Filed Pursuant to Rule 424(b)(3)
File No. 333-135953

MICROFIELD GROUP, INC.

13,125,000 SHARES OF

COMMON STOCK

This prospectus relates to the resale by the selling stockholders of up to 13,125,000 shares of our common stock, consisting of up to 5,625,000 shares issuable upon the exercise of common stock purchase warrants and 7,500,000 shares of common stock. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. We will pay the expenses of registering these shares.

Our common stock is listed on the Over-The-Counter Bulletin Board under the symbol “MICG”. The last reported sales price per share of our common stock as reported by the Over-The-Counter Bulletin Board on September 22, 2006, was $1.80.

Investing in these securities involves significant risks. See “Risk Factors” beginning on page 3.

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 September 29, 2006.

TABLE OF CONTENTS


Where You Can Find More Information
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Market For Equity and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition or Plan of Operation
Business
Description of Property
Legal Proceedings
Management
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Description of Securities
Indemnification for Securities Act Liabilities
Plan of Distribution
Selling Stockholders
Legal Matters
Experts
Available Information
Index to Financial Statements

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement that we filed on Form S-1 with the Securities and Exchange Commission or SEC. This prospectus does not contain all of the information in the registration statement and the exhibits and schedules that were filed with the registration statement. You should refer to the registration statement for additional information about us and the common stock being offered in this prospectus. Statements made in this prospectus regarding the contents of any contract, agreement or other document that is filed as an exhibit to the registration statement or any document incorporated by reference into the registration statement are not necessarily complete, and you should review the referenced document itself for a complete understanding of its terms.

We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the SEC’s public reference facilities located at 100 F Street, N.E., Washington, DC 20549, and at the SEC’s regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Woolworth Building, 233 Broadway New York, New York. Copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information regarding the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to you free of charge at the SEC’s web site at http://www.sec.gov.

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “risk factors” section, the financial statements and the secured convertible notes to the financial statements.

MICROFIELD GROUP, INC.

We specialize in the installation of electrical, control, and telecomunications products and services, and in transactions involving integration of consumers of electricity into the wholesale electricity markets. We expanded through acquisitions in 2005 from an energy and related technologies and services business to a business that also provides energy consumers a new source of energy revenues and savings and the means to achieve such benefits. Included in these acquisitions are the capabilities to service high voltage facilities including wind farms and solar energy collection facilities. Two new subsidiaries have been integrated with the Christenson Velagio, Inc. (“CVI”) subsidiary this year. These subsidiaries are Christenson Electric, Inc. (“CEI”), acquired in July and EnergyConnect, Inc. (ECI”), acquired in October. Our objective is to leverage our assets and resources and build a viable, profitable, wholesale power transaction, electrical services, and technology infrastructure business.

We have the ability to deliver the following products and services:

· Electrical and systems engineering and design

· Controls, lighting, and cabling

· Building electric service

· Solar, wind, distributed generation, and substations

· Information technology networks

· Telecommunications, computer telephony, and integrated systems

· Life safety and security systems

· Redistribution in malls and shopping centers

· Construction, maintenance, inspection, and upgrades

· Integrated building controls, wiring, and cabling

· HVAC,

· Lighting

· Life safety systems

· Telecommunications systems integration and infrastructure

· Computer telephony integration

· Digital Video CCTV systems

· Enterprise security systems

· Wireless networking solutions

· Information technology networks

· Voice / data systems

· Electrical construction service

· Buildings and industrial systems

· Substations

· Wind farms, solar collectors, and distributed generation

· Redistribution in malls and shopping centers

· Software development

· Commercial building energy data management, data acquisition, and modeling

· Regional grid data monitoring, data management, and price forecasting

· Electric consumer transactional interface, wholesale products, and transaction management

· Settlement systems and related protocols

· Electric Power Transactions

· Service electric energy, capacity, and reserve needs of regional electric grids

· Service wholesale electric markets to improve electric supply and delivery efficiencies

· Enable buildings and industrial consumers to contribute to these services

CVI has been focused on electrical and technology products and services to customers in the Portland and Eugene, Oregon markets and the southwest Washington State markets. With the recent acquisitions our footprint for coordinating, managing, directing, and/or supervising services to energy consumers is being expanded to include additional regions in the US. CEI provides electrical design and construction services to utilities, grid operators and electric power generation companies nationally. ECI enables buildings and industrial electric consumers to contribute to the wholesale electric market, provides the transaction technologies and processes to integrate consumers into the wholesale electric market, and uses these capabilities to service regional electric grid operators with energy, capacity, reserves, and related needs. Integrating CVI, CEI and ECI combines the breadth of services needed to deliver full service solutions to our customers.

CVI has continuously provided electrical design, engineering, and construction services for more that 50 years. It now services all of the electrical, control, lighting, safety, security, and related systems needed for economic and secure operations of buildings and industrial sites. A substantial portion of CVI business is repeat business under long-standing relationships with it customers. CVI operates a fleet of service trucks that supply the electric related needs of hundreds of customers.

Through its work on alternative energy projects such as wind farms and solar farms, CEI has been at the forefront of the current boom in building the alternative energy distribution infrastructure. CEI will continue its historic businesses including wind farm electrical construction, maintenance and construction of substations, and maintenance and construction of distribution and transmission facilities. Christenson Electric also continues to provide services to Bonneville Power Administration and other major utilities under long-standing contractual relationships.

ECI provides wholesale electric market transaction services to regional electric grids. Selected needs of electric grid operators, including energy, capacity, and reserves have been formed into products that can be delivered through ECI systems to the grid. ECI technologies, processes, and services enable buildings and electric consumers to contribute to such wholesale services at levels and with complexities of service never before achieved. It is anticipated ECI transaction services will increase the need for many of the services supplied by CVI before the acquisition.

For the fiscal year ended December 31, 2005, we generated $57,935,035 in revenues and had a net loss of $77,953,193. This loss included charges of $77,419,759 due to impairment of our Company’s goodwill and intangibles, and $503,543 for the revaluation of a warrant liability at December 31, 2005. For the year ended January 1, 2005, we generated $36,466,618 in revenues and had a net loss of $6,181,683. As a result of our history of losses and our experiencing difficulty in generating sufficient cash flow to meet our obligations and sustain our operations, our auditors, in their report dated February 24, 2006, have expressed substantial doubt about our ability to continue as going concern. Christenson Electric was acquired on July 20, 2005. Therefore the revenue and net loss numbers above only include revenue and expenses from that entity from July 20, 2005 through December 31, 2005. EnergyConnect was acquired on October 13, 2005, therefore the revenue and net income amounts mentioned above only include revenue and expenses of EnergyConnect from October 14, 2005 through December 31, 2005.

Our principal offices are located at 111 SW Columbia Ave, Suite 480, Portland, Oregon 97201, and our telephone number is (503) 419-3580. We are an Oregon corporation. We maintain websites at www.microfield.com and www.energyconnectinc.com The information contained on these websites is not deemed to be a part of this prospectus.

Recent Developments

On June 30, 2006, we closed a private placement of 7,500,000 shares of common stock for gross proceeds of approximately $15 million before payment of commissions and expenses. We also issued 5,625,000 warrants to purchase shares of our common stock at $3.00 per share which are exercisable until 2011. The warrants can be exercised on a “cashless” basis if a registration statement covering the shares of common stock underlying the warrants is not available for resale of such shares. In connection with the private placement, we entered into a registration rights agreement with the investors in the private placement pursuant to which we have agreed to file a registration statement with the SEC to register for resale the shares of common stock issued in the private placement, as well as the shares of common stock issuable upon the exercise of the warrants. The registration rights provide for us to file a registration statement with the SEC no later than 90 days after June 30, 2006 and have it declared effective by the SEC no later than 120 days after June 30, 2006. We filed this registration statement on July 21, 2006, registering for resale the 7,500,000 shares of common stock and the 5,625,000 shares of common stock underlying the warrants. In the event that the registration statement is not declared effective by the SEC by October 28, 2006, we shall pay to each holder of securities an amount in cash equal to 1% of the amount paid by such holders for the securities for every 30-day period the registration statement is not declared effective. The maximum amount paid shall not exceed 10% of the aggregate amount paid by the holders for the securities.

The Offering

Common stock offered by selling stockholders	Up to 13,125,000 shares, consisting of the following:

	-	7,500,000 shares of common stock;

	-	up to 5,625,000 shares of common stock issuable upon the exercise of common stock purchase warrants at an exercise price of $3.00 per share.

Use of proceeds	We will not receive any proceeds from the sale of the common stock.

Over-The-Counter Bulletin Board Symbol	MICG

RISK FACTORS

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

Risks Relating to Our Business

We Have a History Of Losses Which May Continue and Which May Negatively Impact Our Ability to Achieve Our Business Objectives.

We incurred net losses of $6,181,683 for the year ended January 1, 2005 and $6,046,232 for the year ended January 3, 2004. For the fiscal year ended December 31, 2005, we had a net loss of $77,953,193. Of this amount $77,419,759 was due to a non-cash write-off of impaired goodwill from the ECI transaction, and other intangible asset, non-cash impairment charges, and in addition included a charge of $503,543 for the non-cash re-valuation of a warrant liability. For the six months ended July 1, 2006, we had a net loss of $4,169,723. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors. Additionally, as we continue to incur losses, our accumulated deficit will continue to increase, which might make it harder for us to obtain financing in the future. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us, which could result in reducing or terminating our operations.

If We Are Unable to Obtain Additional Funding Our Business Operations Will be Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders May Suffer Substantial Dilution.

We will require additional funds to sustain and expand our research and development activities. We anticipate that we will require up to approximately $2,000,000 to fund our anticipated research and development operations for the next twelve months, depending on revenue from operations. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. Even if we do receive additional financing, it may not be sufficient to sustain or expand our research and development operations or continue our business operations.

There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our research and development plans. Any additional equity financing may involve substantial dilution to our then existing shareholders.

Our Independent Registered Public Accounting Firm Has Expressed Substantial Doubt About Our Ability to Continue As a Going Concern, Which May Hinder Our Ability to Obtain Future Financing.

In their report dated February 24, 2006, our independent registered public accounting firm stated that our financial statements for the year ended December 31, 2005 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised due to our incurring net losses of $77,953,193 and $6,181,683, for the years ended December 31, 2005 and January 1, 2005, respectively. In addition, at December 31, 2005, our current liabilities exceeded our current assets by $5,698,183. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, generating sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Many Of Our Competitors Are Larger and Have Greater Financial and Other Resources than We Do and Those Advantages Could Make It Difficult For Us to Compete With Them.

The electrical products and services industry is extremely competitive and includes several companies that have achieved substantially greater market shares than we have, have longer operating histories, have larger customer bases, and have substantially greater financial, development and marketing resources than we do. If overall demand for our products should decrease it could have a materially adverse affect on our operating results.

The Failure To Manage Our Growth In Operations And Acquisitions Of New Product Lines And New Businesses Could Have A Material Adverse Effect On Us.

The expected growth of our operations (as to which no representation can be made) will place a significant strain on our current management resources. To manage this expected growth, we will need to improve our:

· operations and financial systems;

· procedures and controls; and

· training and management of our employees.

Our future growth may be attributable to acquisitions of new product lines and new businesses. We expect that future acquisitions, if successfully consummated, will create increased working capital requirements, which will likely precede by several months any material contribution of an acquisition to our net income.

Our failure to manage growth or future acquisitions successfully could seriously harm our operating results. Also, acquisition costs could cause our quarterly operating results to vary significantly. Furthermore, our stockholders would be diluted if we financed the acquisitions by incurring convertible debt or issuing securities.

Although we currently only have operations within the United States, if we were to acquire an international operation; we will face additional risks, including:

· difficulties in staffing, managing and integrating international operations due to language, cultural or other differences;

· Different or conflicting regulatory or legal requirements;

· Foreign currency fluctuations; and

· diversion of significant time and attention of our management.

Potential future acquisitions could be difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.

Since September 2004, we have acquired three companies and we intend to further expand our operations through targeted, strategic acquisitions over time. This may require significant management time and financial resources because we may need to integrate widely dispersed operations with distinct corporate cultures. Our failure to manage future acquisitions successfully could seriously harm our operating results. Also, acquisition costs could cause our quarterly operating results to vary significantly. Furthermore, our stockholders would be diluted if we financed the acquisitions by incurring convertible debt or issuing securities.

Goodwill Recorded On Our Balance Sheet May Become Impaired, Which Could Have A Material Adverse Effect On Our Operating Results.

As a result of each of the acquisitions we have been a party to, we have recorded a significant amount of goodwill. As required by Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Intangible Assets,” we annually evaluate the potential impairment of goodwill that was recorded at each acquisition date. Circumstances could change which would give rise to an impairment of the value of that recorded goodwill. This potential impairment would be charged as an expense to the statement of operations which could have a material adverse effect on our operating results. For the twelve months ended December 31, 2005, we wrote off, approximately $77 million of goodwill due to impairment testing of this asset.

If We Are Unable to Retain the Services of Messrs. Boucher and Walter, or If We Are Unable to Successfully Recruit Qualified Managerial and Sales Personnel Having Experience in Business, We May Not Be Able to Continue Our Operations.

Our success depends to a significant extent upon the continued service of Mr. Rodney M. Boucher, our Chief Executive Officer and Mr. A. Mark Walter, our President. We do not have employment agreements with Messrs. Boucher or Walter. Loss of the services of Messrs. Boucher or Walter could have a material adverse effect on our growth, revenues, and prospective business. We do not maintain key-man insurance on the life of Messrs. Boucher or Walter. We are not aware of any named executive officer or director who has plans to leave us or retire. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and sales personnel having experience in business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

Our success is dependent on the growth in energy management and curtailment programs, and the continued need for electrical construction and technology services, and to the extent that such growth slows and the need for services curtail , our business may be harmed.

The construction services industry has experienced a drop in demand since 2000 both in the United States and internationally. Recently, however, that trend has reversed in response to a turnaround in the capital markets, renewed growth in the construction industry, passage of favorable energy tax legislation by Congress, and a vibrant real estate market. It is difficult to predict whether these changes will result in continued economic improvement in the industries which our company serves. If the rate of growth should slow down, or end users reduce their capital investments in construction related products, our operating results may decline which could cause a decline in our profits.

Our quarterly results fluctuate and may cause our stock price to decline.

Our quarterly operating results have fluctuated in the past and will likely fluctuate in the future. As a result, we believe that period to period comparisons of our results of operations are not a good indication of our future performance. A number of factors, many of which are outside of our control, are likely to cause these fluctuations.

The factors outside of our control include:

· Construction and energy market conditions and economic conditions generally;

· Timing and volume of customers’ specialty construction projects;

· The timing and size of construction projects by end users;

· Fluctuations in demand for our services;

· Changes in our mix of customers’ projects and business activities;

· The length of sales cycles;

· Adverse weather conditions, particularly during the winter season, could effect our ability to render services in certain regions of the United States;

· The ability of certain customers to sustain capital resources to pay their trade accounts receivable balances;

· Reductions in the prices of services offered by our competitors; and

· Costs of integrating technologies or businesses that we add.

The factors substantially within our control include:

· Changes in the actual and estimated costs and time to complete fixed-price, time-certain projects that may result in revenue adjustments for contracts where revenue is recognized under the percentage of completion method;

· The timing of expansion into new markets;

· Costs incurred to support internal growth and acquisitions;

· Fluctuations in operating results caused by acquisitions; and

· The timing and payments associated with possible acquisitions.

Because our operating results may vary significantly from quarter to quarter, our operating results may not meet the expectations of securities analysts and investors, and our common stock could decline significantly which may expose us to risks of securities litigation, impair our ability to attract and retain qualified individuals using equity incentives and make it more difficult to complete acquisitions using equity as consideration.

