling shareholders
may have already sold their shares of common stock prior to the date of this
prospectus.

Percent of
Shares Shares Outstanding
Position or Owned Outstanding Shares Shares
Other Material Prior to Being Owned Owned
Name and Address Relationship Offering Offered After Offering After Offering
---------------- -------------- -------- ----------- -------------- --------------

Ahmad Akrami................. 48,734 48,734 0 0
902 S. Wiley Court
Superior, CO 80027

Michael Amato & 16,245 16,245 0 0
Linda J. Mahfoud, JTWROS....
2846 Falcon Pt
Lafayette, CO 80026

Amro International, S.A...... 90,255 90,255 0 0
Attn: H.U. Bochofen
Director
c/o Ultra Finant
Grossmuensterplatz 6
P.O. Box 4401
Zurich CH 8022
Switzerland

Anthony J. Anvari............ 24,367 24,367 0 0
6 Brownsbury Road
Laguna Niguel, CA 92677

Arrowhead Trust.............. 5,117 5,117 0 0
Denis Ramirez IRA(12)
Arrowhead Trust
24 Executive Park, Suite 125
Irving, CA 92614
Attn: Nicole Wells

Arrowhead Trust, Inc......... 2,437 2,437 0 0
f/b/o Norman Eliason IRA(12)
Arrowhead Trust
24 Executive Park, Suite 125
Irving, CA 92614
Attn: Nicole Wells

Arrowhead Trust.............. 53,607 53,607 0 0
f/b/o Kamal Pasricha(12)
Arrowhead Trust
24 Executive Park, Suite 125
Irving, CA 92614
Attn: Nicole Wells

Arrowhead Trust.............. 2,437 2,437 0 0
f/b/o Oliver IRA(12)
Arrowhead Trust
24 Executive Park, Suite 125
Irving, CA 92614
Attn: Nicole Wells

William W. Bailey............. 119,399(1) 119,399(1) 0 0
P.O. Box 6700
Charlottesville, VA 22906

Shahpour Baratzadeh........... 26,804(2) 26,804(2) 0 0
61 Cathy Lane
Scotts Valley, CA 95066

Bear Cove, S.A., LLC.......... 26,804(2) 26,804(2) 0 0
234 E. Cahill Ct.
Big Pine Key, FL 33043
Attn: Lance L. Beutel

Timothy D. Biehler............ Former Microgy 121,835 121,835 0 0
511 Meyer Lane, Suite 12 Officer
Redondo Beach, CA 90278

Benjamin J. Brant............. Director; Former 2,415,292(13) 2,415,292(13) 0 0
7553 S. Gartner Rd Microgy Officer
Evergreen, CO 80439

Sabine Brueske................ 7,310 7,310 0 0
3020 Hayward Street
Bellingham, WA 98226

Steven J. Brunner............. Microgy Vice 548,258 548,258 0 0
10245 West Warren Drive President
Lakewood, CO 80227

John J. Burke................. 451,241 451,241 0 0
622 North Water Street
Suite 200
Milwaukee, WI 53202

Joseph E. Cresci.............. Chairman of the 4,732,848(3) 4,732,848(3) 0 0
c/o Environmental Power Board and Chief
Corporation Executive Officer;
One Cate Street Microgy Director
Portsmouth, NH 03801

Developing World Solar Project 36,551 36,551 0 0
c/o Jeffrey Passarelli
9080 Brumm Trail
Golden, CO 80403

Daniel J. Eastman............. Microgy Senior 1,120,882(10) 1,120,882(10) 0 0
Suite C Vice President
166 N. Green Bay Road
Thiensville, WI 53092

Norman Eliason................ 90,158(4) 90,158(4) 0 0
60621 Hwy 204
Weston, OR 97886

John H. Gable................ 124,759(5) 124,759(5) 0 0
13396 Everest Ave.
Apple Valley, MN 55124

Babak Gulati................. 29,240 29,240 0 0
700 Grape Street
Denver, CO 80220

Patricia M. Haefeli.......... 16,245 16,245 0 0
0041 S. County Road, 1 E
Monte Vista, CO 81144

James M. Harris.............. 29,240(6) 29,240(6) 0 0
Route 2 - Box 103
Grapeland, TX 75844

Hitel Group.................. 45,128 45,128 0 0
3038 N. Federal Hwy, Suite B
Ft. Lauderdale, FL 33308

George A. Kast............... Director 2,823,188 2,823,188 0 0
1767 Denver West Blvd.
Golden, CO 80401

Jerzy Kedzierski............. 26,804(2) 26,804(2) 0 0
Perfect Smile
4710 Ruffner Street
San Diego, CA 92111

Frank Kramer................. 90,255 90,255 0 0
5330 East 17th Ave.
Denver, CO 80220

Henry S. Krauss.............. 22,564 22,564 0 0
100 Park Avenue, 2850
New York, NY 10017

Donald A. Livingston......... President, Chief 2,461,739 1,311,739 1,150,000 5.8
c/o Environmental Power Operating Officer
Corporation and Director;
One Cate Street Microgy President
Portsmouth, NH 03801 and Director

Frances Luskind &
Henry S. Krauss............ 22,564 22,564 0 0
As TTEES of the TR
U/W/O
Jessie Daniels FBO
Frances Luskind
100 Park Avenue, 28th Fl.
New York, NY 10017

James W. Muzzy.................... Former 99,417 99,417 0 0
P.O. Box 600 Microgy
Conifer, CO 80433 officer

Leander Nyack..................... 119,399(1) 119,399(1) 0 0
8 Azurean Court
Mt. Sinai, NY 11766

Henry G. Oliver................... 66,765(7) 66,765(7)// 0 0
83 White Pine Way
Guelph, ONT N1G 4X7
CANADA

John P. O'Shea.................... 135,383 135,383 0 0
100 Park Avenue, 2850
New York, NY 10017

Edward Polloway................... 26,804(2) 26,804(2) 0 0
10220 Memorial Drive, Apt. 100
Houston, TX 77024

Kamal Singh Pasricha.............. 64,328(8) 64,328(8) 0 0
26500 Agoura Rd., Apt. 712
Calabasas, CA 91302

Jeffrey Passarelli & Kimberly Lacy 16,245 16,245 0 0
9080 Brumm Trail
Golden, CO 80403

Denis Ramirez..................... 125,247(9) 125,247(9) 0 0
433 S. Navarra Drive
Scotts Valley, CA 95066

Rudy Scarborough.................. 73,101 73,101 0 0
2176 Via Robles
Oceanside, CA 92054

Martin A. Simonetti & 9,747 9,747 0 0
Mary Ann Simonetti...............
4553 Eighty-fourth Ave. SE
Mercer Island, WA 98040

Smithson Ventures, Inc............ 45,128 45,128 0 0
Money Purchase Pension Plan
DLJSC Tax ID #132741729
Custodian F/B/O
Deborah Salerno, MPP
355 South End Ave., 22B
New York, NY 10287

Sterling Trust Company f/b/o 2,924 2,924 0 0
James M. Harris IRA
Route 2, Box 103
Grapeland, TX 75844

James P. Steuerwald......... 24,368(2) 24,368(2) 0 0
6833 Topaz Court
DeForest, WI 53532

Randy Taylor................ 67,686 67,686 0 0
c/o Taylor Oil Properties
1550 W Dry Creek Road
Littleton, CO 80120

Clay G. Walton.............. Microgy Vice 116,962(11) 116,962(11) 0 0
17385 W 57th Street President
Golden, CO 80403

Robert Wuilleumier.......... 467 467 0 0
6078 Rattman Road
Madison, WI 53718

David Yolton................ 13,537 13,537 0 0
9610 S. Dover Way
Littleton, CO 80127

--------
(1) Includes 54,826 shares of Common Stock underlying a presently exercisable
warrant.

(2) Includes 12,184 shares of Common Stock underlying a presently exercisable
warrant.