Failure to keep pace with the latest technological changes could result in decreased revenues.

The market for our services is partially characterized by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments could result in serious harm to our business and operating results. We have derived, and we expect to continue to derive, a significant portion of our revenues from technology based products. As a result, our success will depend, in part, on our ability to develop and

market product and service offerings that respond in a timely manner to the technological advances of our customers, evolving industry standards and changing client preferences.

Failure to properly manage projects may result in costs or claims.

Our engagements often involve large scale, highly complex projects utilizing leading technology. The quality of our performance on such projects depends in large part upon our ability to manage the relationship with our customers, and to effectively manage the project and deploy appropriate resources, including third-party contractors, and our own personnel, in a timely manner. Any defects or errors or failure to meet clients’ expectations could result in claims for substantial damages against us. Our contracts generally limit our liability for damages that arise from negligent acts, error, mistakes or omissions in rendering services to our clients. However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued. In addition, in certain instances, we guarantee customers that we will complete a project by a scheduled date or that the project will achieve certain performance standards. As a result, we often have to make judgments concerning time and labor costs. If the project experiences a problem, we may not be able to recover the additional costs we will incur, which could exceed revenues realized from a project. Finally, if we miscalculate the resources or time we need to complete a project with capped or fixed fees, our operating results could seriously decline.

During the ordinary course of our business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.

We have in the past been, and may in the future be, named as a defendant in lawsuits, claims and other legal proceedings during the ordinary course of our business. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, property damage, punitive damages, civil penalties or other losses, consequential damages or injunctive or declaratory relief. In addition, pursuant to our service arrangements, we generally indemnify our customers for claims related to the services we provide thereunder. Furthermore, our services are integral to the operation and performance of the electric distribution and transmission infrastructure. As a result, we may become subject to lawsuits or claims for any failure of the systems that we work on, even if our services are not the cause for such failures. In addition, we may incur civil and criminal liabilities to the extent that our services contributed to any property damage or blackout. With respect to such lawsuits, claims, proceedings and indemnities, we have and will accrue reserves in accordance with generally accepted accounting principles. In the event that such actions or indemnities are ultimately resolved unfavorably at amounts exceeding our accrued reserves, or at material amounts, the outcome could materially and adversely affect our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could adversely affect our liquidity position.

Our failure to comply with, or the imposition of liability under, environmental laws and regulations could result in significant costs.

Our facilities and operations, including fueling and truck maintenance, repair, washing and final-stage construction, are subject to various environmental laws and regulations relating principally to the use, storage and disposal of solid and hazardous wastes and the discharge of pollutants into the air, water and land. Violations of these requirements, or of any permits required for our operations, could result in significant fines or penalties. We are also subject to laws and regulations that can impose liability, sometimes without regard to fault, for investigating or cleaning up contamination, as well as for damages to property or natural resources and for personal injury arising out of such contamination. Such liabilities may also be joint and several, meaning that we could be held responsible for more than our share of the liability involved, or even the entire amount. The presence of environmental contamination could also adversely affect our ongoing operations. In addition, we perform work in wetlands and other environmentally sensitive areas, as well as in different types of underground environments. In the event we fail to obtain or comply with any permits required for such activities, or such activities cause any environmental damage, we could incur significant liability. We have incurred costs in connection with environmental compliance, remediation and/or monitoring, and we anticipate that we will continue to do so. Discovery of additional contamination for which we are responsible, the enactment of new laws and regulations, or changes in how existing requirements are enforced, could require us to incur additional costs for compliance or subject us to unexpected liabilities.

The electric infrastructure servicing business is subject to seasonal variations, which may cause our operating results to vary significantly from period to period and could cause the market price of our stock to fall.

Due to the fact that a significant portion of our business is performed outdoors, our results of operations are subject to seasonal variations. These seasonal variations affect our core activities of maintaining, upgrading and extending electrical distribution powerlines and not only our storm restoration services. Generally, during the winter months, demand for new work and maintenance services may be lower due to reduced construction activity during inclement weather, while demand for electrical service and repairs may be higher due to damage caused by such weather conditions. Additionally, more energy management transactional revenues are produced in peak energy usage months during the winter and summer. Seasonal variations will cause fluctuations in our revenues during the year. As a result, operating results may vary significantly from period to period. If our operating results fall below the public’s or analysts’ expectations in some future period or periods, the market price of our common stock will likely fall in such period or periods.

Employee strikes and other labor-related disruptions may adversely affect our operations.

Our electric services business is labor intensive, requiring large numbers of electricians, installers and other personnel. Subject to seasonality, approximately 85-95% of our workforce is unionized. Strikes or labor disputes with our unionized employees may adversely affect our ability to conduct our business. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements, or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages. Any of these events would be disruptive to our operations and could harm our business.

Our Trademark and Other Intellectual Property Rights May not be Adequately Protected Outside the United States, Resulting in Loss of Revenue.

We believe that our trademarks, whether licensed or owned by us, and other proprietary rights are important to our success and our competitive position. In the course of any potential international expansion, we may, however, experience conflict with various third parties who acquire or claim ownership rights in certain trademarks. We cannot assure you that the actions we have taken to establish and protect these trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks and proprietary rights of others. Also, we cannot assure you that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent, as do the laws of the United States.

Intellectual Property Litigation Could Harm Our Business.

Litigation regarding patents and other intellectual property rights is extensive in the technology industry. In the event of an intellectual property dispute, we may be forced to litigate. This litigation could involve proceedings instituted by the U.S. Patent and Trademark Office or the International Trade Commission, as well as proceedings brought directly by affected third parties. Intellectual property litigation can be extremely expensive, and these expenses, as well as the consequences should we not prevail, could seriously harm our business.

If a third party claims an intellectual property right to technology we use, we might need to discontinue an important product or product line, alter our products and processes, pay license fees or cease our affected business activities. Although we might under these circumstances attempt to obtain a license to this intellectual property, we may not be able to do so on favorable terms, or at all. We are currently not aware of any intellectual property rights that are being infringed nor have we received notice from a third party that we may be infringing on any of their patents.

Furthermore, a third party may claim that we are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The technology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it

requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our licensors’ issued patents or our pending applications or our licensors’ pending applications or that we or our licensors were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our or our licensors’ patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

Risks Relating to Our Common Stock

If We Fail to Remain Current on Our Reporting Requirements, We Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell Their Securities in the Secondary Market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Prior to May 2001 and new management, we were delinquent in our reporting requirements, having failed to file our quarterly and annual reports for the years ended 1998 — 2000 (except the quarterly reports for the first two quarters of 1999). We have also been delinquent in filing recent quarterly and annual reports, the last being our 10-KSB for the year 2004. There can be no assurance that in the future we will always be current in our reporting requirements.

Our Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

· that a broker or dealer approve a person’s account for transactions in penny stocks; and

· the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

· obtain financial information and investment experience objectives of the person; and

· make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

· sets forth the basis on which the broker or dealer made the suitability determination; and

· that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

FORWARD LOOKING STATEMENTS

We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this prospectus and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “may,” “should,” variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. Among the important factors on which such statements are based are assumptions concerning our ability to obtain additional funding, our ability to compete against our competitors, our ability to integrate our acquisitions and our ability to attract and retain key employees.

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock in this offering. However, we will receive the sale price of any common stock we sell to the selling stockholders upon exercise of the warrants owned by the selling stockholders. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the Nasdaq Bulletin Board Market under the symbol “MICG.OB.” The following table sets forth the high and low sales prices as reported by the Nasdaq Bulletin Board Market for the periods indicated.

	High		Low
Fiscal 2004
First Quarter	$	0.95	$	0.35
Second Quarter	0.75		0.30
Third Quarter	0.69		0.31
Fourth Quarter	0.51		0.30
Fiscal 2005
First Quarter	$	0.48	$	0.24
Second Quarter	0.62		0.25
Third Quarter	2.60		0.50
Fourth Quarter	2.68		1.46
Fiscal 2006
First Quarter	$	5.00	$	2.32
Second Quarter	$	4.38	$	2.70
Third Quarter (through September 15, 2006)	$	2.98	$	1.75

As of June 30, 2006, we had 199 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. There were no cash dividends declared or paid in fiscal years 2005 or 2004.

In October 2005, 5,233,603 shares of common stock were issued in a private placement which totaled $3,434,000. The financing included conversion of $158,000 of debt, and also required the payoff of $1,100,000 of additional debt to a related party. The investors in the private placement also received warrants to purchase another 2,944,693 shares of our common stock.

In April 2004, 4,605.265 shares of Series 4 preferred stock were issued in conjunction with a $1,750,000 private placement. Each of these shares of preferred stock is convertible into 1,000 shares of our common stock.

Also in April 2004, 3,640.803 shares of Series 3 preferred stock were issued in exchange for the conversion of previously existing debt in the amount of $1,529,000 owed to various related parties. Each of these shares of preferred stock is convertible into 1,000 shares of our common stock.

Under the terms of the private placement agreements and the debt conversion agreements, a 6.5% cumulative dividend based on the value converted and issued, is due to those shareholders of these two series of preferred shares, as well as the Series 2 preferred shares, when declared by the board of directors. Dividends on those preferred shares can only be declared if, in the discretion of the board of directors, we are in a cash flow position sufficient to pay a dividend. We do not anticipate declaring such dividends on that converted amount before there are legally available funds to pay that dividend. We do not anticipate declaring any dividends on common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The following equity compensation information, as of December 31, 2005, is presented in compliance with SEC regulation S-B Item 201(d).

				Number of
				securities
				remaining
				available for
	Number of			future issuance
	Securities to be			under equity
	issued upon	Weighted average		compensation
	exercise of	exercise price of		plans (excluding
	outstanding	outstanding		securities
	options and	options and		reflected in
	warrants	warrants		column (a))
Plan category	(a)	(b)		(c)
Equity compensation plans approved by security holders	7,717,765	$	0.44	3,153,423
Equity compensation plans not approved by security holders	27,364,849	$	2.05	-0-
Total	35,082,614	$	1.69	3,153,423

We have a Stock Incentive Plan. At December 31, 2005, 7,717,765 shares of common stock were reserved for issuance to employees, officers and directors to whom options have been granted. Under the Plan, options may be granted to purchase shares of our common stock at fair market value, as determined by our Board of Directors, at the date of grant. The options are exercisable over a period of up to five years from the date of grant or such shorter term as provided for in the Plans. The options become exercisable over periods ranging between zero and four years.

On October 13, 2005, we entered into an agreement to purchase all the outstanding shares of EnergyConnect, Inc. (ECI) in exchange for 27,365,305 shares of our common stock at $2.34 per common share, issuance of 19,695,432 warrants to purchase our common shares at $2.58 per share, and issuance of 3,260,940 options to purchase our common stock at $0.32 per share. The transaction was valued at approximately $108 million.

On October 5, 2005, we completed a private placement in the amount of $3,434,000 in exchange for 4,905,717 shares of our common stock, and warrants to purchase another 2,944,693 shares of common stock at $0.90 per share.

We also issued an additional 327,886 common shares in payment of a $229,520 fee charged by an investment advisor in the transaction. As a part of the private placement, we were required to pay $1.1 million to JMW Group, LLC and Christenson Leasing, LLC (CLLLC), both related parties, to reduce the debt in our subsidiaries. As a part of the private placement agreement, the warrants were included as a part of the equities for which registration rights were received. According to current accounting pronouncements, the Black-Scholes value of these warrants were recorded as a warrant liability and a reduction of paid in capital at the date of the transaction. The change in the value of these warrants of $503,543 between the issue date and the end of the fiscal year was then recorded as an increase in the warrant liability, with an expense for warrant revaluation recorded as a charge in the consolidated statement of operations.

On September 10, 2004, we entered into a Master Vehicle Lease Termination Agreement with CLLLC (see Note 18), under which we terminated our previous master vehicle lease agreement with CLLLC. Under the terms of this termination agreement, we were released from our obligation under the previous master vehicle lease agreement. In consideration for this release we issued 1,000,000 warrants to purchase common shares, which were valued at $515,000 using the Black Scholes model. This warrant value was recorded in our consolidated balance sheet as common stock warrants, with a corresponding expense recorded in our consolidated statement of operations.

In connection with the August 24, 2004 debt issuance by Destination Capital, LLC (see Note 18), we are obligated to issue warrants to purchase the common stock. According to the terms of the debt issuance, warrants in the amount of 12.5% percent of the loan balance, outstanding on the first day of each month, will be issued to the debt holders for each calendar month that the debt is outstanding. Each warrant is exercisable into one share of common stock at the lesser of $0.38 per share or the price applicable to any shares, warrants or options issued (other than options issued to employees or directors) while the loan is outstanding, and will expire in 2009. Prior to this debt issuance, we exercised an option to convert $1,400,000 of outstanding debt into preferred stock that is convertible into shares of common stock. This exercise, when aggregated with all other outstanding equity arrangements, resulted in the total number of common shares that could be required to be delivered to exceed the number of authorized common shares. In accordance with EITF 00-19, the fair value of the 37,500 warrants initially issued in connection with the debt issuance must be recorded as a liability for warrant settlement in the financial statements using the Black-Scholes model, and any subsequent changes in our stock price to be recorded in earnings. Accordingly, the aggregate fair value of these warrants, issued prior to September 1, 2004, was determined to be $17,513. At the end of each quarter the increase or decrease in derivative value was recorded in earnings in the consolidated statement of operations. On September 1, 2004, our shareholder’s voted to increase the authorized shares available for issuance or conversion, which cured the situation described above. Accordingly, the fair value of the warrants on September 1, 2004 was determined to be $20,775. The warrant liability was reclassified to shareholders’ equity and the increase from the prior quarter end warrant value was recorded in earnings.

For the months from September 1, 2004 to July 2, 2005, according to the terms of the warrant provision of the August 24, 2004 debt agreement we are obligated to issue 1,588,542 additional warrants. The value of these warrants of $604,955 was added to shareholders’ equity on the consolidated balance sheet, with a corresponding expense charged to interest expense in the consolidated statement of operations. This included a charge against earnings of $320,967 associated with an aggregate of 894,792 warrants, that we were obligated to issue during the first six months of fiscal year, 2005. On August 1, 2005, we re-negotiated the debt obligation with Destination Capital LLC, and eliminated the warrant provision previously contained in the note. There was no interest expense associated with this note charged against our statement of operations after July 1, 2005.

On July 28, 2004, we issued an aggregate of 1,600,000 shares of common stock to a consultant in exchange for $560,000 of services rendered, which approximated the fair value of the shares issued during the period services were completed and rendered. Compensation costs of $560,000 were charged to operations during the year ended January 1, 2005.

In connection with the January 22, 2004 debt issuance (see Note 13), we are obligated to issue warrants to purchase common stock. According to the terms of the debt issuance, warrants in the amount of one percent of our fully diluted common stock will be issued to the debt holders on the first day of each calendar month that the debt is outstanding. We repaid this debt in April 2004, and accordingly issued 1,403,548 warrants, which is equivalent to 4% of the fully diluted common stock outstanding under the terms outlined in that agreement. Each warrant is exercisable into one share of common stock at $0.31 per share, subject to changes specified in the debt agreement, and will expire in 2008. Prior to this debt issuance, we exercised an option to convert $1,400,000 of outstanding debt into preferred stock that is convertible into shares of common stock. This exercise, when aggregated with all other outstanding equity arrangements, resulted in the total number of common shares that could be required to be delivered to exceed the number of authorized common shares. In accordance with EITF 00-19, the fair value of the

warrants issued in connection with the debt issuance must be recorded as a liability for warrant settlement in the financial statement using the Black-Scholes model, and any subsequent changes in our stock price to be recorded in earnings. Accordingly, the aggregate fair value of these warrants, on the date each of the obligations to issue warrants arose, was determined to be $701,824. At September 1, 2004, our shareholder’s voted to increase the authorized shares available for issuance or conversion, which cured the situation described above. Accordingly, the fair value of the warrants on September 1, 2004 was determined to be $780,372. The warrant liability was reclassified to shareholders’ equity and the increase from the initial warrant value was recorded in earnings.

SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The statements of operations data for the twelve months ended December 31, 2005, January 1, 2005 and January 3, 2004 and the balance sheet data at December 31, 2005 and January 1, 2005 are derived from our audited financial statements which are included elsewhere in this prospectus. The statements of operations data for the six months ended July 1, 2006 and July 2, 2005 and balance sheet data as of July 1, 2006 were derived from our unaudited financial statements that are included elsewhere in this prospectus. The statement of operations data for the years ended December 28, 2002 and December 29, 2001 and the balance sheet data at December 28, 2002 and December 29, 2001 are derived from our audited financial statements which are not included in this prospectus. The unaudited financial statements were prepared on a basis consistent with our audited financial statements contained in this prospectus and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results are not necessarily indicative of results to be expected for future periods. The following information is presented in thousands, except per share data.

	Six Months ended						Fiscal years ended
	July 1,			July 2,			December 31,			January 1,			January 3,			December 28,			December 29,
	2006			2005			2005			2005			2004			2002			2001
Statements of Operations:
Sales	$	40,132		$	17,901		$	57,935		$	36,467		$	10,342		$	—		$	—
Cost of sales	34,518			14,098			47,702			30,335			8,712			—			—
Gross profit	5,613			3,804			10,233			6,132			1,630			—			—
Operating expense	7,759			3,227			86,179		*	10,639			4,104			279			396
(Loss) from continuing operations	(4,187		)	(228		)	(78,000		)	(6,394		)	(3,143		)	(241		)	(293		)
Net loss	(4,170		)	(203		)	(77,953		)	(6,182		)	(6,046		)	(364		)	(283		)
Net loss per share	$	(0.07	)	$	(0.01	)	$	(2.88	)	$	(0.36	)	$	(0.59	)	$	(0.06	)	$	(0.06	)
Weighted average shares	60,884			18,524			27,048			17,340			10,309			5,615			4,596
Balance Sheet Data:
Cash	$	13,876					$	729		$	11		$	131		$	91		$	473
Total assets	75,081						55,241			11,775			14,042			1,045			488
Total liabilities	50,048						27,337			12,334			14,034			270			97
Shareholders’ equity (deficit)	$	25,033					$	27,904		$	(559	)	$	8		$	775		$	391

* Includes write-off of impaired goodwill of $77,420,000 resulting from the re-valuation of goodwill purchased in the acquisition of EnergyConnect, Inc. in October 2005.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION

Some of the information in this filing contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

· discuss our future expectations;

· contain projections of our future results of operations or of our financial condition; and

· state other “forward-looking” information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Business” and elsewhere in this prospectus.

Overview

We specialize in the installation of electrical products and services, and in transactions between consumers of electricity and the wholesale market. Our objective is to leverage our assets and value to successfully build a viable, profitable, and sustainable transaction-based electrical services and technology infrastructure business.

On October 13, 2005, we acquired, via merger, substantially all of the assets of EnergyConnect, Inc., a Nevada corporation. EnergyConnect merged with and into our wholly owned subsidiary, ECI Acquisition Co., an Oregon corporation, with ECI Acquisition continuing as the surviving corporation and our wholly owned subsidiary. The name of the surviving entity was changed to EnergyConnect, Inc.

As a result of the merger, we issued 27,365,306 shares of our common stock and 19,695,432 common stock purchase warrants exercisable at $2.58 per share to EnergyConnect shareholders in exchange for all the outstanding shares of EnergyConnect. We also granted options to purchase 3,260,940 shares of our common stock at $0.32 per share to the EnergyConnect option holders in connection with the assumption of the EnergyConnect Employee Stock Option Plan.

Pursuant to an Agreement and Plan of Merger dated July 20, 2005 by and between us, CPS Acquisition Co., Christenson Electric, Inc. and CEAC, Inc., an Oregon corporation and sole shareholder of Christenson Electric, Inc., we acquired, substantially all of the assets, of Christenson Electric. As part of the purchase price of Christenson Electric we assumed debt in the amount of $8,916,000 and issued 2,000,000 shares of our common stock to CEAC. The value of the merger was determined based on a share price of $0.64, which was the average closing price for our common stock over the five days ending July 20, 2005. The acquisition closing date was July 20, 2005.

We specialize in the installation of electrical, control, and telecommunications products and services, and in transactions involving integration of consumers of electricity into the wholesale electricity markets. The Company expanded through acquisitions in 2005 from an energy and related technologies and services business to a business that also provides energy consumers a new source of energy revenues and savings and the means to achieve such benefits. Included in these acquisitions are the capabilities to service high voltage facilities including wind farms and solar energy collection facilities. Two new subsidiaries have been integrated with the Christenson Velagio, Inc. (“CVI”) subsidiary this year. These are Christenson Electric, Inc. (“CEI”) in July and EnergyConnect, Inc. (“ECI”) in October. Our objective is to leverage our assets and resources and build a viable, profitable wholesale power transaction electrical services, and technology infrastructure business.

We have the ability to deliver the following products and services:

· Electrical and systems engineering and design

· Controls, lighting, and cabling

· Building electric service

· Solar, wind, distributed generation, and substations

· Information technology networks

· Telecommunications, computer telephony, and integrated systems

· Life safety and security systems

· Redistribution in malls and shopping centers

· Construction, maintenance, inspection, and upgrades

· Integrated building controls, wiring, and cabling

· HVAC,

· Lighting

· Life safety systems

· Telecommunications systems integration and infrastructure

· Computer telephony integration

· Digital Video CCTV systems

· Enterprise security systems

· Wireless networking solutions

· Information technology networks

· Voice / data systems

· Electrical construction service

· Buildings and industrial systems

· Substations

· Wind farms, solar collectors, and distributed generation

· Redistribution in malls and shopping centers

· Software development

· Commercial building energy data management, data acquisition, and modeling

· Regional grid data monitoring, data management, and price forecasting

· Electric consumer transactional interface, wholesale products, and transaction management

· Settlement systems and related protocols

· Electric Power Transactions

· Service electric energy, capacity, and reserve needs of regional electric grids

· Service wholesale electric markets to improve electric supply and delivery efficiencies

· Enable buildings and industrial consumers to contribute to these services

CVI has been focused on electrical and technology products and services to customers in the Portland and Eugene, Oregon markets and the southwest Washington State markets. With the recent acquisitions the Company’s footprint for coordinating, managing, directing, and/or supervising services to energy consumers is being expanded to include additional regions in the US. CEI provides electrical design and construction services to utilities, grid operators and electric power generation companies nationally. ECI enables buildings and industrial electric consumers to contribute to the wholesale electric market, provides the transaction technologies and processes to integrate consumers into the wholesale electric market, and uses these capabilities to service regional electric grid operators with energy, capacity, reserves, and related needs. Integrating CVI, CEI and ECI combines the breadth of services needed to deliver full service solutions to our customers.

These services and capabilities are expected to provide the substantial majority of our sales in the foreseeable future. Our results will therefore depend on continued and increased market acceptance of these products and our ability to deliver, install and service them to meet the needs of our customers. Any reduction in demand for, or increase in competition with respect to these products could have a material adverse effect on our financial condition and results of operations.

The Company’s current acquisition strategy is to actively review target opportunities for value-added potential and pursue targets that bring significant benefits, and are strategic and accretive.

Management’s Focus in Evaluating Financial Condition and Operating Performance.

Management meets regularly to review the two main functional organizations within our subsidiaries. These organizations include Operations, which consists of customer solicitation and project work performance, and Finance and Administration, which consists of our administration and support. Based on the kinds of information reviewed, meetings are held daily, weekly and monthly. Following is a list of the most critical information which management examines when evaluating the performance and condition of our company.

Revenue. Sales personnel and project managers are responsible for obtaining work to be performed by us. Revenue is booked daily based on our revenue recognition policy. Where applicable, these bookings are reviewed the following day by our President, the Chief Financial Officer and several of their direct reports. Revenues of EnergyConnect are reviewed by our CEO, EnergyConnect’s President and the EnergyConnect employee in charge of technology. Decisions about various aspects of the business are made, and actions are taken based on the prior day or week’s revenue, and whether or not it met daily and weekly revenue goals and expectations. Monthly customer revenue for all three subsidiaries is also examined, in detail, as a part of a review of our financial statements for the prior month, by our executive team and board of directors.

Expense Control. We have various controls in place to monitor spending. These range from authorization and approvals by the head of each subsidiary and our CFO as well as review of the periodic check runs by the CFO, and reviews of labor efficiency and utilization by the President and our project managers. An organizational team, which is comprised of the President, CFO, several department heads and key employees, meets bi-weekly to review reports that monitor expenses and cost efficiency, among other factors. Additionally, the executive team of Christenson Velagio and Christenson Electric, comprised of our President, CFO and Controller, meets weekly to review those subsidiaries’ operations. All expenses of EnergyConnect are reviewed and approved by the President of EnergyConnect. Each subsidiary’s financial statements are reviewed monthly with the board of directors to oversee monthly spending patterns and expenses as a part of the review of the prior month’s financial statements.

Cash Requirements. We focus on cash daily, through a series of meetings that highlight cash received from borrowings on the prior day’s billings, cash required to fund daily operating needs, cash received from customers and several other factors that impact cash. We review accounts receivable reports, ineligible receivables and accounts payable reports in conjunction with preparing a daily cash flow schedule that projects and tracks all cash sources and uses. Our management and the board of directors use this information in determining cash requirements.

Longer term cash needs are reviewed on a weekly basis by our Chairman, CEO, President, CFO, Controller and the EnergyConnect President. These meetings are used to determine whether we may need to enter into additional financings or debt agreements to satisfy longer term cash requirements.

Research and Development. We will spend a certain amount in the upcoming year for research and development in EnergyConnect related to development of proprietary tools and software used in the

Customer service. We consider our reputation as one of our most valuable assets. Much of the revenue in our Christenson subsidiaries is based either on repeat business or referrals from our loyal customer base. We review service issues and any customer feedback continually to ensure continued customer satisfaction through timely and high quality work. The same attention to customer needs and satisfaction will be integral to EnergyConnect’s business as that business is built.

Safety. Safety is of utmost importance to us and our employees. Our engineers, electricians and technicians are required to undergo regular educational seminars, which include safety training. We have well defined procedures designed to prevent accidents. Management reviews reports on our safety record, and examines the facts and circumstances surrounding specific accidents to ensure that all procedures were followed, or to modify procedures if needed.

Business Characteristics.

Revenue. We generate revenue by performing electrical service work, technology infrastructure design and installation and through transactions between energy users and regional electric grid operators. These projects are obtained by our sales force and project managers. These projects come from direct solicitation of work, the bidding process, referrals, regular maintenance relationships and repeat customer projects. Revenue from transactions are driven primarily by the acquisition of energy consumers to participate in our programs and support delivery of increasing amounts of service to regional grid operators.

Cash. We generate cash mainly through operations. Cash is borrowed daily from an asset based lender under revolving credit facilities in Christenson Velagio and Christenson Electric. These borrowings are repaid through collections from customers’ accounts. Each subsidiary submits to its lender, daily summaries of customer billings, cash collections, ineligible accounts and the amount of the borrowings requested. The lender approves the submissions and deposits funds directly into each subsidiary’s bank account.

EnergyConnect started invoicing for transactions just prior to its acquisition by us. It is anticipated that its main source of cash will be from operations. This cash, combined with debt financing, if available, will be used to supplement cash from operations until EnergyConnect becomes cash positive on an operating basis.

We have also generated cash through debt issuances and private placements of common and preferred stock. The board of directors reviews both short and long range business plans and projections, and implements funding strategies based on the cash needs produced in the projections. These projections are reviewed quarterly and changes are made if needed.

Opportunities and Risks. Some of the significant business risks we face, among others, include interruption in the flow of materials and supplies, changes in laws that allow for tax credits, interruption of our work force through disagreements with our union, business contraction and expansion caused by the economy, seasonality factors and our general lack of liquidity.

As a part of our regular business planning, we anticipate the effect that these risks may potentially have on our financial condition. Some of the risks are planned for contractually to minimize our liability in cases where we are subject to contract performance. Others are anticipated by forging plans for staff reductions or increases should the economy move drastically in one direction. We also continually look for additional funding sources and cash availability, both by improving operating performance internally and from external debt and equity sources, should our cash be strained by certain factors.

Business Goal Attainment.

When entering into acquisitions, our goal is to realize certain synergies within the resulting organization, save costs from eliminating duplicate processes, and come out of the combination as a profitable company. We achieved operating profitability in the first three quarters of 2005. In the fourth quarter 2005 we had a charge of $77,420,000 related to the impairment of goodwill acquired in the acquisition of ECI, and an additional charge of $503,543 related to the revaluation of the value of warrants issued in the October 2005 private placement. Excluding those charges provides management with results that more closely represent the operations of the business. The results exclusive of those charges show that the core operations of the business were profitable for the full year. These results mark a turnaround from the unprofitable operations we sustained in the business during 2004 and 2003.

Trends.

A large portion of our current business is closely tied to the economy. In a down economy, our work becomes more dependent on repeat business from ongoing customer relationships. When the service, manufacturing and retail industries aren’t expanding, our service projects are more focused toward changes, adds, moves, and fixes within this customer base. We continue to see improvement in the economy at the current time. We experienced a moderate increase in revenues (10.9%) in 2005 in Christenson Velagio compared to the same period of 2004. With the acquisition of Christenson Electric and EnergyConnect, we will experience more seasonality in our revenue base. A large portion of Christenson Electric’s business is impacted by the weather. Wind farms are located in areas of the country where the weather usually becomes severe in the winter, limiting or preventing work on those projects during the severe winter months. EnergyConnect is less affected by changes in the economy than our other subsidiaries. Its business is based on energy usage and prices. During periods of higher level energy costs, EnergyConnect may be positively affected by a down economy, in that EnergyConnect may gain more participation in its energy programs as a way for companies to defray some of their energy costs.

In the years prior to 2005, we saw a dramatic downturn in spending for technology infrastructure. This affected the technology side of our acquired businesses. It is anticipated that as the economy continues to improve, our Company will see increasing revenue from the sales of technology products and services. Also, with the passage of the latest energy bill by Congress, Christenson Electric should continue to benefit from alternative energy projects.

Critical Accounting Policies

The discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to revenue recognition, sales returns, bad debts, excess inventory, impairment of goodwill and intangible assets, income taxes, contingencies and litigation. Our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue recognition and allowances;

Accruals for contingent liabilities;

Inventories and reserves for shrinkage and obsolescence;

Bad debt reserves;

Purchase price allocation and impairment of intangible and long-lived assets;

Significant portions of our revenues are derived from construction and service projects. Revenues from fixed-price, cost-plus-fee, time and material and unit-price contracts are recognized using the percentage-of-completion method of accounting which recognizes income as work on a contract progresses. Recognition of revenues and profits generally are related to costs incurred in providing the services required under the contract. Earned revenue is the amount of cost incurred on the contract in the period plus the proportional amount of gross profit earned during the same period. This method is used because management considers total cost to be the best available measure of completion of construction contracts in progress. Provisions for estimated losses on construction contracts in progress are made in their entirety in the period in which such losses are determined without reference to the percentage complete. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to revenue and costs, and are recognized in the period in which the revisions are determined. Claims for additional revenue are not recognized until the period in which such claims are allowed. Direct contract costs include all direct labor, direct materials and some estimating costs and shop and equipment costs. General and administrative costs are charged to expense as incurred. Revenue from discontinued operations is recognized when persuasive evidence of an arrangement existed, the price was fixed, title had transferred, collection of resulting receivables was probable, no customer acceptance requirements existed and there were no remaining significant obligations.