(3) Includes 3,665,618 shares held in a revocable trust for the benefit of
members of Mr. Cresci's family, of which Mr. Cresci is the trustee, and as
to which Mr. Cresci has shared voting and investment power; but does not
include 20,000 shares owned by Mr. Cresci's wife, as to which shares Mr.
Cresci has neither voting nor investment power and as to which shares he
disclaims beneficial ownership. Includes 1,000,000 shares which Mr. Cresci
deposited into a voting trust (the "Voting Trust") on November 20, 1996 and
in which Mr. Cresci has beneficial ownership in such shares which are
evidenced by voting trust certificates held by The Cresci Family Limited
Partnership of which Mr. Cresci is the sole general partner with sole
dispositive power.

(4) Includes 42,642 shares of Common Stock underlying a presently exercisable
warrant.

(5) Includes 57,262 shares of Common Stock underlying a presently exercisable
warrant.

(6) Includes 14,620 shares of Common Stock underlying a presently exercisable
warrant.

(7) Includes 31,677 shares of Common Stock underlying a presently exercisable
warrant.

(8) Includes 53,607 shares of Common Stock underlying a presently exercisable
warrant.

(9) Includes 60,918 shares of Common Stock underlying a presently exercisable
warrant.

(10) Includes 389,872 shares of Common Stock underlying a presently exercisable
warrant.

(11) Shares of Common Stock underlying an option for which 38,987 shares are
presently exercisable, 38,988 shares become exercisable on October 1, 2002
and 38,987 shares become exercisable on October 1, 2003.

(12) Beneficiary of such trust or IRA holds additional shares of common stock
listed separately in this table.

(13) Includes 1,660,426 shares that are subject to a 12 month transferable
option granted on May 2, 2002 to the Company to purchase such shares at
$0.35 per share. The Company is required to purchase at least 222,597 of
these shares by specified times. To the extent the option expires
unexercised, the Company will be granted a 12 month right of first refusal
on the sale of the underlying shares.

PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling
shareholders as required by a July 23, 2001 Registration Rights Agreement.
Selling shareholders include donees and pledgees selling shares of common stock
received from a named selling shareholder after the date of this prospectus.
Pursuant to such Registration Rights Agreement, all costs, expenses and fees in
connection with the registration of the shares of common stock offered hereby
will be borne by us. In addition, the selling shareholders may be entitled to
indemnification against certain liabilities pursuant to the Registration Rights
Agreement. Brokerage commissions and similar selling expenses attributable to
the sale of shares of common stock will be borne by the selling shareholders.
Sales of shares of common stock may be effected by selling shareholders in one
or more types of transactions (which may include block transactions), in the
over-the-counter market, in negotiated transactions, through put or call option
transactions relating to the shares of common stock, through short sales of
shares of common stock, or a combination of such methods of sale, at market
prices prevailing at the time of sale, or at negotiated prices. Such
transactions may or may not involve brokers or dealers. We have not been
advised by the selling shareholders that they have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers
regarding the sale of their shares of common stock, nor that there is an
underwriter or coordinating broker acting in connection with the proposed sale
of shares of common stock by the selling shareholders.

The selling shareholders may effect such transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the selling
shareholders and/or the purchasers of shares of common stock for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).

The selling shareholders and any broker-dealers that act in connection with
the sale of shares of common stock might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any commissions
received by such broker-dealers and any profit on the resale of the shares of
common stock sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act of 1933. Such
arrangement may necessitate a filing with the NASD pursuant to Notice to
Members 88-101. The selling shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
the shares of common stock against certain liabilities, including liabilities
arising under the Securities Act of 1933.

Because selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, the selling
shareholders will be subject to the prospectus delivery requirements of the
Securities Act of 1933.

The selling security holder and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
under such act, including, without limitation, Regulation M. These provisions
may restrict certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling security holder. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.

Selling shareholders also may resell all or a portion of the shares of
common stock in transactions in reliance upon Rule 144 or Regulation S under
the Securities Act of 1933, provided they meet the criteria and conform to the
requirements of such Rule or Regulation.

Upon us being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
of common stock through a block trade, special offering, exchange distribution
or secondary distribution or a purchase by a broker or dealer, a supplement to
this prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act of 1933, disclosing:

. the name of each such selling shareholder and of the participating
broker-dealer(s);

. the number of shares of common stock involved;

. the price at which such shares of common stock are being sold;

. the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;

. that such broker-dealer(s) did or did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and

. other facts material to the transaction.

In addition, upon us being notified by a selling shareholder that a donee or
pledgee intends to sell more than 500 shares of common stock, we will file a
supplement to this prospectus.

DESCRIPTION OF SECURITIES

Our authorized capital stock currently consists of 50,000,000 shares of
common stock and 2,000,000 shares of preferred stock. Of the 2,000,000 shares
of preferred stock, 30,000 shares have been designated as Series A Convertible
Preferred Stock and 250,000 shares have been designated as Series B Convertible
Preferred Stock. We may issue the preferred stock in one or more series as
determined by the board of directors. As of March 27, 2002, there were
21,370,293 shares of common stock issued and 20,251,653 shares of common stock
outstanding that were held of record by approximately 251 persons. As of March
27, 2002, no shares of Series A Convertible Preferred Stock or Series B
Convertible Preferred Stock were outstanding.

We will not offer preferred stock to our officers or directors unless:

. the preferred stock is offered to our officers and directors on the same
terms as it is offered to other existing shareholders or to new
shareholders; or

. such issuance of preferred stock is approved by a majority of our
idependent directors who do not have an interest in the transaction and
who have access, at our expense, to our or independent legal counsel.

Common Stock

Each holder of record of common stock is entitled to one vote for each share
held on all matters properly submitted to the stockholders for their vote.
Cumulative voting in the election of directors is not authorized.

Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds,
and, in the event of liquidation, dissolution or winding up of our affairs,
holders are entitled to receive ratably our net assets available to the
stockholders. Holders of outstanding shares of common stock have no preemptive,
conversion or redemption rights. All of the issued and outstanding shares of
common stock are, and all unissued common stock, when offered and sold will be,
duly authorized, validly issued, fully paid and nonassessable. To the extent
that additional common stock of ours may be issued in the future, the relative
interests of the then existing stockholders may be diluted.

Transfer Agent And Registrar

American Stock Transfer and Trust Company serves as the transfer agent and
registrar for our common stock.

Indemnification

Section 145 of the Delaware General Corporation Law permits us to indemnify,
under certain circumstances, any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative for
expenses related

to such proceeding if the person acted in good faith and in a manner the person
reasonable believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that the person's conduct was unlawful. Our bylaws
substantively provide that we will indemnify such persons to the fullest extent
allowed by the Delaware General Corporation Law.

DOCUMENTS INCORPORATED BY REFERENCE

We "incorporate by reference" into this prospectus the information in
documents we file with the Securities and Exchange Commission, which means that
we can disclose important information to you through these documents. The
information incorporated by reference is an important part of this prospectus.
Some information contained in this prospectus updates the information
incorporated by reference and some information that we file subsequently with
the Securities and Exchange Commission will automatically update this
prospectus. We incorporate by reference the documents listed below which have
been filed as exhibits to the registration statement to which this prospectus
is a part:

. our Annual Report on Form 10-K for the year ended December 31, 2001.

. our Annual Report on Form 10-K/A for the year ended December 31, 2001,
filed April 30, 2002;

. our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;
and

. our Current Report on Form 8-K dated May 6, 2002.

You may request, and we will provide, a copy of these filings at no cost by
writing or calling R. Jeffrey Macartney, Chief Financial Officer and Treasurer,
at One Cate Street, Fourth Floor, Portsmouth, New Hampshire 03801, (603)
431-1780.

WHERE CAN YOU FIND ADDITIONAL INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and we file reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file with the Securities and Exchange Commission at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Our filings with the Securities
and Exchange Commission are available to the public from the Securities and
Exchange Commission's website at http://www.sec.gov. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information.

We have filed with the Securities and Exchange Commission a registration
statement on Form S-2 of which this prospectus is a part, under the Securities
Act of 1933, as amended, for the common stock offered in this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement. Certain documents filed by us with the Securities and
Exchange Commission have been incorporated in this prospectus by reference, see
the section "Documents Incorporated by Reference." For further information
about us and the common stock to be issued by us upon conversion of the options
and warrants, please review the registration statement, including the exhibits
and the documents incorporated by reference. The registration statement may be
inspected for free at the principal office of the Securities and Exchange
Commission in Washington, D.C., and copies of all or part of it may be obtained
from the Securities and Exchange Commission by paying the prescribed fees.