We also produce revenue through agreements with both building owners and the power grid operators. Under our agreements with facilities owners, we use and may install software and other electrical and energy related products that control energy in their buildings. In conjunction with this agreement we also contract with the power grid operators to use energy, capacity, and related ancillary services during specified times and under specified conditions. These transactions are summarized at the end of each monthly period and submitted to the power grid for settlement and approval. The transactions are recorded as revenue on the settlement date, which may fall 30-60 days after the transaction date from which the revenue is derived, because management feels that without an established history for this source of revenue, and the potential for disputes, that the settlement date, on which both parties agree to the amount of revenue to recognize, is the most conservative and appropriate date to use.

We make estimates of liabilities that arise from various contingencies for which values are not fully known at the date of the accrual. These contingencies may include accruals for reserves for costs and awards involving legal settlements, costs associated with vacating leased premises or abandoning leased equipment, and costs involved with the discontinuance of a segment of a business. Events may occur that are resolved over a period of time or on a specific future date. Management makes estimates of the potential cost of these occurrences, and charges them to expense in the appropriate periods. If the ultimate resolution of any event is different than management’s estimate, compensating entries to earnings may be required.

We adjust inventory for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair value based upon assumptions about future demand and market conditions. At July 1, 2006 the allowance for inventory obsolescence was $143,020 and reflects management’s current estimate of potentially obsolete inventory based on these factors. Any significant unanticipated changes in demand or competitive product developments could have a significant impact on the value of our inventory and our reported results. If actual market conditions are less favorable than those projected, additional inventory write-downs and charges against earnings may be required.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment terms and practices are analyzed when evaluating the adequacy of the allowance for doubtful accounts. At July 1, 2006, the allowance for doubtful accounts was $229,797. This allowance was determined by reviewing customer accounts and considering each customer’s creditworthiness as of July 1, 2006 and the potential that some of these accounts may be uncollectible. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and charges against earnings may be required.

Intangible and long-lived assets to be held and used, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset, and its eventual disposition. Measurement of an impairment loss for intangible and long-lived assets that management expects to hold and use is based on the fair value of the asset as estimated using a discounted cash flow model.

We measure the carrying value of goodwill recorded in connection with the acquisitions for potential impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.” To apply SFAS 142, a company is divided into separate “reporting units,” each representing groups of products that are separately managed. For this purpose, we have one reporting unit. To determine whether or not goodwill may be impaired, a test is required at least annually, and more often when there is a change in circumstances that could result in an impairment of goodwill. If the trading of our common stock is below book value for a sustained period, or if other negative trends occur in our results of operations, a goodwill impairment test will be performed by comparing book value to estimated market value. To the extent goodwill is determined to be impaired, an impairment charge is recorded in accordance with SFAS 142.

In connection with the placement of certain debt instruments during the second quarter 2006 and the year ended December 31, 2005, we issued freestanding warrants. Although the terms of the warrants do not provide for net-cash settlement, in certain circumstances, physical or net-share settlement is deemed to not be within our control and, accordingly, we are required to account for these freestanding warrants as a derivative financial instrument liability, rather than as shareholders’ equity.

The warrant liability is initially measured and recorded at its fair value, and is then re-valued at each reporting date, with changes in the fair value reported as non-cash charges or credits to earnings. For warrant-based derivative financial instruments, the Black-Scholes option pricing model is used to value the warrant liability.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

We tested our intangibles for impairment as of the end of 2005, 2004 and 2003. Goodwill of $106,544,871 was recorded upon the acquisition of ECI, and represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. At December 31, 2005, it was determined in an independent valuation that the goodwill generated in this transaction was impaired. The Company decided to write off approximately $77,191,344 of this goodwill. The write-off of the goodwill, and the amortization of the intangible assets are included in operating expenses in the consolidated statement of operations. Also during the year ended December 31, 2005, our acquisition of CEI resulted in the valuation of CEI’S Christenson name and customer relationships as intangible assets. The Company’s trade name is considered to have an undeterminable life, and as such will not be amortized. Instead, the trade name will be tested annually for impairment, with any impairment charged against earnings in the Company’s consolidated statement of earnings. It was determined that the value of the trade name on

the balance sheet of the Company as of December 31, 2005 was partially impaired. An expense of $114,415 was charged against earnings for the year ended December 31, 2005.

At January 1, 2005 an impairment test was performed on the value of the trade name within CVI, and the result indicated that the recorded book value of our trade name exceeded its fair value, as determined by undiscounted cash flows. Upon completion of the assessment, we recorded a non-cash impairment charge of $376,000, net of tax, or $0.02 per share at January 1, 2005 to reduce the carrying value of the trade name to its estimated value of $872,771.

During the fourth quarter of 2003, management determined that the goodwill recorded for both IST and Velagio was impaired due to the fact that operations of both of these entities were discontinued. A charge was recorded in 2003 under “Loss from discontinued operations,” in the consolidated statement of operations in the amount of $1,295,000 for Velagio and $250,000 for IST.

Recent Accounting Pronouncements

New Accounting Pronouncements

FIN 47. In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,” which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. We are required to adopt the provisions of FIN 47 no later than the first quarter of fiscal 2006. We do not expect the adoption of this Interpretation to have a material impact on our consolidated financial position, results of operations or cash flows.

SFAS 154. In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. We do not expect the adoption of this SFAS to have a material impact on our consolidated financial position, results of operations or cash flows.

SFAS 155. On February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We do not expect adoption of this new standard to have a material impact on its financial position, results of operations or cash flows.

Results of Operations

Six Months Ended July 1, 2006 compared to Six Months Ended July 2, 2005

The financial information presented for the six months ended July 1, 2006, represents activity in Microfield Group, Inc. and its wholly-owned subsidiaries, CEI and ECI. The financial information presented for the six months ended July 2, 2005 represents activity in Microfield and its previously separate subsidiary CVI, as the acquisitions of CEI and ECI did not occur until later in the fiscal year 2005. Since there is neither revenue nor expense from the separate business previously named CEI, and from ECI included in the totals for the six months ended July 2, 2005, comparisons between the current quarter totals, and those from the same period in 2005, are not meaningful.

Sales. Revenue for the six months ended July 1, 2006 was $40,132,000 compared to $17,901,000 for the six months ended July 2, 2005. Sales within CEI and ECI for the six month period in 2006 totaled $38,992,000 and $1,140,000, respectively. There were sales to one customer that comprised 22% of total revenue in the six months ended July 1, 2006. There were no sales to any customers during the six months ended July 2, 2005 that exceeded 10% of our total sales for that period.

Cost of Sales. Cost of sales for the six months ended July 1, 2006 was $34,518,000 compared to $14,098,000 for the six months ended July 2, 2005. Cost of sales includes the cost of labor, products, supplies and overhead used in providing electrical and technology services.

Gross Profit. Gross profit for the six months ended July 1, 2006 was $5,613,000 (or 14.0%) compared to $3,804,000 (or 21.2%) for the same period in 2005.

Future gross profit margins will depend on the volume and mix of sales of products and services to the our customers, as well as our ability to control costs. It is our goal to sustain higher levels of gross margins through continuing cost reduction efforts, an emphasis on obtaining higher gross margin work projects and diligent management and oversight of project costs.

Operating Expenses. Operating expenses are comprised mainly of payroll costs, facilities and equipment rent, outside services, insurance, utilities and depreciation. Operating expenses were $7,759,000 (19.3% of sales) for the six months ended July 1, 2006, compared to $3,226,000 (18.0% of sales) for the six months ended July 2, 2005. The increase is due to the addition of the two acquired companies and the operating costs associated with them. Operating costs were also affected by the charge for stock based compensation, which was $975,590 for the six months ended July 1, 2006, compared to none in the six months ended July 2, 2005. We were not required to charge stock based compensation expense against earnings in 2005.

The level of operating expense for the 2006 is anticipated to continue to be significantly higher compared to the level incurred in the 2005 due to the addition of the costs from the two acquired business that were not in the expense totals for the full twelve months of 2005. CEI was acquired in July of 2005, and ECI was acquired in October 2005. We anticipate expenses, operating expenses will approximate between 17% and 24% of sales for 2006.

Interest Expense. Interest expense was $845,000 for the six months ended July 1, 2006 compared to $784,000 for the six months ended July 2, 2005. Interest expense increased from the prior year due mainly to higher market rates of interest and to higher outstanding balances under our operating line of credit over this six month period. We recorded $321,000 in non-cash interest expense associated with the warrant cost under the terms of the Destination Capital note in the six months ended July 2, 2005. Excluding the effect of these non-cash interest charges, interest expense was $463,000 for the six months ended July 2, 2005.

Derivative income/expense. We recorded derivative expense of $1,436,000 in the first six months of 2006. This is a result of the re-valuation of a warrant obligation initially recorded in the October 2005 private placement. In accordance with SFAS 131, this warrant obligation is required to be marked-to-market at the end of each reporting period, with the resulting increase or decrease in its value being recorded as derivative income or expense in our consolidated statement of operations for that period. This compares to derivative income in the first six months of 2005 of $32,000 from the re-measurement of an embedded derivative. These derivative income and expense amounts are recorded based on the fluctuations of the Black Scholes value of the derivative liabilities listed on the consolidated balance sheet. The expense is computed using the fair value of our common stock, among other factors, and will produce derivative expense or derivative income as our stock price increases or decreases, respectively.

Gain / Loss From Discontinued Operations. Discontinued operations are comprised of a royalty from the sale of the SoftBoard business. The SoftBoard business was sold in 2000. As part of the sale price, we receive royalties from the purchaser of that business, based on sales of SoftBoard products. These royalties are listed in the income statement under “Gain on sale of discontinued operations.” The amount of $17,068 received in the first quarter 2006 is the last payment to be received by us under the royalty agreement.

Income Taxes. There was no provision for income taxes for the six months ended July 1, 2006 and July 2, 2005 due to losses incurred by us in those periods. No tax benefit from loss carryback was recorded in either year as there was no income tax paid in the open loss carryback periods. We have provided a full valuation allowance on its net deferred tax asset.

The following table sets forth, as a percentage of sales, certain consolidated statement of operations data relating to the business for the periods indicated.

	Fiscal 2005		Fiscal 2004		Fiscal 2003
Net sales	100	%	100	%	100	%
Cost of goods sold	82		83		84
Gross profit	18		17		16
Operating expenses	149		29		40
Loss from continuing operations	(131	)	(12	)	(24	)
Other income (expense)	(4	)	(5	)	(6	)
Loss before income taxes	(135	)	(17	)	(30	)
Benefit from income taxes	—		—		—
Loss before discontinued operations	(135	)	(17	)	(30	)
Discontinued operations	—		1		(28	)
Net loss	(135	)%	(16	)%	(58	)%

Fiscal Year Ended December 31, 2005 compared to Fiscal Year Ended January 1, 2005 compared to Fiscal Year Ended January 3, 2004

Due to the acquisitions of CEI and ECI in 2005, the financial information presented for the year ended December 31, 2005, represents activity in CEI and ECI for the periods from the date of their acquisitions to the end of the fiscal year, combined with revenue, other income and S G & A expenses of Microfield Group, Inc. for the year ended December 31, 2005. The financial information presented for the fiscal year ended January 1, 2005 does not include any revenues and expenses for CEI and ECI. Due to the disproportionate size of the revenues and expenses in the accompanying consolidated statements of operations in 2005 compared to those in 2004, comparisons between the two periods may not be meaningful.

The financial information presented for the year ended January 1, 2005, represents activity in CVI and Microfield Group for the full twelve months of 2004. Due to the acquisition of CTS and Velagio on September 16, 2003, the financial information presented for the year ended January 3, 2004, represents activity in Velagio and CTS for the three and a half months from the date of their acquisitions to the end of the fiscal year, combined with revenue, other income and S G & A expenses of IST and Microfield Group, Inc. for the year ended January 3, 2004. Due to the disproportionate size of the revenues in 2004 compared to those in 2003, no meaningful comparison can be made between revenue of the two years presented in the accompanying consolidated statements of operations. Comparisons will be made between quarterly revenue and expenses on a consecutive basis in 2004, and also to revenue and expenses for the fourth quarter of 2003.

Sales. Revenue for the fiscal year ended December 31, 2005 was $57,935,000 compared to $36,467,000 for the fiscal year ended January 1, 2005. The increase in revenue between periods is partly due to an increase in sales within CVI of approximately 11% in 2005 over sales in 2004. The acquisitions of CEI and ECI contributed revenue of approximately $18,482,000 in 2005 compared to none in 2004. There were sales to one customer that comprised more than 10% of our total sales for the fiscal year 2005. Our revenue is subject to some seasonal influences, with the summer months typically producing the largest revenues of the year. This seasonality may become more pronounced with the acquisition of CEI, whose revenue is lower during times of severe winter weather.

Revenue for the fiscal year ended January 1, 2005 increased to $36,467,000 from $10,342,000 for the fiscal year ended January 3, 2004. The revenue amount for the prior fiscal year includes sales of technology products and electrical construction services in CVI during the three and a half months from the date of the acquisition to the end of the fiscal year. There were no sales to any one customer that comprised more than 10% of our total sales for the fiscal year 2004 or 2003. Revenues for the first through the fourth quarters of 2004 were $9,191,000, $9,646,000, $9,493,000 and $8,137,000. These compare to revenue of $9,235,000 in the fourth quarter of 2003. The company’s revenue is subject to some seasonal influences, with the summer months typically producing the largest revenues of the year. Revenue was down in the fourth quarter of 2004 compared to the previous consecutive quarters, and from the prior year fourth quarter due primarily to a decision we made to forego bidding on larger, less profitable contracts. This shift was made in the summer of 2004 and affected revenue late in the third quarter and during the fourth quarter of 2004.

For the fiscal year ended December 31, 2005, revenue for CEI and ECI was $56,762,252 and $1,172,783, respectively, as compared to $36,466,618 and $0 for the fiscal year ended January 1, 2005, respectively and $10,342,045 and $0 for the fiscal year ended January 3, 2004, respectively.

Cost of Sales. Cost of sales totaled $47,702,000 (82%) for the fiscal year ended December 31, 2005, compared to $30,335,000 (83%), for the same period in the prior year. The current fiscal year’s cost of sales includes the cost of labor, products, supplies and overhead used in providing electrical and technology services in CVI for the full year and those costs within CEI and ECI from the dates of their acquisitions in 2005 through the end of the year. Overall costs as a percentage of sales, including CEI and ECI, decreased due to the continued emphasis on procuring higher margin projects. Costs of sales within CVI totaled approximately $32,137,000 which represented 80% of sales of CVI. Costs of sales within CEI and ECI totaled approximately $16,234,000 which represented 88% of sales within those combined entities.

Cost of sales totaled $30,335,000 (83%) for the fiscal year ended January 1, 2005, compared to $8,712,000 (84%) for the same period in the prior year. All of the 2004 cost of sales includes the cost of labor, products, supplies and overhead used in providing electrical and technology services in CVI. Prior year amounts include those costs from September 16, 2003, the date of acquisition of CTS, to the end of the fiscal year. Cost of sales for the first through the fourth quarters of 2004 were $7,379,000, $7,975,000, $7,804,000 and $7,177,000. These compare to cost of sales of $7,851,000 in the fourth quarter of 2003.

For the fiscal year ended December 31, 2005, costs of sales for CEI and ECI was $47,036,913 and $665,585, respectively, as compared to $30,334,987 and $0 for the fiscal year ended January 1, 2005, respectively, and $8,712,117 and $0 for the fiscal year ended Janaury 3, 2004, respectively.