LEGAL MATTERS

The validity of the common stock offered in this prospectus has been passed
upon for us by Dorsey & Whitney LLP, New York, New York.

EXPERTS

The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from our Annual Report on Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have
been so included in reliance upon the report of such firm given their authority
as experts in accounting and auditing.

Microgy's financial statements as of June 30, 2001 and 2000, for the years
ended June 30, 2001 and 2000, and for the period from March 25, 1999
(inception) through June 30, 2001, included in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
appearing herein and elsewhere in the registration statement and are included
in reliance upon such given on the authority of such firm as experts in
accounting and auditing.

INDEX TO PRO FORMA FINANCIAL INFORMATION AND MICROGY FINANCIAL STATEMENTS

The financial statements and pro forma financial information listed in the
following index are included as a part of this prospectus.

Page No.
--------

PRO FORMA FINANCIAL INFORMATION FOR EPC:

Unaudited pro forma combined condensed statement of operations for the year
ended December 31, 2001............................................................................ F-1

Notes to unaudited pro forma combined financial statements........................................... F-2

HISTORICAL FINANCIAL STATEMENTS FOR MICROGY:

Report of independent auditors....................................................................... F-5

Audited balance sheets as of June 30, 2001 and 2000.................................................. F-6

Audited statements of operations for the years ended June 30, 2001 and 2000 and the period from
March 25, 1999 (inception) through June 30, 2001................................................... F-7

Audited statements of changes in stockholders' equity (deficit) for the years ended June 30, 2001 and
2000 and the period from March 25, 1999 (inception) through June 30, 2001.......................... F-8

Audited statements of cash flows for the years ended June 30, 2001 and 2000 and the period from
March 25, 1999 (inception) through June 30, 2001................................................... F-9

Notes to audited financial statements................................................................ F-10

Environmental Power Corporation and Subsidiaries

Unaudited Pro Forma Consolidated Statement of Operations

Year Ended December 31, 2001

EPC Microgy Pro Forma Pro Forma Combined
(as filed) 1/1/01-7/23/01 Adjustments Adjustments Notes Total
------------ -------------- ----------- ----------- ----- ------------

POWER GENERATION
REVENUES........................... $ 53,518,000 -- $ 53,518,000
COSTS AND EXPENSES:
Operating expenses.............. (23,681,081) (23,681,081)
Lease expenses.................. (24,705,813) (24,705,813)
General and administrative
expenses....................... (3,973,025) (705,995) (4,679,020)
Depreciation and amortization... (441,410) (8,613) (103,677) (D) (553,700)
------------ --------- -------- --------- ------------
(52,801,329) (714,608) -- (103,677) (53,619,614)

OPERATING INCOME.................... 716,671 (714,608) -- (103,677) (101,614)
OTHER INCOME (EXPENSE):
Interest income................. 78,203 1,156 79,359
Interest expense................ (185,547) (185,547)
Other income (expense).......... 2,135,048 (28,575) 2,106,473
Amortization of deferred gain... 308,410 308,410
------------ --------- -------- --------- ------------
2,336,114 (27,419) -- -- 2,308,695

INCOME (LOSS) BEFORE INCOME
TAXES.............................. 3,052,785 (742,027) -- (103,677) 2,207,081
INCOME TAX (EXPENSE)
BENEFIT............................ (1,373,454) -- 259,709 38,360 (E) (1,075,385)
------------ --------- -------- --------- ------------

NET INCOME (LOSS)............ $ 1,679,331 $(742,027) $259,709 $ (65,317) $ 1,131,696
============ ========= ======== ========= ============

EARNINGS PER COMMON SHARE:
Basic........................... $ 0.12 $ 0.06
Diluted......................... $ 0.11 $ 0.06

F-1

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

NOTE A--BASIS OF PRESENTATION

During 2001, Environmental Power Corporation (individually "EPC" or
consolidated "the Company") acquired 100% of the common stock of Microgy in two
related transactions. On July 23, 2001, the Company exchanged approximately
87.7% of the outstanding common stock of Microgy for securities of the Company
pursuant to a Share Exchange Agreement (the "Exchange Agreement") dated as of
June 20, 2001 among the Company, Microgy and certain principal Microgy
shareholders. Under the terms of the Exchange Agreement, the Company also
committed to offer the remaining Microgy shareholders the opportunity to
exchange their Microgy securities for the Company's securities. On December 28,
2001, the Company completed the exchange of its securities for the remaining
outstanding securities of Microgy.

Transaction Details

On July 23, 2001, the Company issued an aggregate of 5,521,549 shares of
common stock and 197,760.7 shares of newly designated Series B Convertible
Preferred Stock to certain principal stockholders of Microgy in exchange for
15,919,147 shares of Microgy common stock. Each share of preferred stock, which
voted with the common stock on an as-converted basis, was automatically
converted into ten shares of common stock as of November 9, 2001 upon an
increase in the authorized common stock to an amount sufficient to allow
conversion of the preferred stock. The exchange ratio of 0.4711 shares of the
Company's common stock for each share of Microgy common stock was determined by
negotiations among the Company, Microgy and the primary principal Microgy
shareholders. The exchange ratio is based on all of the fully diluted equity of
Microgy being exchanged for 45% of the Company's fully diluted equity and
assumes exercise or conversion of all derivative securities. The exchange ratio
may be increased to reflect certain issuances of equity by the Company to
generate funds to be available for financing Microgy. However, holders of
approximately 94% of the Microgy common stock agreed to waive their right to
adjustments in the exchange ratio, other than any adjustment resulting from
400,000 options and warrants issued in September 2001. One of the principal
Microgy shareholders exchanged a warrant to purchase 800,000 shares of Microgy
common stock for a warrant to purchase the Company's securities based on the
exchange ratio. In connection with the issuance of 400,000 options and warrants
in September 2001, the Company adjusted the exchange ratio to 0.4873 shares of
the Company's common stock for each share of Microgy common stock. The Company
then issued 258,884 additional shares of common stock to the principal Microgy
shareholders on December 28, 2001 and amended the warrant issued to the
principal Microgy shareholder to reflect the new exchange ratio.

On October 17, 2001, the Company offered the remaining security holders of
Microgy, who owned an aggregate of 2,230,126 shares of Microgy common stock,
warrants to purchase 885,000 shares of Microgy common stock and options to
purchase 290,000 shares of Microgy common stock, an opportunity to exchange
their securities of Microgy for the Company's securities based on the adjusted
exchange ratio. On December 28, 2001, the Company issued 1,086,830 shares of
its common stock and exchanged warrants to purchase 431,298 shares of its
common stock and options to purchase 141,329 shares of its common stock for the
remaining Microgy securities.

Solely for purposes of this presentation, the unaudited combined condensed
statement of operations has been prepared as if Microgy were combined with EPC
and its other subsidiaries into one reporting entity. The purchase price paid
by EPC for Microgy's net assets has been pushed down to the Microgy subsidiary.
The portion of the purchase price not allocated to tangible or intangible
assets or liabilities has been recorded as goodwill (See Note B).

The accompanying unaudited pro forma combined condensed statement of
operations of the Company has been prepared in accordance with the instructions
to Form S-2 and Regulation S-X and does not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.

F-2

NOTE B--PURCHASE PRICE

For purposes of the unaudited pro forma combined condensed statement of
operations, the purchase price for the outstanding common stock of Microgy was
calculated as follows:

Number Of
Shares Fair Value
--------- ----------

Common stock issued............. 8,844,870 $6,837,084
Common stock options............ 141,329 11,967
Common stock warrants........... 821,170 43,730
Direct acquisition costs........ 450,747
--------- ----------
Total purchase price..... 9,807,369 $7,343,528
========= ==========

The fair value of common stock issued was determined by multiplying the
number of shares by the average closing market price of EPC's common stock from
June 18, 2001 through June 27, 2001.