Gross Profit. Gross profit for the fiscal year ended December 31, 2005 was $10,233,000 (18%) compared to $6,132,000 (17%) for the fiscal year ended January 1, 2005. This increase in gross profit is due primarily to the gross profits provided by newly acquired CEI and ECI. These businesses provided gross profits of approximately $2,248,000 from the dates of their acquisitions in 2005 through the end of the year. Gross profit within CVI for the year ended December 31, 2005 increased to approximately $8,089,000 (20%) from $6,131,000 (17%) in the same period in 2004. This was due primarily to increased sales in the current year within CVI and our emphasis on higher margin projects. ECI is starting to grow revenue and gross profits, producing approximately $507,000 in gross profits from the date of acquisition to the end of the fiscal year 2005. CEI produced approximately $1,741,000 in gross profit from the date of its acquisition through December 31, 2005.

Gross profit for the fiscal year ended January 1, 2005 was $6,132,000 (16.8%) compared to $1,630,000 (or 15.8%) for the fiscal year ended January 3, 2004. Gross profit for the first through the fourth quarters of 2004 was $1,812,000, $1,671,000, $1,689,000 and $960,000. These compare to gross profit of $1,384,000 in the fourth quarter of 2003. Gross profit was down in the fourth quarter of 2004 compared to the previous consecutive quarters due primarily to the move we made to not bid on larger, less profitable work. The margin in the fourth quarter of 2004 (12.7%) was lower than margins experienced in the first three quarters of 2004 (between 17.3% and 18.9%) due to losses we took on three specific projects in the fourth quarter.

For the fiscal year ended December 31, 2005, gross profit for CEI and ECI was $9,725,339 and $507,198, respectively, as compared to $6,131,631 and $0 for the fiscal year ended January 1, 2005, respectively, and $1,629,928 and $0 for the fiscal year ended January 3, 2004, respectively.

Future gross profits and gross margins will depend on the volume and mix of sales of products and services to our customers, as well as our ability to control costs and efficiently manage their jobs. It is anticipated that while savings are realized from the implementation of continuing cost reduction efforts and higher gross margin work projects are targeted, overall gross profit margins may decrease due to the lower margin business associated with revenues within CEI.

Sales, General and Administrative Expenses (S, G & A). S, G & A expenses are comprised mainly of payroll costs, facilities and equipment rent, outside services, insurance, utilities and depreciation. S, G & A expenses were $8,759,000 (15.1%) for the fiscal year ended December 31, 2005, compared to $9,748,000 (26.7%) for the fiscal year ended January 1, 2005. The decrease in dollar amounts between years occurred despite adding $1,630,000 from expenses incurred within CEI and ECI from the dates of their acquisitions in 2005 through the end of the current year.

Expenses within the Microfield holding company and CVI totaled approximately $6,897,000 in 2005 compared to approximately $9,748,000 in 2004. This decrease of $2,851,000 in Microfield and CVI expense is due primarily a decrease in overhead payroll costs of $693,000, a re-allocation of $501,000 of bonding and insurance costs into cost of sales, a reduction in general variable costs of $307,000, and lower professional fees of $861,000. The decrease in professional fees was primarily a result of lower legal fees of $484,000 due to the fees incurred with a lawsuit in 2004, lower investor relations costs of $181,000 due to the high initial cost of signing up our investor relations firm, and a reduction in consulting fees of $160,000. The reduction in payroll costs within CVI, which include salary, payroll taxes and fringe benefits, was due primarily to staff reductions and the elimination of some executive positions.

S, G & A expenses within the newly acquired subsidiaries in 2005 consisted mainly of payroll and benefits of $775,000, professional and consulting fees of $244,000, and fixed costs such as rent and insurance of $449,000.

S, G & A expenses increased to $9,748,000 (26.7%) for the fiscal year ended January 1, 2005, compared to $4,104,000 (39.7%) for the fiscal year ended January 3, 2004. The increase in dollar amounts between years is due to a full year of expenses of CVI in 2004 compared to three and a half months from the acquisition of CVI on September 16, 2003. The decrease in percentage of S, G & A expenses to sales is due to lower relative payroll costs in the fiscal year ended January 1, 2005 compared to the prior year. S, G & A expenses are comprised mainly of payroll costs, facilities and equipment rent, outside services, insurance, utilities and depreciation. Payroll costs, which include salary, payroll taxes and fringe benefits, totaled $5,533,000 for the fiscal year ended January 1, 2005. These costs totaled $1,476,000, $1,377,000, $1,271,000, and $1,409,000, for the first through the fourth quarters of 2004, respectively. These expenses decreased through the first three quarters due to staff reductions and the elimination of some executive positions. These expenses increased in the fourth quarter due to year end reconciliations in certain accounts.

Total rents for the year ended January 1, 2005 were $490,000, which was primarily comprised of facilities rent. This is compared to $203,000 of rent incurred in the year ended January 3, 2004.

Outside services, professional fees, insurance, utilities and depreciation for the year ended January 1, 2005 totaled $2,866,000, compared to $842,000 for the year ended January 3, 2004. The increase in these expenses is due primarily to having a full year’s expenses in 2004 compared to three and a half months in 2003. Expenses for the first through the fourth quarter 2004 totaled $1,008,000, $425,000, $894,000 and $539,000, respectively. The first quarter of 2004 included $395,000 in legal expense for anticipated costs in defending a lawsuit filed against us (see Legal Proceedings). These expenses decreased through the first two quarters of 2004 due to lower usage of professionals and outside service providers, and to a 50% reduction in telephone and utility costs. These third quarter 2004 costs increased significantly compared to the second quarter due to added investor relations costs. During that quarter, we issued 1,600,000 shares of its common stock to an investor relations firm for services to be rendered for us in the public equity markets. This issuance was recorded in shareholders’ equity at the fair market value of the stock on the date of issuance, and resulted in an expense of $560,000. Of this total, $472,000 was charged to expense in the third quarter of 2004, with the remaining $88,000 charged to expense in the fourth quarter 2004.

The level of S, G & A expenses for the 2006 fiscal year is expected to increase compared to the level incurred in the year ended December 31, 2005 due to the fact that a full year of expenses of both CEI and ECI will be included in our statement of operations for 2006.

Write-off of impaired goodwill and intangibles. Current year charges included a write-off of $77,419,759 for the impairment of the goodwill recorded in the acquisition of ECI. This amount also includes $114,415 of impairment of the CEI trade name recorded in the acquisition of ECI in July 2005, and an additional $114,000 write off for excess value purchased in the acquisition of a competitor’s base of business. The prior year charges of $376,000 included a write-down of the trade name associated with the acquisition of Christenson Velagio. This intangible was recorded

initially with the acquisition of CVI in September 2003. We perform annual impairment test on our goodwill and intangible assets. Future impairment charges, if any, will be recorded as a charge against earnings.

Interest Expense. Interest expense was $1,580,000 for the year ended December 31, 2005, compared to $1,959,000 for the year ended January 1, 2005, and $428,000 for the year ended January 3, 2004. The significant decrease in interest expense between 2005 and 2004 was primarily a result of the charges in 2004 for interest on warrant liabilities and the increasing values caused by our fluctuating stock price. The significant increase in interest expense between 2004 and 2003 was primarily also a result of the charges on warrant liabilities and the increasing values caused by our fluctuating stock price. For a portion of the year in 2004, we did not have a sufficient amount of authorized common shares to issue in the conversion of all common stock equivalents. Several events occurred during 2004 in which warrants to purchase common stock were issued. In accordance with EITF 00-19, the fair value of the warrants issued in the private placement must be recorded as a liability in the financial statements using the Black-Scholes model, and any subsequent changes in our stock price to be recorded in earnings. These warrant issuances and subsequent increases in value resulted in non-cash charges to interest expense during the fiscal year 2004 of $1,087,000. (See Non-cash Expense Table below.)

Loss on valuation of warrant liability. On October 5, 2005, as a part of a private placement, we issued warrants that were given registration rights. These warrants were valued and recorded as a liability. In accordance with EITF 00-19, the fair value of the warrants issued in the private placement must be recorded as a liability in the financial statements using the Black-Scholes model, and any subsequent changes in our stock price to be recorded in earnings. This warrant issuance and the increase in value between their issuance and the end of the year resulted in non-cash charges to other expense during the fiscal year 2005 of $503,543. (See Non-cash Expense Table below.)

Gain / Loss From Discontinued Operation. After the acquisitions of Velagio and CTS in 2003, management discontinued the operations of both Velagio and IST due to a decline in sales and a decision to focus on the CTS business. Accordingly, the revenue, expenses and other income or losses for both Velagio and CTS are condensed and reported as discontinued operations in the consolidated statement of operations. Certain information from those businesses is reported below.

We recorded miscellaneous income of $149,000 in the year ended January 1, 2005, from the resolution of certain liabilities that were contained in the balance sheet of Velagio. For the fiscal year ended January 3, 2004, sales of IST and Velagio products and services included in discontinued operations totaled $496,000. The cost of sales and gross profit included in discontinued operations for the year ended January 3, 2004 totaled $440,000 and $56,000, respectively.

S, G & A and other expense incurred in IST and Velagio for the year ended January 3, 2004 totaled $2,987,000. Included in this amount is a write down from the impairment of goodwill, in both IST and Velagio, of $1,546,000. Also included in this amount are charges against earnings of $255,000 for the write off of the remaining value of intangibles acquired in the acquisition of IST in 2002.

Discontinued operations also contain gains of $46,000, $63,000 and $37,000 on the sale of the SoftBoard business for the years ended December 31, 2005, January 1, 2005 and January 3, 2004, respectively. The SoftBoard business was sold in 2000. As part of the sale price, we receive royalties from the purchaser of that business, based on sales of SoftBoard products. These royalties are listed in the income statement under “Gain on sale of discontinued operations.”

Income Taxes. There was no provision for income taxes in 2005, 2004 and 2003 due to losses incurred by us in those years. No tax benefit from loss carryback was recorded in any year as there was no income tax paid in the open loss carryback periods. Because of the significant losses recorded in prior periods, we have provided a full valuation allowance on our net deferred tax asset.

Non-cash Expense Items

Since the acquisition of CTS and Velagio in September of 2003, we have entered into several financings, debt conversions and other transactions where common stock or warrants were issued as a part of the agreements. Many of the issuances resulted in charges to our statement of operations over that period. Additionally, other transactions and events occurred in which significant non-cash expense or income arose due to the nature of those occurrences. The following table lists these items and the effect on our statements of operations for the fiscal years ended December 31, 2005, January 1, 2005 and January 3, 2004.

Non-cash expense item description*	December 31, 2005			January 1, 2005			January 3, 2004
Stock-based derivative liability re-measurement	$	88,024		$	16,150		$	140,754
Interest expense on warrant issuances and re- measurements	320,967			912,402			—
Re-valuation of warrant liability	503,543			—			—
Common stock and stock options issued for services	244,000			560,000			—
Interest expense on amortization of debt discount	13,564			158,869			—
Intangible write-off and amortization	77,419,759			110,556			1,841,189
Gain on disposal of assets and lease termination	(7,145		)	(92,137		)	—
Write down of impaired intangible asset	—			376,000			—
Unused reserve for legal fees to contest lawsuit	(120,000		)	205,568			—
Loss on debt extinguishment	—			515,000			111,000
Total transactional non-cash income and expense	$	78,462,712		$	2,762,408		$	2,092,943

* This table does not include recurring non-cash expenses such as depreciation.

Liquidity and Capital Resources

Since inception, we have financed our operations and capital expenditures through public and private sales of equity securities, cash from operations, and borrowings under bank lines of credit. At July 1, 2006, we had positive working capital of approximately $7,118,000 and our primary source of liquidity consisted of cash and its operating lines of credit.

Accounts receivable increased to $12,894,000 at July 1, 2006 from $8,558,000 at December 31, 2005. The increase is due to the larger volume of business in process at July 1, 2006 than was in process at the end of the prior year. The alternative energy projects, specifically those in the wind energy sector, are typically undertaken in the spring, summer and fall months, and slow down over the winter months due to severe weather in those areas. Our receivables are net of an allowance for doubtful accounts of $230,000 and $229,000 at July 1, 2006 and December 31, 2005, respectively. Management expects these receivables to remain fairly constant as a percentage of sales in year over year comparisons, decreasing slightly as efficiencies in the billing and collection processes are achieved. At July 1, 2006, one customer’s outstanding receivable balance accounted for 21% of total outstanding accounts receivable.

Inventory decreased to $327,000 at July 1, 2006 from $721,000 at December 31, 2005. This decrease is due to a large portion of the inventory on hand at year end being fully utilized on a specific project early in the first quarter of 2006. Sequentially, this balance increased by $12,000 from April 1, 2006 due primarily to seasonal fluctuations. This balance mainly includes inventory used in the electrical services business. We maintain a fleet of trucks and vans which each maintain a certain level of inventory needed to provide timely products and services to our customers. The inventory levels should remain relatively constant, and increase slightly as our revenue increases.

We recorded costs in excess of billings, which reflect those costs incurred on construction and services, which have not yet been billed to customers. This amount increased by $2,956,000 to $4,995,000 at July 1, 2006 from $2,039,000 at December 31, 2005, due to several large projects outstanding at July 1, 2006 which were under-billed on that date. This should remain relatively constant as a percentage of sales on an ongoing basis.

Property and equipment, net of depreciation increased by $94,000 to $545,000 at July 1, 2006, compared to $451,000 at December 31, 2005. This increase was due primarily to the purchase of office equipment in the amount of approximately $25,000, leasehold improvement costs of $75,000 associated with the company’s move to a new location, less normal depreciation on fixed assets. We do not anticipate spending significant amounts to acquire fixed assets for the foreseeable future.

In the acquisition of CEI in July 2005, we recorded goodwill of $5,934,000 due to the excess of the purchase price paid over the book value of the net assets of CEI. As a result of the transaction we also recorded $873,000 in intangible value associated with the Christenson trade name. This intangible was written down by $114,000 at December 31, 2005 due to an impairment of the asset. This value has an indefinite life, and as such will not be amortized. We also recorded a $1,687,335 customer relationship intangible asset in this transaction. This amount was calculated during testing performed at year end, and as such was reclassified from goodwill previously recorded. This intangible asset has a ten-year life and will be amortized monthly on a straight-line basis, over that period.

We recorded $106,545,000 in goodwill from the acquisition of ECI in October 2005, which represents the value of the price paid for the stock of ECI over the net asset value of the assets and liabilities within ECI. At December 31, 2005, an impairment test was performed on the value of the goodwill resulting in an impairment charge of $77,191,000. This charge is recorded as an operating expense in the consolidated statement of operations. We do not amortize goodwill.

We also recorded an intangible asset of $2,390,667 at the date of the ECI acquisition consisting of developed technology that is currently used within ECI. The intangible asset acquired has an estimated useful life of ten years, and as such will be amortized monthly, over that period. No cash was paid for the acquisition of either CEI or ECI.

Accounts payable increased by $2,899,000 to $10,041,000 at July 1, 2006 from $7,142,000 at December 31, 2005. This increase is due to the higher levels of payables associated with increased activity at the end of the second quarter compared to the activity levels at December 31, 2005. Payables consist primarily of the costs of inventory, materials and supplies used in the electrical construction services and technology infrastructure services provided by us.

Accrued payroll, payroll taxes and benefits were $3,105,000 at July 1, 2006. These amounts consist primarily of union and non-union payroll, and payroll withholdings, health and welfare benefits owed to the unions representing our electricians and technicians, and other payroll related obligations. This liability will vary between reporting periods based on the fact that payroll taxes decrease as the tax obligation thresholds for some of the taxes are exceeded. The combined payroll, payroll tax and benefit amounts should fluctuate with our revenues reflecting the increased or decreased activity levels, and as such, represents a main cash use of our funds. These liabilities are primarily short-term in nature with most of them being paid within one to six weeks of the expense being incurred.