The fair value of the common stock options and warrants were determined
using an option pricing model with the following assumptions:

50,000 240,000 800,000 885,000
Microgy Microgy Microgy Microgy
Options Options Warrants Warrants
--------- ----------- -------- ---------

Calculated fair value..................... $ 0 $ 11,967 $ 41,451 $ 2,279
Options/Warrants for EPC common shares.... 24,367 116,962 389,872 431,298
Exercise price per share (EPC share basis) $ 3.08 $ 3.08 $ 1.03 $ 2.05
Dividend yield............................ 0% 0% 0% 0%
Risk free rate of return.................. 1.711% 4.336% 2.182% 1.811%
Expected useful life...................... 3 months 4.75 years 1 year 9 months
Expected stock volatility rate............ 88.04% 88.04% 72.28% 88.04%

NOTE C--GOODWILL

For purposes of the unaudited pro forma combined condensed statement of
operations, the Company has allocated the excess of the purchase price over the
fair value of net tangible and identifiable intangible assets as of July 23,
2001 to goodwill. Goodwill was determined as follows:

Total purchase price of Microgy.......................... $ 7,343,528
Fair value of licensed technology rights................. (3,710,000)
Fair value of net operating loss carryforwards........... (538,000)
Fair value of deferred income tax liability.............. 1,374,770
Fair value of the net tangible assets acquired:
100% of the negative historical book value of Microgy. 442,568
-----------
Goodwill................................................. $ 4,912,866
===========

Amortization of goodwill has not been included in the unaudited pro forma
combined condensed statement of operations pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets".

NOTE D--LICENSED TECHNOLOGY RIGHTS

Licensed technology rights are recorded at cost and are being amortized
using the straight-line method over a useful life of 20 years. The Company
reported amortization of licensed technology rights of $185,500 in its
unaudited pro forma combined condensed statements of operations for the year
ended December 31, 2001.

F-3

NOTE E--INCOME TAXES

Microgy is a development stage company which currently does not incur income
tax expense on a standalone basis because of its net operating losses. For
purposes of the unaudited pro forma combined condensed statement of operations,
the Company has reported an income tax benefit from Microgy's loss before
income taxes. This amount represents the Company's estimated savings of Federal
and certain state income taxes from including Microgy's operations in a
combined tax return.

NOTE F--EARNINGS PER COMMON SHARE

The Company computes its earnings per common share using the treasury stock
method in accordance with SFAS No. 128, "Earnings per Share". The Company
computes basic earnings per share by dividing net income for the period by the
weighted average number of shares of common stock outstanding during the
period. For purposes of calculating diluted earnings per share, the Company
considers its shares issuable in connection with stock options to be dilutive
common stock equivalents when the exercise price is less than the average
market price of the Company's common stock for the period. The Company excludes
antidilutive common stock equivalents from the calculation of diluted earnings
per share. The following table outlines the calculation of proforma combined
basic earnings per share and diluted earnings per share for the year ended
December 31, 2001.

Per
Income Shares Share
(Numerator) (Denominator) Amounts
----------- ------------- -------

Year Ended December 31, 2001:
Income available to shareholders.................... $1,131,696 20,251,653 $.06
Effect of dividends to preferred stockholders....... (5,000)
---------- ---------- ----
Basic EPS--income available to common shareholders.. 1,126,696 20,251,653 .06
Effect of dilutive securities:
Assumed exercise of dilutive stock options....... 16,318
---------- ---------- ----
Diluted EPS--income available to common shareholders $1,126,696 20,267,971 $.06
========== ========== ====

The Company did not include in the computation of diluted EPS antidilutive
options and warrants to purchase 1,442,499 shares of the Company's common stock
as of December 31, 2001. The options and warrants expire at various dates
through 2011.

F-4

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Microgy Cogeneration Systems, Inc.

We have audited the accompanying balance sheets of Microgy Cogeneration
Systems, Inc. (a development stage company) as of June 30, 2001 and 2000 and
the related statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended June 30, 2001 and 2000 and the
period from March 25, 1999 (inception) through June 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Microgy Cogeneration
Systems, Inc. at June 30, 2001 and 2000, and the results of its operations and
its cash flows for the years ended June 30, 2001 and 2000 and the period from
March 25, 1999 (inception) through June 30, 2001 in conformity with accounting
principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

Denver, Colorado
October 23, 2001

F-5

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

Balance Sheets

June 30,
-----------------------
2001 2000
----------- ----------

Assets
Current assets:
Cash and cash equivalents....................................................... $ 42,502 $ 274,866
Common stock subscriptions receivable........................................... -- 675,008
Prepaid expenses and other current assets....................................... 110 3,722
----------- ----------
Total current assets........................................................ 42,612 953,596
Property and equipment............................................................. 41,267 1,461
Accumulated depreciation........................................................... (11,371) (46)
----------- ----------
Net property and equipment......................................................... 29,896 1,415
Investment in Microgy Projects..................................................... 100,694 --
----------- ----------
Total assets............................................................. $ 173,202 $ 955,011
=========== ==========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable................................................................ $ 252,019 $ 70,098
Accrued liabilities............................................................. 122,300 26,911
Note payable--shareholder....................................................... 177,000 --
Note payable--associated entity................................................. 26,200 --
----------- ----------
Total current liabilities................................................... 577,519 97,009
Stockholders' equity (deficit):
Common stock ($.001 par value; 75,000,000 shares authorized; 18,149,273 and
17,994,815 shares issued and outstanding in 2001 and 2000, respectively)...... 18,149 17,995
Preferred stock ($.001 par value; 25,000,000 shares authorized; none issued and
outstanding).................................................................. -- --
Additional paid-in capital...................................................... 1,476,704 1,393,451
Deficit accumulated during the development stage................................ (1,899,170) (553,444)
----------- ----------
Total stockholders' equity (deficit)........................................ (404,317) 858,002
----------- ----------
Total liabilities and stockholders' equity (deficit)..................... $ 173,202 $ 955,011
=========== ==========

See accompanying notes.

F-6

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

Statements of Operations

Period from
March 25,
1999
(Inception)
Year Ended Year Ended Through
June 30, June 30, June 30,
2001 2000 2001
----------- ---------- -----------

Revenues
Other revenue............................ $ 14,000 $ -- $ 14,000
Interest income.......................... 14,737 93 14,830
----------- --------- -----------
28,737 93 28,830
Expenses
Project costs:
Project-related legal costs........... 18,087 -- 18,087
Other project-related corporate costs. 3,395 -- 3,395
Salaries and benefits.................... 676,603 245,286 921,889
Issuance of common stock for services.... -- 104,341 104,341
Marketing and sales...................... 34,969 25,025 59,994
General and administrative............... 333,257 121,161 457,268
Other operating expenses................. 213,420 51,328 268,248
Impairment of investment in associate.... 83,407 -- 83,407
Depreciation expense..................... 11,325 46 11,371
----------- --------- -----------
(1,374,463) (547,187) (1,928,000)
----------- --------- -----------
Loss before income taxes................. (1,345,726) (547,094) (1,899,170)
Income taxes............................. -- -- --
----------- --------- -----------
Net loss.......................... $(1,345,726) $(547,094) $(1,899,170)
=========== ========= ===========

See accompanying notes.

F-7

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

Statements of Changes in Stockholders' Equity (Deficit)

Period from March 25, 1999 (inception) through June 30, 2001

Total
Common Stock Additional Stockholders'
------------------ Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
---------- ------- ---------- ----------- -------------

Balance at March 25, 1999 (inception)....... -- $ -- $ -- $ -- $ --
Issuance of stock for cash--initial
stockholders........................... 8,112,500 8,113 -- -- 8,113
Net loss................................. -- -- -- (6,350) (6,350)
---------- ------- ---------- ----------- -----------
Balance at June 30, 1999.................... 8,112,500 8,113 -- (6,350) 1,763
Issuance of stock for cash to a director. 5,937,500 5,937 244,063 -- 250,000
Issuance of stock to management for cash
($1,954) and services ($104,341)....... 1,954,000 1,954 104,341 -- 106,295
Issuance of stock for cash in private
placement, net of expenses............. 1,990,815 1,991 1,045,047 -- 1,047,038
Net loss................................. -- -- -- (547,094) (547,094)
---------- ------- ---------- ----------- -----------
Balance at June 30, 2000.................... 17,994,815 17,995 1,393,451 (553,444) 858,002
Issuance of stock in exchange for
investment............................. 154,458 154 83,253 -- 83,407
Net loss................................. -- -- -- (1,345,726) (1,345,726)
---------- ------- ---------- ----------- -----------
Balance at June 30, 2001.................... 18,149,273 $18,149 $1,476,704 $(1,899,170) $ (404,317)
========== ======= ========== =========== ===========

See accompanying notes.