The main bank line of credit was approximately $10,000,000 at July 1, 2006 compared to a balance of $5,840,000 at December 31, 2005. This lending facility is a primary source of funds for us. Amounts are drawn against it each day based on the amount of eligible revenues that are billed by us. As receivables are collected daily, those funds are used to pay down the facility. With the completion of our private placement on June 30, 2006, a significant portion of this facility was paid down. In future periods, when there exists no outstanding balance under the line, collected funds will be remitted by the lender, to us as they are collected. The facility has a limit of $10,000,000 and borrowings are based on 90% of eligible accounts receivable, plus 50% of work in process, up to a total of 95% of eligible collateral. In July 2006, after we significantly reduced the amount outstanding under the line, the advance rate, which had been increased as an accommodation to us, was revised back down to 85% of eligible accounts receivable, with no inclusion of work in process in the borrowing base. As of July 1, 2006, based on eligible receivables, we had no available borrowing capacity. We have an additional line of credit that is for $120,000 and is unsecured. There was approximately $117,000 outstanding under this line at July 1, 2006 and December 31, 2005.

In August 2004, we entered into a borrowing agreement with Destination Capital, LLC. Under this loan agreement, we borrowed $1,200,000 to be used for operating capital. On August 1, 2005, we entered into an agreement to split this debt into three separate promissory notes in the amounts of $516,667, $420,000 and $180,000. These notes were then assigned to two related parties, JMW Group and CLC. The $420,000 and the $180,000 loans were paid off in conjunction with the October 2005 private placement. As of July 1, 2006, due to required monthly payments, there was $83,000 due under the remaining outstanding loan.

We and our subsidiary have suffered recurring losses from ongoing operations and have experienced negative cash flows from continuing operating activities during 2005 and the first two quarters of 2006. As of July 1, 2006 as a result of the private placement completed on June 30, 2006, we had working capital of $7,118,000, total liabilities of $50,048,000 (of which $22,985,000 is the result of an imbedded derivative associated with outstanding warrant liabilities) and an accumulated deficit of $111,664,000. We have reduced our operating losses significantly from prior years. The current operating loss of $2,145,000 for the six months ended July 1, 2006 includes $976,000 in stock based compensation expense and $259,000 of expense due to the amortization of intangible assets. Because of these reduced operating losses, and the reduction of a significant portion of debt as a result of the capital infusion on June 30, 2006, we believe we will have sufficient capital resources to meet projected operating cash flow needs for the next twelve months.

We had no commitments for capital expenditures in material amounts at July 1, 2006.

Our independent certified public accountants have stated in their report, which is included with our audited financial statements in the Form 10-KSB for the year ended December 31, 2005, that we have incurred operating losses in the last two years and that we are dependent on management’s ability to raise capital and develop profitable operations. These factors, among others, may raise substantial doubt about our ability to continue as a going concern. By adjusting its operations and development to the level of capitalization, management believes it has sufficient capital resources to meet projected cash flow deficits. Any projections of future cash needs and cash flows are subject to substantial uncertainty. If our capital requirements vary materially from those planned, we may require additional financing sooner than anticipated. We are not assured that financing will be available in amounts or on terms acceptable to us, if at all. If we issue equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. Debt financing, if available, may involve restrictive covenants, which could restrict our operations or finances. If we cannot raise funds or sell assets, if needed, on acceptable terms, we may not be able to continue our operations, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements which could negatively impact our business, operating results and financial condition.

Inflation

In the opinion of management, inflation will not have an impact on our financial condition and results of its operations.

Off-Balance Sheet Arrangements

We do not maintain off-balance sheet arrangements nor does we participate in any non-exchange traded contracts requiring fair value accounting treatment.

Related Party Transactions

We have a number of promissory notes, lines of credit and lease obligations owing to related parties. The following table lists the notes and obligations outstanding at July 1, 2006 by related party.

			Amount of	Monthly
Related Party	Type of Obligation	Maturity Date	Obligation	Payment
Christenson Leasing LLC(a)(g)	T. I. lease	December 2007	129,875	7,940
Christenson Leasing LLC(a)(g)	Vehicle leases	various	58,785	various
Christenson Leasing LLC(a)(g)	Equipment lease	December 2007	—	(f)60,000
JMW Group, LLC(a)	Note payable	August 2006	83,333	(c) 41,667
Aequitas Capital Management(a)	Note payable	April 2006	19,907	various
Rod Boucher(h)	Note payable	September 13, 2008	417,207	11,309
William C. McCormick	Note payable	July 2005	250,000	interest only
Mark Walter	Bond guarantee fees	Open obligation	—	(b)4,000
Destination Microfield, LLC(d)	Vehicle lease	August 2006	—	(e)36,350
William C. McCormick	Indemnity fees	Open obligation	—	(h)14,913
John B. Conroy	Note receivable	September 2005	66,250	—

(a) Robert J. Jesenik, a former director owns a significant interest in these entities.

(b) This bond guarantee fee is an approximation, and fluctuates based on the total open bond liability.

(c) This payment amount is for principal only. An additional amount is due monthly which includes interest at prime plus 10%.

(d) William C. McCormick, Chairman of our board of directors, holds a minority ownership interest in this entity.

(e) These payments vary over the term of the loan. This amount represents the monthly payment in effect on July 1, 2006.

(f) This payment was reduced to $60,000 per month by terms of the reissued note, starting November 1, 2005.

(g) This note represents deferred salaries and expenses payable to Mr. Boucher prior to the acquisition of EnergyConnect, and a $100,000 loan made to us in May 2006.

(h) These indemnity fees are payments made on standby letters of credit which are in place to guarantee payments to vendors on specific jobs.

Terms and conditions of each of the notes and agreements are listed below.

Notes Payable to Destination Capital, LLC

On August 24, 2004 we entered into a Business Loan Agreement with Destination under which we could borrow up to $2,000,000 based on Destination’s discretion and funds availability. Under the terms of the agreement, we pay interest at prime plus 10% (prime plus 12% in the event of a default), with nine monthly interest only payments starting September 24, 2004, and 15 monthly principal payments of $83,333 and accrued interest until maturity. At loan maturity on August 24, 2006, any remaining principal and accrued interest owed is then due and payable. This loan is immediately due if there occurs a default, there is a sale or disposal of all or substantially all of our assets or stock , or if there is a transfer of ownership or beneficial interest, by merger or otherwise, of our stock or our subsidiary. Additionally, we will issue to Destination the number of warrants equal to 12.5% of the value of the loan balance, on the first day of each month the loan is outstanding. These warrants have a five year life and will be issued at the lower of $0.38 or the price applicable to any shares, warrants or options (excluding options granted to employees or directors) issued by us while the loan is outstanding. Beginning August 1, 2004, we were obligated to issue the following warrant amounts based on the outstanding loan balances on the first day of each month.

Date	Loan Balance		Warrants to be Issued
August 1, 2004	$	300,000	37,500
September 1, 2004	$	750,000	93,750
October 1, 2004	$	1,200,000	150,000
November 1, 2004	$	1,200,000	150,000
December 1, 2004	$	1,200,000	150,000
January 1, 2005	$	1,200,000	150,000
February 1, 2005	$	1,200,000	150,000
March 1, 2005	$	1,200,000	150,000
April 1, 2005	$	1,200,000	150,000
May 1, 2005	$	1,200,000	150,000
June 1, 2005	$	1,200,000	150,000
July 1, 2005	$	1,158,334	144,792
Total warrants to be issued as of July 1, 2006			1,626,042

We were obligated to issue warrants to purchase 37,500 common shares at the time this note was issued. The fair value of these warrants was determined to be $17,513 using the Black Scholes pricing model. The assumptions used included a risk free rate of 3.8%, volatility of 155%, fair market value of our stock of $.50 per share and a remaining life of 5 years. The calculated fair value amount was recorded as a debt discount and is being amortized over the twenty-four month term of the debt. The warrants issued from September 1, 2004 through July 1, 2005 were also valued using the Black Scholes pricing model. The assumptions used include risk free rates ranging from 3.39% to 4.17%, volatility percentages ranging from 121% to 155%, remaining lives of 5 years for each warrant issuance, and fair market values of our stock ranging from $0.30, to $0.60 per share. At the time these warrant obligations arose, we had sufficient authorized common shares to effect the exercise of these warrants. Accordingly, the fair values of the warrants issued from September 1, 2004 through July 2, 2005, $604,955, were classified as common stock warrants in the shareholders’ equity (deficit) section on the consolidated balance sheet, and expensed as interest expense in the consolidated statement of operations, as they were issued.

On August 1, 2005 the note owed to Destination was replaced by three notes, which were assigned to two related parties, Christenson Leasing Company LLC (CLC) and JMW Group, LLC (JMW). The three notes contain the following terms: $516,667 note payable to JMW with monthly payments of $41,667 plus interest at prime plus 10% beginning August 24, 2005 through August 24, 2006; $180,000 note payable to JMW with monthly payments of $5,000 plus interest at prime plus 10% beginning August 24, 2005 through July 24, 2008; $420,000 note payable to CLC with monthly payments of $11,667 plus interest at prime plus 10% beginning August 24, 2005 through July 24, 2008. In October 2005, the note to CLC and the smaller of the two notes to JMW were paid in full by CVI. Also, as a result of the renegotiation of these notes, the warrant obligation, contained in the business loan agreement was eliminated.

Note Payable to Rod Boucher

On October 13, 2005, as a part of the acquisition of EnergyConnect, we assumed the liabilities of EnergyConnect. Included in the liabilities was a note payable to Rod Boucher. Mr. Boucher became our Chief Executive Officer as of the date of the acquisition. The note represents expenses within EnergyConnect prior to its acquisition. The note is in the amount of $329,033, with monthly payments of $11,309, including interest at prime plus 10%, due on the 13th of each month through September 13, 2008. This note was repaid in full in August 2006.

Note Payable to William McCormick

On January 28, 2005, we entered into a promissory note agreement with William McCormick in the amount of $250,000. Pursuant to the terms of the note, monthly payments of interest only at 15% per annum, are due on the 28th day of each month starting on February 28, 2005. The note was to be paid in full on July 28, 2005 and was paid in full in July 2006.

Bond Guarantee Fees

Mark Walter

A certain number of Christenson Electric construction projects require us to maintain a surety bond. The bond surety company requires an additional guarantee for issuance of the bond. We have an agreement with Mark Walter, our President under which at quarter end we pay Walter between $1,000 and $4,000 per month for his personal guarantee of this bond liability. The guarantee fee is computed as 10% of the open liability under bonds issued for Christenson Electric.

William McCormick

Certain construction projects within Christenson Electric required standby letters of credit. Our chairman of the board of directors has provided two letters of credit in the amounts of $1,000,000 and $193,000, for which he is paid indemnity fees. Under the $1,000,000 letter of credit agreement, Mr. McCormick is paid a fee of 15% of the letter of credit amount. Under the $193,000 letter of credit, Mr. McCormick is paid a fee of 15% per annum of the open liability of the issuer of the letter of credit, plus 1% of the gross profit of the job requiring the letter of credit. The letter of credit guarantee fees are calculated and accrued monthly. As of July 1, 2006, the amounts owed to Mr. McCormick under the letter of credit obligations totaled $78,960.

Other Indemnifier

We also had an unrelated party guarantee a $1 million standby letter of credit issued as security for a large construction job. This party was paid a fee of 15% of the letter of credit amount for providing this security. This agreement also requires a secondary indemnity, should funds be drawn against this letter of credit, the substantial majority of which has been provided by Aequitas Capital Management, a related party. Robert Jesenik, our former director, is a principal shareholder and CEO of Aequitas. Aequitas charges an additional fee of 15% of the letter of credit amount. Aequitas is also indemnified by Christenson Electric should it have to indemnify the primary guarantor. This letter of credit and the related fees ended in April 2006.

Tenant improvement lease

On December 30, 2002, Christenson Electric entered into a non-cancelable operating lease agreement with Christenson Leasing, LLC (CLC) covering $300,000 of leasehold improvements in our facility. The terms of the lease call for monthly payments of $7,500 including interest at 17.3% through December 2007. Christenson Electric was in default under the lease terms, which default was cured in March 2005, with the resumption of payments due under the lease under a modified payment plan arrangement.

On July 1, 2005, Christenson Electric entered into a promissory note with Aequitas Capital Management, a related party, covering certain equipment and furniture previously leased from Jesenik Enterprises, Inc., JW Assurance and Holding Limited, and JMW Capital Partners, Inc., each a related party. No payments had been made on these lease obligations since September 2002. At July 1, 2005, these entities assigned their interests in the obligation to Aequitas Capital, which we consolidated into one promissory note with total principal due of $90,847, interest accruing at 7% per annum, maturing at April 1, 2006, and with $5,047 monthly installment payments and, in addition, a lump sum payment of $50,000 due on October 1, 2005. As of July 1, 2006, the payments on this note had not been made as scheduled, the balance on the note was $19,907, and it was in default.

Equipment Lease Agreement

On December 31, 2002, Christenson Electric entered into a sale and leaseback agreement with Christenson Leasing, under which it sold machinery and tools, automotive equipment, and office furniture and equipment, not subject to prior liens. The agreement called for payments of $97,255 starting on January 2, 2003 through December 2007. On September 1, 2003, Christenson Velagio’s predecessor, Christenson Technology entered into a sublease agreement with Christenson Electric for use of certain equipment contained in that lease. The equipment consists of various construction vehicles, trailers, miscellaneous construction equipment, office furniture, computer hardware and software. Under the terms of the lease the formerly separate subsidiary, Christenson Velagio paid Christenson Electric $40,000 monthly beginning on September 1, 2003, with the final payment due on December 1, 2007. The lease is accounted for as an operating lease and contains a 10% purchase option at the end of the lease term, December 31, 2007. In 2003, we modified the payment plan to the lessor, under which $10,000 of the monthly lease obligation was be paid to the lessor in an equivalent amount of our Series 3 preferred stock. This arrangement to tender a portion of the payment with preferred stock in lieu of cash, was for the thirteen monthly payments beginning with the December 2003 lease payment, through the payment due in December 2004. Beginning with the payment due in January 2005, the total monthly amount due was paid entirely in cash.

In July 2005, the lease agreement between Christenson Electric and CLC was renegotiated, with a portion of the remaining operating lease obligation converted to a $500,000 note payable. In accordance with that agreement, the $100,000 monthly lease payment owed by CEI under the lease was reduced to $60,000 per month starting with the payment due on November 1, 2005. The $500,000 note was paid in full by Christenson Electric in October 2005.

Master Vehicle Lease Agreements

Christenson Velagio

We entered into a new Master Vehicle Lease Agreement, effective September 9, 2004, with Destination Microfield, LLC. Destination Microfield, LLC is partially owned by William C. McCormick. In accordance with the terms of the agreement, we will make twelve monthly payments of $29,000 starting October 5, 2004, twelve monthly payments of $35,000, starting October 5, 2005, and three monthly payments of $45,000 ending on December 9, 2006. This lease is accounted for as an operating lease with equal monthly amounts charged to expense in the consolidated statement of operations over the life of the lease. In October 2005, we signed a twelve month extension to this lease at $45,000 per month, with the lease now scheduled to end in December 2007. The lease also contains an interest rate provision with the monthly payment adjusting based on any increases in the prime rate. The monthly payment in effect on July 1, 2006 is $36,350. This adjustment is made on an annual basis.

Christenson Electric

We, through our subsidiary Christenson Electric are a party to an agreement with CLC under which Christenson Electric leases its vans and trucks. In accordance with the terms of the agreement, we pay to CLC a varying amount each month representing the lease and maintenance costs of those vehicles. The lease is a month to month agreement that is modified with each addition or removal or vehicles.