F-8

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

Statements of Cash Flows

Period from
March 25,
1999
(Inception)
Year Ended Year Ended Through
June 30, June 30, June 30,
2001 2000 2001
----------- ---------- -----------

Cash flows from operating activities
Net loss............................................................ $(1,345,726) $(547,094) $(1,899,170)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation..................................................... 11,325 46 11,371
Issuance of common stock for services............................ -- 104,341 104,341
Impairment of investment in associate............................ 83,407 -- 83,407
Decrease (increase) in prepaid expenses and other current assets. 3,612 (3,722) (110)
Increase in accounts payable..................................... 181,921 63,748 252,019
Increase in accrued liabilities.................................. 95,389 26,911 122,300
----------- --------- -----------
Net cash used in operating activities............................... (970,072) (355,770) (1,325,842)
Cash flows from investing activities
Purchase of property and equipment.................................. (39,806) (1,461) (41,267)
Investment in Microgy Projects...................................... (100,694) -- (100,694)
----------- --------- -----------
Net cash used in investing activities............................... (140,500) (1,461) (141,961)
Cash flows from financing activities................................
Proceeds from note payable to associate............................. 26,200 -- 26,200
Proceeds from note payable to shareholder........................... 177,000 -- 177,000
Collection of stock subscriptions receivable........................ 675,008 -- 675,008
Proceeds from sale of common stock.................................. -- 632,097 632,097
----------- --------- -----------
Net cash provided by financing activities........................... 878,208 632,097 1,510,305
Net change in cash and cash equivalents............................. (232,364) 274,866 42,502
----------- --------- -----------
Cash and cash equivalents, beginning of period...................... 274,866 -- --
----------- --------- -----------
Cash and cash equivalents, end of period............................ $ 42,502 $ 274,866 $ 42,502
=========== ========= ===========

See accompanying notes.

F-9

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

NOTES TO FINANCIAL STATEMENTS

June 30, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND DEVELOPMENT STAGE ACTIVITY

Microgy Cogeneration Systems, Inc. (the "Company") was incorporated in
Colorado on March 25, 1999, and is in the development stage as of June 30,
2001. The Company is an alternative energy company developing renewable energy
projects through proprietary technologies and systems. The initial proposed
projects are biopower facilities intended to process agricultural and organic
wastes into renewable energy and fuels through Company systems using
proprietary technologies.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand at the balance sheet date.

Property and Equipment

Property and equipment, consisting primarily of computer equipment and
furniture and fixtures, is stated at cost. Depreciation is computed over the
estimated useful lives of the assets, which range from three to seven years.

Cash Flow Reporting

The Company issued common stock valued at $83,407 during the year ended June
30, 2001 to purchase preferred shares in an associated entity. The investment
was fully reserved for as of June 30, 2001.

Use Of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Common Stock Subscriptions Receivable

Common stock subscriptions receivable represent amounts due from
stockholders of the Company's common stock at June 30, 2000. All amounts were
received by the Company during July 2000.

2. INCOME TAXES

The Company accounts for income taxes in conformity with Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes.
Under the provisions of Financial Accounting Standards Board Statement No. 109,
a deferred tax liability or asset (net of a valuation allowance) is provided in
the financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. These temporary differences will
result in net taxable or deductible amounts in future years as a result of
events recognized in the financial statements in the current or preceding years.

F-10

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. INCOME TAXES (Continued)

The Tax Reform Act of 1986 contains provisions that limit the utilization of
net operating loss and tax credit carryforwards if there has been a "change in
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could be triggered by an initial public
offering or subsequent sales of securities by the Company or its stockholders.

Significant components of the Company's deferred tax accounts are as follows:

June 30,
--------------------
2001 2000
--------- ---------

Deferred tax assets:
Net operating loss carryforwards. $ 511,181 $ 200,613
Allowance for doubtful accounts.. 19,371 9,987
--------- ---------
Total deferred tax assets........... 530,552 210,600
Valuation allowance................. (530,552) (210,600)

--------- ---------
Net deferred taxes.................. $ -- $ --
========= =========

At June 30, 2001, the Company had net operating loss carryforwards for
income tax purposes of approximately $1,503,000, which expire through 2020.

3. COMMON STOCK ISSUANCES

During March and June 1999, 8,112,500 shares of common stock were issued to
management and founders of the Company for an aggregate of $8,113, or $0.001,
per share.

In August 1999, the Company sold 5,937,500 shares for an aggregate of
$250,000 or $0.042 per share.

During January and April of 2000, 1,500,000 shares and 454,000 shares,
respectively, were issued to members of management for an aggregate of $1,500
and $454, respectively. In connection with both issuances, the Company recorded
expense in relation to services of $104,341.

During June 2000, the Company completed a private placement and raised a
total of $1,047,038 on the issuance of 1,990,815 shares at a price of $0.54 per
share, net of issuance costs of $28,000.

During July 2000, the Company issued 154,458 shares valued at $0.54 per
share in an exchange for an investment of preferred stock of an associated
entity. The investment was fully reserved for as of June 30, 2001.

4. STOCK OPTIONS

Pursuant to the provisions of Financial Accounting Standards Board Statement
No. 123, Accounting and Disclosure of Stock-Based Compensation, the Company
accounts for its stock compensation arrangements under Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees, and related
pronouncements. Under the provisions of Accounting Principles Board No. 25, no
compensation expense is recognized when stock options are granted with exercise
prices equal to or greater than market value on the date of grant.

In June 2000, the Company's Board of Directors and stockholders approved the
2000 Stock Option Plan (the 2000 Plan) pursuant to which a total of 5,000,000
shares of common stock have been reserved for issuance to eligible employees,
consultants, and directors of the Company. Awards under the 2000 Plan may
consist of incentive stock options, which qualify under Section 422 of the
Internal Revenue Code, or nonqualified

F-11

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. STOCK OPTIONS (Continued)

stock options, which do not qualify under that provision. The 2000 Plan
provides for an exercise period of up to six years with the price being equal
to the fair market value at the time the option is granted. The 2000 Plan is
administered by the Board of Directors, which has the authority to select the
individuals to whom awards will be granted and to determine whether and to what
extent stock options are to be granted, the numbers of shares of common stock
to be covered by each award, the vesting schedule of stock options, and all
other terms and conditions of each award. There were 5,000,000 shares of common
stock reserved for issuance under the 2000 Plan as of June 30, 2000. No stock
options were issued as of June 30, 2000.

On September 18, 2000, the Board of Directors authorized 290,000 options to
be issued to employees of the Company with an exercise price of $1.50 per
share. Options to purchase 50,000 shares vest on August 1, 2001. The remaining
240,000 options vest on October 1, 2001. As of June 30, 2001, there were no
options exercised or exercisable.

Pro forma information regarding net income and earnings per share is
required by Financial Accounting Standards Board Statement No. 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using the minimum value method available to
nonpublic companies under Financial Accounting Standards Board Statement No.
123. Under this method, option value is determined as the excess of the fair
value of the stock at the date of the grant over the present value of both the
exercise price (lump sum) and the expected dividend payments (annuity), each
discounted at the risk-free rate, over the expected exercise life of the
option. A risk-free interest rate of 5%, a dividend yield of 0%, and a
weighted-average expected life of three years were applied.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The pro forma
effect on the Company's net income for the year ended June 30, 2001 is
immaterial.

5. PREFERRED STOCK

The Company is authorized to issue up to 25,000,000 shares of nonvoting
preferred stock, $0.001 par value, with the shares to be issued in series by
the Board of Directors. The shares of preferred stock may be issued in one or
more series with such designations, rights, preferences, and limitations as the
Company's Board of Directors may determine without approval of its
stockholders. As of June 30, 2001 and 2000, there were no preferred stock
shares issued or outstanding.