Real Property Sub Leases

On September 1, 2003, our formerly separate subsidiary, Christenson Velagio entered into seven real property subleases with Christenson Electric for use of buildings, offices and storage yards to house the operations and property of Christenson Velagio. Christenson Electric, as the sublessor, is party to a master property lease with an unrelated party. Christenson Velagio has operating activities in Portland and Eugene, Oregon. The monthly sublease payments totaled $54,464 through November 30, 2004. On November 30, 2004, we terminated our lease with Christenson Electric for space in the Thurman Building and entered into a lease directly with the building owner for a smaller space in the building. The rent per month on the Thurman Building is $38,898. We also are lessees to a facility which we have subleased to a third party. Under this lease, we pay $32,352 per month to our lessor, and receive $25,000 per month from our subleasee. This sublease agreement terminated in February 2006. Our obligation under the master lease for this facility ends in September 2008. On April 17, 2006, we moved to this facility and we are searching for a tenant for the Thurman office location. As a newly combined entity, Christenson has operating activities in Portland and Eugene, Oregon.

As of July 1, 2006, our total real property lease payments totaled $87,491, of which $675 was on a month-to-month basis. The remaining $86,816 is due on leases with maturity dates between July 2007 and October 2008.

Note receivable

In 1998, John B. Conroy, then our Chairman, CEO and President, entered into a transaction whereby he purchased 45,000 shares of our common stock at $1.75 per share. Mr. Conroy issued a promissory note to us for $78,750 in payment for the shares. On May 17, 2004 the Note was replaced with a new non-recourse note for $66,250 under which the original amount of the note was offset against a $12,500 amount owed by us to Mr. Conroy. The note also acknowledges the outstanding accrued interest due by Mr. Conroy in the amount of $21,937. Additionally, the interest rate of the new promissory note was established at 3.4% per annum, and the due date was extended to August 29, 2006. Mr. Conroy resigned as Chairman, CEO and President on September 16, 2002, and resigned as a director in October 2003. At July 1, 2006, accrued interest receivable under this note totaled $26,519. We have accounted for the $66,250 due from Mr. Conroy as a reduction in common stock equity in prior years. In May 2004, we accounted for the $12,500 amount due to Mr. Conroy and additional $637 of interest adjustment as an increase in common stock equity.

Contractual Obligations and Commitments

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of July 1, 2006, and is based on information appearing in the notes to consolidated financial statements included elsewhere in this filing.

	Total		Less than 1 Year		1-2 Years		3-5 Years		More than 5 Years
Long Term Debt	$	3,243,149	$	1,456,778	$	1,786,371	$	—	$	—
Capital Lease	212,745		79,798		130,769		$	2,178	—
Operating Lease	5,296,849		2,254,315		3,035,034		7,500		—
Total	$	8,752,743	$	3,790,891	$	4,952,174	$	9,678	$	—

We were obligated under a registration rights agreement dated October 5, 2005 to file a registration statement by December 5, 2005. In addition, we were obligated under the registration rights agreement to use our best reasonable efforts to have this registration statement declared effective by the SEC by February 5, 2006. We did not file the registration statement by December 5, 2005 and the registration statement was not declared effective by the SEC by February 5, 2006, therefore for every 30-day period it was not filed and declared effective we accrued an aggregate $68,680, which represents 2% of the investment amount, in penalties to the selling stockholders who purchased common stock and warrants in October 2005 or in our sole discretion, issue 67,665 shares of common stock to such selling stockholders, which represents the number of shares converted at market to 4% of the investment amount per

month. On June 8, 2006, the registration statement was declared effective by the SEC and we issued an aggregate 440,399 shares of common stock to the selling stockholders who purchased common stock and warrants in October 2005.

BUSINESS

General

We have the ability to deliver the following products and services:

· Electrical and systems engineering and design

· Controls, lighting, and cabling

· Building electric service

· Solar, wind, distributed generation, and substations

· Information technology networks

· Telecommunications, computer telephony, and integrated systems

· Life safety and security systems

· Redistribution in malls and shopping centers

· Construction, maintenance, inspection, and upgrades

· Integrated building controls, wiring, and cabling

· HVAC,

· Lighting

· Life safety systems

· Telecommunications systems integration and infrastructure

· Computer telephony integration

· Digital Video CCTV systems

· Enterprise security systems

· Wireless networking solutions

· Information technology networks

· Voice / data systems

· Electrical construction service

· Buildings and industrial systems

· Substations

· Wind farms, solar collectors, and distributed generation

· Redistribution in malls and shopping centers

· Software development

· Commercial building energy data management, data acquisition, and modeling

· Regional grid data monitoring, data management, and price forecasting

· Electric consumer transactional interface, wholesale products, and transaction management

· Settlement systems and related protocols

· Electric Power Transactions

· Service electric energy, capacity, and reserve needs of regional electric grids

· Service wholesale electric markets to improve electric supply and delivery efficiencies

· Enable buildings and industrial consumers to contribute to these services

For the fiscal year ended December 31, 2005, we generated $57,935,000 in revenues and had a net loss of $77,953,000. This loss included charges of $77,419,759 due to impairment of our goodwill and intangibles, and $503,543 for the revaluation of a warrant liability at December 31, 2005. For the year ended January 1, 2005, we

generated $36,466,618 in revenues and had a net loss of $6,181,683. As a result of our history of losses and our experiencing difficulty in generating sufficient cash flow to meet our obligations and sustain our operations, our auditors, in their report dated February 24, 2006, have expressed substantial doubt about our ability to continue as going concern. Christenson Electric was acquired on July 20, 2005. Therefore the revenue and net loss numbers above only include revenue and expenses from that entity from July 20, 2005 through December 31, 2005. EnergyConnect was acquired on October 13, 2005, therefore the revenue and net income amounts mentioned above only include revenue and expenses of EnergyConnect from October 14, 2005 through December 31, 2005.

Recent Acquisitions

Products and Services

We conduct business with the goal of providing organizations with energy, electrical and technology infrastructure products and services. Our main products and services include:

Electrical Design & Construction Services

Since its inception in 1945, the electrical services group that we acquired in September 2003 established its business and the value of its name based on the quality and reliability of their work. Our services include installation of lighting systems, wiring of high-rise buildings, design-build on complex institutional or industrial locations, building control systems and installation of emergency power systems. Our engineers, project managers and field technicians take projects from concept through implementation.

Digital Video CCTV Systems and Infrastructure

Surveillance systems have quickly emerged as a high priority for facilities of all sizes in the private and public sectors due to a number of environmental and social concerns. Christenson Velagio’s knowledge in the design as well as implementation of sophisticated digital systems including cameras, multiplexers, monitoring centers, switching devices and network infrastructure allows us to provide a complete, turnkey source for systems of all sizes and levels of complexity. Christenson Velagio’s engineers and technicians have the capability to design and install state-of-the-art fiber optic networks and switching gear, IP Video Local Area Network (LAN) and Wide Area Network (WAN) architectures, as well as highly sophisticated monitoring stations.

Telecommunications Systems and Infrastructure

Increasing levels of need and flexibility have continued to fuel growth in the area of facilities telephony and IP Telephony systems. Competencies with most major manufacturer’s systems and architectures allows us to provide correct scale and functionality in designs and provide reliability through the installation and maintenance programs.

Enterprise Security and Life Safety Systems

Our extensive knowledge of access control systems, intrusion alarm systems and fire protection systems, allows Christenson Velagio to provide the highest level of protection available for most sizes of enterprises. Providing a safe working environment, protection of company assets including intellectual property, and reducing liability exposure are critical business needs that are met with our systems. Our ability to perform facility audits assists its customers in evaluating site requirements or weaknesses in their existing systems and provides a basis for recommendations. Included in this category of service (beyond physical site security) is our ability to provide IT Network security including firewalls and VPN/Remote access security functions.

Wireless Networking Solutions

Wireless networking solutions is one of the fastest growing segments of communications technology. Our experience with WI-FI Networks, wireless telephony and our capability for on-site assessments enables us to provide complete design and implementation services. The Pacific Northwest has taken a leading position in the implementation of wireless “hot spots” both in the private and public sector. As this high growth area expands, our knowledge and real world experience will assist customers in providing this level of capability to their locations.

Information Technology (IT) Network Design & Engineering

From designing of systems and infrastructure to implementation and maintenance, we have years of field experience in the design and installation of complex IT network configurations. Whether it is in the form of LANS, WANS, or MANS, switching and routing hardware or high speed Internet access, our employees have the knowledge and expertise in-house to handle any requirement. Our technical support staff capability is well established and has an excellent reputation for technical competency during system installation as well as subsequent service and repair.

Power Services

We provide high voltage design, construction, and maintenance services to owners of substations, transmission lines, and distribution lines. We also design and wire wind generation, solar generation, and other distributed generation facilities including the associated collection facilities linking these generators to the electric grid.

Electricity Redistribution Services

Our wholesale transaction services business has produced opportunities for malls, shopping centers, and other commercial buildings to achieve reduced energy costs and simultaneously qualify for participating in wholesale services. Using our capabilities for designing, engineering, and constructing electrical and control facilities combined with our power systems and market capabilities we now offer electric redistribution services. We install new and modified equipment, assist the owner of the facility in becoming a bulk buyer of electricity and distributor to tenants, and assist in the ongoing operation. Once the facility operates as a single unit it may also qualify for participation in our wholesale programs to gain additional benefits.

Wholesale Power Transactions

We provide a number of needed products and services to regional electric power grids and to utilities. The products and services are provided via wholesale electricity markets and include economic energy services, capacity services, and various ancillary services such as synchronized reserves and emergency supply. These products and services are formed by applying our technologies and processes to enable large energy users such as commercial buildings and industrials to contribute components of such products and services which we then assemble and deliver to the grid.

Discontinued Lines

Prior to October 24, 2000 we developed, manufactured, and marketed computer conferencing and telecommunications products designed to enhance and facilitate group communications. The Company’s product lines consisted of a series of digital whiteboards, interactive rear projection systems, and interactive plasma display systems sold under the brand name SoftBoard, along with a variety of application software packages, supplies and accessories. On October 24, 2000 the assets of the Company that were utilized in operating the SoftBoard business

were sold to Greensteel, Inc., a wholly-owned subsidiary of PolyVision Corporation. Prior to September 2002, the Company had not been engaged in continuing operations since the date of the sale of its SoftBoard assets to Greensteel. The Company currently receives royalties from PolyVision, based on sales of SoftBoard products. These royalties are listed in the income statement under “discontinued operations.”

Sales and Distribution

Our CVI and CEI subsidiaries generate sales through the relationships they have cultivated and the quality work product they have maintained over the 58 year history of the companies. Prior to our acquisitions of Christenson Technology Services and Christenson Electric, in various forms since inception, they have primarily served the Northwest market since 1945. The “Christenson” name has been a key component in building a well established, loyal customer base. Much of our sales are generated by word of mouth or through repeat customer projects. Growth throughout its existence has been achieved by entering into additional markets within the electrical services industry.

The ECI subsidiary produces revenue through sales to power grid operators. Those sales a facilitated by longstanding relationships between our employees and the grid operators and by full membership in the grid organizations. We help the grid operator develop and establish the capability to receive products and services from our participant base. These currently include a number of risk-managed energy, capacity, and ancillary service products that meet the needs of the grid.

We regularly install products and design product configurations for customer sites based on the products and/or services designed by us, ordered by the customer, or according to plans specified by the customer or general contractor. We may also enlist the assistance of various consultants or subcontractors to provide specific services relative to the contract we have with our customer.

For construction projects, we normally deliver products or have products delivered directly to our customers, and then install those products as a part of the services provided to the customer. We do not currently sell any products through distributors, dealers or other resellers as a part of our business.

Customers

The primary customers for our wholesale power transaction business are regional power grid operators, and to a lesser extent, electric utilities. Our employees have built relationships with these customers through many years of high-level involvement in the energy industry and by rapidly increasing service levels to these customers. There are only a few grid operators, as they control broad regional electric grids some of which cover as many as a dozen states. For example, PJM Interconnection, a regional transmission organization (RTO) and current customer, operates the largest competitive wholesale electricity market in the world. PJM coordinates the movement of electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. As we sign up participating facility owners or management companies in these regional areas, the customer from whom we are paid, remains the same within each such market.

Technology and electric service customers span all major industries, including: government, education, retail, entertainment, finance, health care, manufacturing and transportation. Some of these direct customers include Evergreen School District, Allied Security, Portland Community College, Legacy, Melvin Mark Properties and Boeing. With the acquisition of ECI this year, this customer base has become a vendor base. National companies for which we provide electrical, technology, and other services are natural contributors to the wholesale electric market through ECI. In addition, we have developed and are developing participants who are the owners or operators of high volume energy use facilities. While most of the facilities currently targeted are in the Midwest and East, the owners and operators of these facilities are spread across the country. These include real estate investment trusts (REITS) that own multiple high rise buildings, industrials, and organizations that own multiple buildings such as universities and governments. Some of these participants will, in turn, become customers for our technology, electrical, and other services. High voltage and wind generation customers are nationally recognized companies that are on the forefront of power distribution, transmission, and alternative energy generation.

Approximately half of our current revenue base comes as subcontracting work through general contractors. For the year ended December 31, 2005 one customer accounted for approximately 10% or more of our revenue.

Acquisitions and Investments

Our strategy is one that focuses on the acquisition and deployment of products and services with strong intellectual property asset value and the potential for significant growth. During 2005 we completed the acquisitions of ECI and CEI, which both had significant built-in intangible values which we hope to integrate and develop. Part of ECI’s value is contained in the proprietary software that we will use to manage and control energy consumption patterns in participant properties. We have also acquired a tremendous amount of industry knowledge with the added employee base that will be drawn upon to expand the business. CEI’s value is derived from its long standing history of excellent electrical services provided throughout the United States.

Our current acquisition strategy is to actively review target opportunities for value-added potential and pursue targets that bring significant, related benefits, and are strategic and accretive.

Competition

We compete in the electrical services, communications, networking, energy management services and wholesale electric power markets. The principal competitive factors in the markets in which we compete include price, service, product technology, product performance, the ability to provide a broad range of products and services, conformance to industry standards, union representation of our workforce, market presence, and the ability to design and implement cost beneficial and technologically advanced customer solutions.

The electrical services industry is well established, and we compete mainly on the basis of our excellent reputation for providing reliable, timely, cost effective, first class products and services. A portion of this business is done through the bidding process either directly with the customer or in a subcontracting role with a general contractor. Winning projects depends on several factors including size of the jobs, price, customer service and reputation from prior work completed. Our electricians and technicians are members of the local electrical union. Union representation of our workforce is also a factor in whether we are successful in obtaining work in competitive situations.

In the technology side of the business, the markets in which we compete are constantly changing. While the services provided in bringing new technology to customers remain fairly constant, the technology of the products sold or installed changes continually. This requires that our engineers and technicians remain in touch with new product introductions, and advancing or emerging technologies. Our engineers and technicians are regularly trained regarding safety, new products and technologies, and how to adapt or configure their customers’ applications to take advantage of the new technologies.

We have opened and expanded a new segment in regional wholesale electric markets. While wholesale markets have existed for many years, virtually all of the transactions have been electric generating companies selling to grid operators that, in turn sell to utilities. In some parts of the U. S. all of these transactions take place within a single vertically integrated utility carrying out each of the functions identified. In most of the US, however, each of the functions is performed by a separate entity. Although provisions have now been made in most grids for consumer participation in wholesale markets servicing grid operators, across the U. S. energy consumer participation in these markets has been diminimus. We have developed the systems and business processes enabling energy consumers to contribute to products serving selected components of the regional wholesale markets on a scale never before realized. Our potential competitors have made no significant progress in developing these capabilities. In each market served by us, there exist small curtailment service providers, utilities, and retail energy suppliers that are and will continue to provide some service. While we expect all of these entities to partner with us in expanding these market segments, some may choose to compete. Some of these entities are very large and may ultimately develop competing systems or seek an acquisition of us or our capabilities. In each market ECI attempts to capture a core market share of satisfied participants and a continuously expanding scope and scale of automated technologies.