6. WARRANTS

In May 1999, the Company issued 885,000 warrants to stockholders of the
Company. The shareholder warrants expire in May 2002. Each warrant is
exercisable for one share of common stock at a price of $1.00 per share. The
Company has the ability to call the warrants at a price of $1.20 per common
share, or greater under certain conditions.

In December 1999, an employee was issued a warrant to purchase 800,000
shares of common stock at an exercise price of $0.50 per share through March
2001 and $1.00 per share through September 2002. On June 8, 2001, the Board of
Directors extended the exercise date to May 31, 2002 at $0.50 per share and to
September 30, 2002 at $1.00 per share. This warrant was exchanged for a warrant
in Environmental Power Corporation ("EPC") in connection with the share
exchange transaction, which occurred in July 2001 (see Note 11).

F-12

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

7. RELATED-PARTY TRANSACTIONS

During the year ended June 30, 2000, rent and telephone expenses in the
amount of $9,250 were paid to a related party having the same President and
Vice President as the Company, who are also stockholders of both entities.
Business opportunities relating to anaerobic digestion, microturbines, and
heating and cooling technology were purchased for $25,000 in September 1999
from the same related party and expensed at that time. Advances were also made
to that related party under a promissory note related to a secured advance line
not to exceed $250,000. The Company had advanced $56,974 and $26,274 as of June
30, 2001 and 2000, respectively. Due to the uncertainty of collection, this
amount has been reserved in full. In addition, no interest income related to
the note receivable has been recognized by the Company.

During the years ended June 30, 2001 and 2000, the Company paid rent of
$57,554 and $10,350, respectively, to a related party whose Chairman of its
Board of Directors is also the Chairman of the Board of Directors of the
Company.

On March 30, 2001, the Company executed an unsecured note payable with the
Company's Chairman of the Board of Directors for an amount not to exceed
$200,000. The note bears interest at 8% per annum and matures on September 30,
2001. The outstanding balance of the note as of June 30, 2001 is $177,000.
Subsequent to June 30, 2001, the Company settled its obligation in full in
relation to the note.

On June 28, 2001, the Company executed an unsecured note payable with EPC
(see Note 11) for an amount not to exceed $100,000. The note bears interest at
8% per annum and is payable on demand. The outstanding balance of the note as
of June 30, 2001 is $26,200. Subsequent to June 30, 2001, the Company executed
an additional unsecured note with EPC in an amount not to exceed $50,000. The
note is payable on demand and bears interest at a rate of 8% per annum.

8. POWER CONTRACT

In December 2000, the Company entered into an agreement with a
California-based irrigation district that provides water and electric services
to its customers located primarily in the California central valley. The
agreement calls for the Company to sell up to 15 megawatts of power to the
irrigation district once the Company has developed facilities to generate such
power. The term of the agreement is ten years from the date of commercial
operation of each proposed facility. The facilities would provide renewable
energy created by the Company from agricultural wastes located on farms, which
are customers of the irrigation district.

9. EUROPEAN TECHNOLOGY PROVIDER

On May 12, 2000, the Company entered into a revised licensing agreement with
a European technology provider whereby the Company is granted a perpetual and
exclusive license in certain territories for use of certain proprietary
technology in its cogeneration facilities. This agreement superseded an initial
license agreement executed in November 1999.

The European technology provider will own a 5% minority equity stake in any
legal entity that owns any project developed by the Company using the European
technology provider's enhanced anaerobic digester technology wherein the
Company retains an equity position.

F-13

MICROGY COGENERATION SYSTEMS, INC.
(A development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. EUROPEAN TECHNOLOGY PROVIDER (Continued)

The agreement specifies a fixed payment amount per project to the European
technology provider for engineering work and construction drawings. The
agreement also specifies that a licensing fee, based on a percentage of the
total cost for each project facility where the licensed technology is installed
and operating, as well as a monthly consulting fee, will be paid to the
European technology provider upon commercial operation of a particular project.

10. COLORADO TECHNOLOGY PROVIDER

On September 17, 1999, the Company entered into an agreement with a Colorado
technology provider whereby the Company is granted an exclusive and perpetual
worldwide license for use of the Colorado technology provider's proprietary
microturbine, which is currently being developed for use in the Company's
biogas or cogeneration projects. The agreement also gives the Company the right
to manufacture the microturbine under certain conditions.

The Company also has a nonexclusive and perpetual worldwide license for the
manufacture and use of the proprietary microturbine in a stand-alone or utility
grid-connected system.

11. SUBSEQUENT EVENT

On July 23, 2001, approximately 88% of the shares of the Company were
exchanged for shares of EPC, an energy company that is publicly traded and has
annual revenues of more than $50 million. In that transaction, certain
shareholders of the Company exchanged their common stock in the Company for
common and convertible preferred stock of EPC. In a subsequent share exchange
offer, EPC has also offered to the remaining shareholders, representing the
remaining 12% of the Company's common shares, to exchange their shares on the
same basis. The basis of the exchange ratio on a fully diluted basis will
result in the Company's shareholders owning approximately 45% of the fully
diluted equity of EPC if all shareholders exchange. The Company has, in turn,
become a controlled subsidiary of EPC. Members of the Board of Directors of the
Company are now representatives of the senior management of EPC. EPC has
appointed the President of the Company, and the majority of the shareholders of
the Company have, in turn, appointed three of the eight members of the Board of
Directors of EPC.

F-14

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Expenses payable by us in connection with the issuance and distribution of
the securities being registered hereby are as follows:

SEC registration fee........... $ 741
Accounting fees and expenses... $ 30,000*
Legal fees and expenses........ $ 57,000*
Printing, freight and engraving $ 10,000*
Transfer agent fee............. $ 1,000*
Miscellaneous.................. $ 2,500
--------
Total....................... 100,241*
========

--------
*Estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law permits us to indemnify,
under certain circumstances, any person acting on our behalf who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative for expenses related to such proceeding if the person acted in
good faith and in a manner the person reasonable believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that the
person's conduct was unlawful. Our bylaws substantively provide that we will
indemnify such persons to the fullest extent allowed by the Delaware General
Corporation Law.

In addition, our certificate of incorporation limits the liability our of
directors for monetary damages for breach of their fiduciary duty as a director
other than for intentional misconduct, fraud or a knowing payment of a dividend
in violation of Delaware law. Such provision limits recourse for money damages
that might otherwise be available to us or our shareholders for negligence by
directors acting on our behalf. Although these provisions would not prohibit
injunctive or similar actions against these individuals, the practical effect
of such relief would be limited. This limitation of liability under state law
does not apply to any liabilities that may exist under federal securities laws.

Finally, we have entered into an indemnification agreement with Joseph C.
Cresci, Donald A. Livingston and William D. Linehan where we agree to indemnify
these individuals against any loss, liability, cost or other expense that they
incur in relation to certain of their activities related to them acting as
either fiduciaries or agents of all of our employee welfare benefit plans,
employee pension benefit plans and benefit plans.

Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to our directors, officers and controlling persons, or otherwise, we
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

II-1

ITEM 16. EXHIBITS

The following is a list of all exhibits filed as a part of this registration
statement:

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

5. 0 Opinion of Dorsey & Whitney LLP.
10.01 Share Exchange Agreement dated June 20, 2001 among the Company, Microgy and
the Principal Microgy Shareholders. H
10.02 Stockholders' Agreement dated July 23, 2001 among the Company, the Principal
Microgy Shareholders, Joseph E. Cresci and Donald A. Livingston. H
10.03 Registration Rights Agreement dated July 23, 2001 among the Company, the Principal
Microgy Shareholders, Joseph E. Cresci, Donald A. Livingston and future
exchanging Microgy security holders who become a party thereto. H
10.04 Form of Joinder Agreement related to Share Exchange Agreement. H
10.05 Form of Waiver Agreement dated July 23, 2001 executed by certain Microgy
Shareholders. H
10.06 Warrant Agreement dated July 23, 2001 between the Company and Daniel J. Eastman. I
10.07 Technology Licensing Agreement dated May 12, 2000 between Microgy and Danish
Biogas Technology, A.S. (portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment). K
10.08 Promissory Note dated September 14, 2001 between the Company and Alco Financial
Services, LLC. K
10.09 Security Agreement dated September 14, 2001 between the Company and Alco
Financial Services, LLC. K
10.10 Warrant to purchase 50,000 shares of common stock issued to Alco Financial Services,
LLC. K
10.11 Services Agreement dated September 13, 2001 between the Company and PG&E
Energy Trading Power, L.P. pertaining to the sale and purchase of Nitrogen Oxide
Ozone Transport Region (NOx) Budget Allowances completed in 2002. L
10.12 Agreement for Power Purchases dated March 21, 2002 between Microgy and
Wisconsin Public Service Corporation. L
10.13 Environmental Power Corporation Retirement Plan, as restated, effective as of January
1, 1998 and dated as of December 23, 1998. L
10.14 Trust Agreement for Environmental Power Corporation Retirement Plan, as mended
and restated, effective as of January 1, 1998 and dated as of A December 23, 1998. L
10.15 Indemnification Agreement dated February 12, 2002 between the Company and
Joseph Cresci, Donald Livingston, William Linehan, and their successors. L
10.16 Office Building Lease Agreement dated December 21, 2001 between the Company
and Merkle, Soupcoff, & Fiorentino, Inc. L
10.17 Form of Warrant Agreement executed by certain Microgy warrant holders. L
10.18 Agreement for the Sale of Electric Energy from the Scrubgrass Generating Plant by
and between Pennsylvania Electric Company and Scrubgrass Power Corporation
dated August 7, 1987 which was assigned by Scrubgrass Power Corporation to
Scrubgrass Generating Company, L.P. on December 15, 1990 and assigned by
Scrubgrass Generating Company, L.P. to Buzzard Power Corporation on June 17,
1994. B

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Exhibit Incorporation
Number Description Reference
------ ----------- -------------

10.19 Supplemental Agreement for the Sale of Electric Energy from the Scrubgrass
Generating Plant by and between Pennsylvania Electric Company and Scrubgrass
Power Corporation dated February 22, 1989, as amended by letter agreement dated
March 28, 1989, which was assigned by Scrubgrass Power Corporation to
Scrubgrass Generating Company, L.P. on December 15, 1990 and assigned by
Scrubgrass Generating Company, L.P. to Buzzard Power Corporation on June 17,
1994. B
10.20 Second Supplemental Agreement for the Sale of Electric Energy from the Scrubgrass
Generating Plant by and between Pennsylvania Electric Company and Scrubgrass
Power Corporation dated September 27, 1989 which was assigned by Scrubgrass
Power Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990
and assigned by Scrubgrass Generating Company, L.P. to Buzzard Power
Corporation on June 17, 1994. B
10.21 Third Supplemental Agreement for the Sale of Electric Energy from the Scrubgrass
Generating Plant by and between Pennsylvania Electric Company and Scrubgrass
Power Corporation dated August 13, 1990 which was assigned by Scrubgrass Power
Corporation to Scrubgrass Generating Company, L.P. on December 15, 1990 and
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994. B
10.22 Amendment to the Third Supplemental Agreement for the Sale of Electric B Energy
from the Scrubgrass Generating Plant by and between Pennsylvania Electric
Company and Scrubgrass Power Corporation dated November 27, 1990 which was
assigned by Scrubgrass Power Corporation to Scrubgrass Generating Company, L.P.
on December 15, 1990 and assigned by Scrubgrass Generating Company, L.P. to
Buzzard Power Corporation on June 17, 1994. B
10.23 Letter Agreement dated December 20, 1990 amending the Agreement for the Sale of
Electric Energy from the Scrubgrass Generating Plant by and between Pennsylvania
Electric Company and Scrubgrass Power Corporation dated August 7, 1987, as
amended and supplemented from time to time through November 27, 1990, which
was assigned by Scrubgrass Power Corporation to Scrubgrass Generating Company,
L.P. on December 15, 1990 and assigned by Scrubgrass Generating Company, L.P.
to Buzzard Power Corporation on June 17, 1994. B
10.60 Management Services Agreement by and between Scrubgrass Generating Company,
L.P. and PG&E-Bechtel Generating Company dated December 15, 1990 which was
assigned by Scrubgrass Generating Company, L.P. to Buzzard Power Corporation
on June 17, 1994. PG&E-Bechtel Generating Company has assigned its rights to
this agreement ultimately to U.S. Gen. (now PG&E National Energy Group).
Exhibit A to this agreement was omitted because it was previously filed as Exhibit
10.67. B
10.61 Agreement for Operation and Maintenance of the Scrubgrass Cogeneration Plant
between Scrubgrass Generating Company, L.P. and Bechtel Power Corporation
dated December 21, 1990 which was assigned by Scrubgrass Generating Company,
L.P. to Buzzard Power Corporation on June 17, 1994. Bechtel Power Corporation
has assigned its rights to this agreement ultimately to U.S. Operating Services
Company (now PG&E Operating Services Company). B
10.62 First Amendment to the Agreement for Operation and Maintenance of the Scrubgrass
Cogeneration Plant between Buzzard Power Corporation and, ultimately, U.S.
Operating Services Company (now PG&E Operating Services Company) dated
December 22, 1995. B

II-3

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

10.67 Appendix I to the Amended and Restated Participation Agreement, dated as of
December 22, 1995, among Buzzard Power Corporation, Scrubgrass Generating
Company, L.P., Environmental Power Corporation, Bankers Trust Company and
Credit Lyonnais, which Appendix defines terms used and not otherwise defined in
other contracts. G

10.70 Stock Pledge Agreement, dated December 19, 1991, between Environmental Power
Corporation and Scrubgrass Generating Company, L.P. D

10.71 Amended and Restated Participation Agreement, dated as of December 22, 1995,
among Buzzard Power Corporation, Scrubgrass Generating Company, L.P.,
Environmental Power Corporation, Bankers Trust Company and Credit Lyonnais. G

10.72 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais. C

10.73 Director Option Plan. F

10.74 Stock Option and Right of First Refusal Agreement dated as of May 2, 2002, by and
between Environmental Power Corporation and Benjamin Brant. O

10.75 Escrow Agreement dated as of May 3, 2002, among Environmental Power
Corporation, Benjamin Brant and US Bank National Assocication, as Escrow Agent. O

10.80 Amended and Restated Lease Agreement between Scrubgrass Generating Company,
L.P., a Delaware limited partnership, as Lessor, and Buzzard Power Corporation, a
Delaware corporation, as Lessee, dated as of December 22, 1995. Schedules and
similar attachments listed in the Lease have been omitted and the Company agrees
to furnish supplementally a copy of any omitted schedule or attachment to the
Securities and Exchange Commission upon request. B

10.83 Amended and Restated Disbursement and Security Agreement between Scrubgrass
Generating Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee,
Bankers Trust Company as Disbursement Agent and Credit Lyonnais acting through
its New York Branch as Agent, dated as of December 22, 1995. Schedules and
similar attachments listed in this agreement have been omitted and the Company
agrees to furnish supplementally a copy of any omitted schedule or attachment to
the Securities and Exchange Commission upon request. B

10.84 Amended and Restated Lessee Working Capital Loan Agreement between Scrubgrass
Generating Company, L.P., as Lender, and Buzzard Power Corporation, as Lessee,
dated as of December 22, 1995. B

10.85 Amendment No. 1, dated as of May 22, 1997, to the Amended and Restated
Disbursement and Security Agreement between Scrubgrass Generating Company,
L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust Company as
Disbursement Agent and Credit Lyonnais acting through its New York Branch as
Agent, dated as of December 22, 1995. C

10.91 Amendment No. 2, dated as of September 2, 1998, to the Amended and Restated
Participation Agreement, dated as of December 22, 1995, among Buzzard Power
Corporation, Scrubgrass Generating Company, L.P., Environmental Power
Corporation, Bankers Trust Company and Credit Lyonnais. E

II-4

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

10.92 Amendment No. 1, updated as of October 9, 1998, to the Amended and
Restated Disbursement and Security Agreement between Scrubgrass Generating
Company, L.P., as Lessor, Buzzard Power Corporation, as Lessee, Bankers Trust
Company as Disbursement Agent and Credit Lyonnais acting through its New York
Branch as Agent, dated as of December 22, 1995. E

10.93 Amendment No. 1, dated as of June 1, 1996, but not executed until July 24, 1998, to
the Amended and Restated Lease Agreement between Scrubgrass Generating
Company, L.P., a Delaware limited partnership, as Lessor, and Buzzard Power
Corporation, a Delaware corporation, as Lessee, dated as of December 22, 1995. E

10.94 Lease between Adams Realty Trust and Environmental Power Corporation, dated
January 26, 1999. E

10.95 Settlement Agreement and Release between GEC Alsthom International, Inc. and
Buzzard Power Corporation dated May 28, 1998. E

10.96 Purchase and Sale Agreements, dated as of December 16, 1998, January 4, 1999 and
January 8, 1999, between PG&E Energy Trading--Power, L.P. and Buzzard Power
Corporation pertaining to Nitrogen Oxide Ozone Transport Region (NOx) Budget
Allowances. E

10.97 Environmental Power Corporation Medical Expense Reimbursement Plan effective as
of September 1, 1998 and dated as of December 18, 1998. E

10.98 Environmental Power Corporation Defined Benefit Pension Plan effective as of
January 1, 1998 and dated as of December 23, 1998. E

10.99 Settlement Agreement, dated August 3, 1999 and effective February 27, 2000, among
Buzzard Power Corporation, Scrubgrass Generating Company L.P. and
Pennsylvania Electric Company. F

11 Computation of earnings per share. M

13.1 Company's Annual Report on Form 10-K for the year ended December 31, 2001. L

13.2 Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. M

13.3 Company's Annual Report on Form 10-K/A for the year ended December 31, 2001. N

21 Subsidiaries of the Registrant. L

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of Ernst & Young LLP.

23.3 Consent of Dorsey & Whitney LLP (filed as Exhibit 5.0).

Incorporation references:

A (INTENTIONALLY OMITTED)

B Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-15472).

C Previously filed as part of the Company's Report on Form 10-Q for the period
ended June 30, 1997 (Commission File No. 0-15472).

D Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 0-15472).

E Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1998 (Commission File No. 0-15472).

II-5

F Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1999 (Commission File No. 0-15472).

G Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 0-15472).

H Previously filed as part of Amendment No. 7 to Schedule 13D filed by Joseph
E. Cresci on August 2, 2001.

I Previously filed as part of Schedule 13D filed by Daniel J. Eastman on
August 2, 2001

J Previously filed as part of the Company's Report on Form 8-K dated as of
August 7, 2001 (Commission File No. 0-15472).

K Previously filed as part of the Company's Report on Form 10-Q for the period
ended September 30, 2001 (Commission File No. 0-15472).

L Previously filed as a part of the Company's Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15472).

M Previously filed as a part of the Company's Report on Form 10-Q for the
period ended March 31, 2002 (Commission File No. 0-15472).

N Previously filed as part of the Company's Report on Form 10-K/A for the year
ended December 31, 2001. (Commission File No. 0-15472). Amendment No. 1 to
schedule 13D of Benjamin Brant filed on May 13, 2002 (Commission File No.
0-15472).

O Previously filed as a part of Amendment No. 1 to Schedule 13D of Benjamin
Brant filed on May 13, 2002.

Item 17. Undertakings

The undersigned hereby undertakes that it will:

(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

. include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;

. reflect in the prospectus any facts or events, which, individually or
together, represent a fundamental change in the information set forth in
the registration statement; and

. include any additional or changed material information on the plan of
distribution.

(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof; and

(3) file a post-effective amendment removing from registration any of the
securities that remain unsold at the end of the offering.

(4) insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(5) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of
Portsmouth, State of New Hampshire on June 19, 2002.

ENVIRONMENTAL POWER CORPORATION

/S/ JOSEPH E. CRESCI
-----------------------------
Joseph E. Cresci, Chief
Executive Officer

/S/ R. JEFFREY MACARTNEY
-----------------------------
R. Jeffrey Macartney, Chief
Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

Signature Title Date
--------- ----- ----

/S/ JOSEPH E. CRESCI Director June 19, 2002
-----------------------------
Joseph E. Cresci

/S/ DONALD A. LIVINGSTON Director June 19, 2002
-----------------------------
Donald A. Livingston

/S/ PETER J. BLAMPIED Director June 19, 2002
-----------------------------
Peter J. Blampied

/S/ EDWARD B. KOEHLER Director June 19, 2002
-----------------------------
Edward B. Koehler, Esq.

/S/ ROBERT I. WEISBERG Director June 19, 2002
-----------------------------
Robert I. Weisberg

/S/ GEORGE A. KAST Director June 19, 2002
-----------------------------
George A. Kast

/S/ BENJAMIN J. BRANT Director June 19, 2002
-----------------------------
Benjamin J. Brant

/S/ THOMAS W. MATTHEWS Director June 19, 2002
-----------------------------
Thomas W. Matthews

II-7

Index to Exhibits:

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

II-8

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

II-9

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

10.70 Stock Pledge Agreement, dated December 19, 1991, between Environmental Power
Corporation and Scrubgrass Generating Company, L.P. D

10.73 Director Option Plan. F

10.74 Stock Option and Right of First Refusal Agreement dated as of May 2, 2002, by and
between Environmental Power Corporation and Benjamin Brant. O

10.75 Escrow Agreement dated as of May 3, 2002, among Environmental Power
Corporation, Benjamin Brant and US Bank National Assocication, as Escrow Agent. O

10.84 Amended and Restated Lessee Working Capital Loan Agreement between Scrubgrass
Generating Company, L.P., as Lender, and Buzzard Power Corporation, as Lessee,
dated as of December 22, 1995. B

II-10

Exhibit Incorporation
Number Description Reference
------ ----------- -------------

10.94 Lease between Adams Realty Trust and Environmental Power Corporation, dated
January 26, 1999. E

10.95 Settlement Agreement and Release between GEC Alsthom International, Inc. and
Buzzard Power Corporation dated May 28, 1998. E

10.97 Environmental Power Corporation Medical Expense Reimbursement Plan effective as
of September 1, 1998 and dated as of December 18, 1998. E

10.98 Environmental Power Corporation Defined Benefit Pension Plan effective as of
January 1, 1998 and dated as of December 23, 1998. E

10.99 Settlement Agreement, dated August 3, 1999 and effective February 27, 2000, among
Buzzard Power Corporation, Scrubgrass Generating Company L.P. and
Pennsylvania Electric Company. F

11 Computation of earnings per share. M

13.1 Company's Annual Report on Form 10-K for the year ended December 31, 2001. L

13.2 Company's Quarterly Reoprt on Form 10-Q for the quarter ended March 31, 2002. M

13.3 Company's Annual Report on Form 10-K/A for the year ended December 31, 2001. N

21 Subsidiaries of the Registrant. L

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of Ernst & Young LLP.

23.3 Consent of Dorsey & Whitney LLP (filed as Exhibit 5.0).*

Incorporation references:

A (INTENTIONALLY OMITTED)

B Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-15472).

C Previously filed as part of the Company's Report on Form 10-Q for the period
ended June 30, 1997 (Commission File No. 0-15472).

D Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 0-15472).

E Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1998 (Commission File No. 0-15472).

II-11

F Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 1999 (Commission File No. 0-15472).

G Previously filed as part of the Company's Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 0-15472).

H Previously filed as part of Amendment No. 7 to Schedule 13D filed by Joseph
E. Cresci on August 2, 2001.

I Previously filed as part of Schedule 13D filed by Daniel J. Eastman on
August 2, 2001.

J Previously filed as part of the Company's Report on Form 8-K dated as of
August 7, 2001 (Commission File No. 0-15472).

K Previously filed as part of the Company's Report on Form 10-Q for the period
ended September 30, 2001 (Commission File No. 0-15472).

L Previously filed as a part of the Company's Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15472).

M Previously filed as a part of the Company's Report on Form 10-Q for the
period ended March 31, 2002 (Commission File No. 0-15472).

N Previously filed as a part of the Company's Report on Form 10-K/A for the
year ended December 31, 2001 (Commission File No. 0-15472).

O Previously filed as a part of Amendment No. 1 to Schedule 13D of Benjamin
Brant filed on May 13, 2002.

II-12