We have dozens of competitors in the electrical services and technology services markets. Some of our major competitors include, Capitol Electric Company, Dynalectric, Electrical Construction Company, Hughes Electrical Contractors, LH Morris, Oregon Electric Group and Tice Electric Company. Some of these companies compete with us across many of our product lines and service offerings in both the electric services and technology services markets.

We have also established a national market presence in the alternative energy field, against a handful of competitors. These competitors are mainly large national service providers such as Rosendon Electric and Alliant

Energy. CEI has several competitors in their high voltage and utility service markets, consisting of several of the companies that compete with CVI across their line of business.

The barriers to entry in the electrical and technology markets that we currently serve are relatively low and new companies may be created that compete with our companies in various segments of their markets. Several of our competitors may have greater financial, engineering and technical resources, may be able to compete for “non-union only” work, and may be able to provide a broader range of products and services than us. Our success in competing in these markets depends on its ability to provide timely service and creative technology offerings that provide our customers long-term, cost effective solutions to their electrical and technology service requirements. Any inability to effectively control and manage these competitive factors could have a material adverse effect on our business, operating results and our financial condition.

Manufacturing and Supply

We purchase telecommunication equipment, networking equipment, cabling, wiring and various other equipment and supplies that we use in customer applications, or that we sell and install at customer sites. We rely on various vendors for these products, and do not manufacture any of the products that we sell or install.

The electrical services industry is a mature industry. As such, there are numerous vendors that supply the products that we use in our markets. We purchase supplies from several of these vendors, and have secondary sources for all products that we buy. Our companies have had negative operating cash flows in our businesses during much of the time since they were acquired by us. This negative cash flow has had a measurable impact on our operations, and there is no assurance that the supply of products and materials will continue to be available if our working capital position further deteriorates.

Our goal is to keep our inventory of parts and supplies to a minimum. A fleet of vehicles is leased by us for use by technicians and electricians in servicing customers. Each vehicle has a stock of parts and/or tools used by our employees in their work. The inventory on board the vehicles is kept at a fairly constant level, to match the work flow throughout the year. Each technician and electrician has the authority to order and pick up parts as needed to fulfill job requirements in conjunction with our purchase order policy. CVI also maintains a stock of inventory and supplies at its main plant.

The technology services business is subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product introductions and enhancements. Our future success in this industry depends on our ability to keep pace with these new developments and requirements, and to provide customer solutions using current technology, on a cost-effective and timely basis. Failure to keep pace with these customer requirements, industry standards and technological developments could have a material adverse effect on our results of operations and financial condition.

Our principal suppliers of inventory include Graybar Electric Co., Inc., Anixter, Inc., Platt Electric Supply, Inc., Ronco Communications, Inc., Crescent Electric Supply, Inc., and North Coast Electric, Inc. We generally believe we have good relationships with our current principal vendor base.

We buy products and supplies on both open account and job accounts, up to various limits, specified by each particular vendor. Job accounts can be set up by a vendor for products or supplies used on specific projects. The vendor is protected from our non payment by lien rights. Lien rights give vendors the legal ability to receive payment directly from their creditor’s customer. We do not have a history of having lien rights filed against our jobs. Should our cash situation worsen, vendors could exercise their lien rights against us, which could harm our reputation in the markets where we do business. This could have a material adverse effect on our business, our operating results and financial condition.

We do not have any long-term contracts for the purchase of products or supplies with any of our material vendors.

The acquisition of ECI turns our traditional customer base of buildings and industrial sites into vendors that provide modifications to energy use that we use to provide services to regional electric grids. Each of the buildings or industrial sites participating in these services is under contract and receives payment from us for such contributions. The contracts with these participants have varying durations and terms depending on markets, products, and ability to perform. We believe we have excellent relationships with these participants. We expect all of our participants to continue serving us. As contracts expire, these entities are free to stop serving or attempt to develop alternative means to service the wholesale electric market without using our capabilities.

Intellectual Property

As a part of the purchase of Innovative Safety Technologies in 2002, we own United States Patent No. 5,288,945. This patent covers the No Tug Plug™ and was issued in February 1994. The patent was purchased by Innovative Safety Technologies in July 2002 from the original inventor. Innovative Safety Technologies was granted the Trademark for the mark “No Tug Plug,” in November, 2002. In November 2003, we made the decision to discontinue the operations of Innovative Safety Technologies. We still own the above mentioned patent and trademark.

Through the September 2003 acquisition of Christenson Technology Services, now known as Christenson Velagio, and through the 2005 acquisition of Christenson Electric we acquired the “Christenson” trade name. The Christenson name employs particular branding and trade dress that makes it highly recognizable. Also in September 2003 through the acquisition of Velagio, we acquired the rights to the Velagio name.

ECI has filed for patent and copyright protection of its energy automation software. This patent has been filed for but not yet approved. We also purchased a significant amount of intangible assets as a part of the acquisition of ECI. These intangible assets were valued with the assistance if an independent intangible asset valuation firm.

We protect our intellectual property rights through a combination of patent, trademark, trade secret and other intellectual property law, nondisclosure agreements and other measures. We believe, however, that our financial performance will depend more upon the service excellence, technical knowledge and innovative design abilities of our employees, than upon such protection. Notwithstanding the foregoing, we will strongly defend all intellectual property rights from infringement.

Government Approval or Regulations

We are subject to certain local government regulations regarding Uniform Commercial Building Codes. Many projects require inspection by local government building code inspectors. We are subject to and comply with federal regulations pertaining to health and safety, employment, privacy, and related regulations pertinent to all public businesses. While we are not directly subject to regulation by the Federal Energy Regulatory Commission (FERC) or state public utility commissions, these commissions have oversight of region grids and electric utilities. The FERC must approve all wholesale products purchased by regional grids, and state commissions may be involved in approval of transactions with electric utilities.

Employees

As of September 15, 2006, we employed 421 persons. Our workforce fluctuates based on the project work flow at any specific point in time. Approximately 360 of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are good.

DESCRIPTION OF PROPERTY

We lease six facilities in Portland and Eugene, Oregon, and one facility in San Jose, California during 2005. These facilities consist of approximately 39,000 square feet of office space, 18,000 square feet of which is being subleased to a third party at December 31, 2005. The remaining facilities are occupied pursuant to both fixed-term, and month-to-month leases. We do not own or lease any manufacturing space.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Christenson Velagio, Inc. The lawsuit alleged that the Defendants violated Oregon securities law and Oregon common law in connection with the following transactions (which closed simultaneously in September 2003): (1) the merger of CTS Acquisition Co. (a wholly-owned subsidiary of the Company) with and into Christenson Technology Services, Inc.; and (2) the merger of VSI Acquisition Co. (A wholly-owned subsidiary of the Company) with and into Velagio, Inc. In addition, the lawsuit alleged that Mr. Underwood was terminated as an employee entitling him to severance pay. The lawsuit sought damages of approximately $1.4 million.

On May 27, 2004, the company, certain executives, board members and related companies filed two separate answers, affirmative defenses, and counterclaims against Mr. Underwood in Multnomah County Circuit Court alleging violations of Oregon Securities law and Oregon common law in connection with the above named transactions. In addition, the countersuit alleged that Mr. Underwood was terminated by us for good cause. The lawsuit sought damages of not less than $2.5 million and return of the 3.4 million shares of Microfield stock held by Mr. Underwood in exchange for the return of the shares of Velagio stock held by us.

On May 11, 2005 we and Mr. Underwood entered into a Settlement Agreement under which both parties agreed to drop their respective lawsuits. The Settlement Agreement provides that the Company and certain defendants will jointly and severally purchase Mr. Underwood’s Microfield Stock for the aggregate purchase price of $362,500. The purchase price will be allocated as follows: $50,000 to the purchase of Mr. Underwood’s 119,050 Series 2 preferred shares and the balance to the purchase of Mr. Underwood’s 3,404,958 common shares. Additionally, the Settlement Agreement terminates Mr. Underwood’s Microfield Warrant. Payment under the Settlement Agreement occurred as scheduled on August 1, 2005. Microfield assigned its right to purchase these shares to Energy Fund II, LLC, a significant shareholder, which purchased all of Underwood’s shares in the settlement.

MANAGEMENT

The following table sets forth information regarding our directors and executive officers as of September 15, 2006:

Name	Age	Positions
Rodney M. Boucher	62	Chief Executive Officer and Director
A. Mark Walter	41	President and Director
Randall R. Reed	50	Chief Financial Officer
Gene Ameduri	58	Director
William C. McCormick	72	Chairman of the Board of Directors
Michael W. Stansell	62	Director
Gary D. Conley	45	Director

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently there are six directors on our board of directors. During 2005, our Directors were not compensated in cash for their services. Starting with the February 2006 board meeting, those directors considered as outside directors, will be compensated $500 for each board meeting held at our headquarters or other location where the director is required to travel. Each year at the discretion of the board, directors are awarded a certain number of non-qualified stock options. During 2005 board members were awarded 50,000 shares each for their service in 2004. No awards for 2005 service have been awarded. Gary Conley was awarded 50,000 non-qualified options in 2006 for joining our board of directors. Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors. Biographical resumes of each officer and director are set forth below.

Rodney M. Boucher joined us through the acquisition of EnergyConnect. He was appointed Chief Executive Officer on that date. Prior to that date Mr. Boucher was the founder, President and CEO of EnergyConnect, Inc. from its inception in 1998 until its acquisition by us in October 2005. Before forming EnergyConnect Mr. Boucher was Chief Executive Officer of Calpine Power Services and Senior Vice President of Calpine Corporation from 1995 to 1998. Prior to that Mr. Boucher served as Chief Operating Officer of Citizens Power and Light and held a number of senior management positions with PacifiCorp and United Illuminating Company including Chief Information Officer, Vice President of Operations, Vice President of Power Resources, and Director of Engineering. Mr. Boucher holds an AMP certificate from Harvard Business School, a MS in electrical engineering from Rensselaer Polytechnic University and a Bachelor of Science from Oregon State University. Mr. Boucher is a member of several non-profit boards and a senior fellow of the American Leadership Forum.

A. Mark Walter joined us in January 2003 when he was appointed Director of Operations and held various management positions within our wholly owned subsidiary, Christenson Velagio, before his promotion to Senior Vice President and Chief Operating Officer of Christenson Velagio in January 2004. Mr. Walter was appointed President of Microfield and Christenson Velagio in November 2004, and appointed to the Board of Directors in April 2005. Mr. Walter has 18 years of experience in leading profitable commercial and industrial electrical services

businesses. Prior to joining Christenson Velagio, Mr. Walter was Operations Director for Power City Electrical, a regional electrical company, from 1992 to 2002.

Randall R. Reed joined us in September 2005 when he was appointed Chief Financial Officer. Mr. Reed provided financial, accounting and SEC consulting for us from September 2002 through September 2005 through his consulting firm Reed Financial Services, which he operated from January 2001 through September 2005. From July 1999 to January 2001, Mr. Reed was Chief Financial Officer for Dry, Inc. a consumer products company. Mr. Reed was Chief Financial Officer and Controller of Microfield Graphics, Inc., a publicly traded manufacturer of technology products from August 1985 to July 1999. Prior to his position there he was with Coopers & Lybrand, an international public accounting firm, from 1981 to 1985. Mr. Reed is a CPA.

Gene Ameduri joined us in October 2005 through our acquisition of EnergyConnect, Inc. On that date he was named President of EnergyConnect. He joined EnergyConnect in 2003 as Senior Vice President. Prior to that, Mr. Ameduri was with Roth Brothers, Inc., a mechanical contractor. Roth Brothers is a subsidiary of First Energy. He was there from 1981 to 2003, and held the office of Vice President of the Facilities Automation Division among other management positions.

William C. McCormick joined us in January 2004 as Interim Chief Executive Officer and resigned that post in November 2004 with the appointment of A. Mark Walter as President of Christenson Velagio. Prior to coming to us, Mr. McCormick was Chief Executive Officer of Precision Castparts, Corp., a publicly traded aerospace company, from August 1994 to August 2002. He also served as the Chairman of the board of directors there from October 1994 to August 2003. Mr. McCormick joined Precision Castparts in April 1985. Prior to Precision Castparts, Mr. McCormick spent 32 years at General Electric in various businesses, including GE Aircraft Engines, Carboloy Systems, Distribution Equipment, and Industrial Electronics. Mr. McCormick serves on the board of directors and is Chair of the Audit Committee of Merix Corporation, a publicly traded manufacturer of high performance interconnect products. He serves on the boards of several other “for profit” and non profit companies. McCormick holds a BS in Mathematics from the University of Cincinnati.

Michael W. Stansell joined us in November 1985 as Director of Manufacturing and was appointed Vice President, Operations, in January 1987. Mr. Stansell was appointed to our board of directors in November 1999 and served as our President from November 1999 until October 2002. Mr. Stansell was a division manufacturing manager, among other positions, at Tektronix Corporation from August 1965 through October 1985.

Gary D. Conley was elected as a director on December 13, 2005. Mr. Conley is currently the CEO of SolFocus, a concentrator of solar technology founded to commercialize advanced concentrator solar technology. Mr. Conley was CEO of GuideTech, a manufacturer of semiconductor test equipment from July 2003 to February 2005. Prior to that, Mr. Conley was Senior Vice President in charge of the Memory Test Division at Credence Corporation, a manufacturer of semiconductor test equipment, from May 1993 to November 1996. Mr. Conley was President of EPRO, a manufacturer of semiconductor test equipment from January 1990 to May 1993, at which time the business was sold to Credence. Mr. Conley has been an active investor in early stage, advanced technology companies. He sits on the boards of several companies. Mr. Conley holds a BS degree in Physics from the University of South Florida.

Audit Committee

The Audit Committee charter was discussed, reviewed and adopted February 6, 2003. With the turnover of directors that occurred in 2005, the board met and appointed new members to the audit committee on December 13, 2005. The Audit Committee now consists of Mr. McCormick and Mr. Stansell. The Board of Directors has determined that Mr. McCormick is an “audit committee financial expert” as defined in SEC rules. The audit committee held several meetings during fiscal year 2005 coincident with the filing of SEC quarterly Forms 10-QSB and other press releases involving financial matters. Mr. Hanlin served as Chairman of the Audit Committee until his resignation in February 2005, at which time Mr. Jesenik became Chairman of the committee. On December 13, 2005, Mr. McCormick was appointed Chairman of the audit committee.

The Audit Committee oversees the accounting, financial reporting and audit processes; makes recommendations to the board of directors regarding the selection of independent auditors; reviews the results and scope of audit and other services provided by the independent auditors; reviews the accounting principles and auditing practices and procedures to be used in preparing our financial statements; and review our internal controls.

Governance Committee

We adopted our Code of Ethics in February 2003. The Governance committee members for 2005 included Mr. McCormick and Mr. Steven Wright, a former director who resigned as a director on October 13, 2005. On December 13, 2005, the board of directors appointed Mr. Boucher and Mr. Walter as members of its Governance

committee. The governance committee had informal meetings and discussions throughout 2004. The current policy requires that the governance committee consist of two Board Members. A copy of the Code of Ethics is available from us by contacting Mr. Michael W. Stansell, c/o Microfield Group, Inc., 1631 NW Thurman St., Suite 200, Portland, Oregon 97209.

Compensation Committee

Our compensation committee for 2005 consisted of Mr. McCormick, and Mr. Robert J. Jesenik, a former director who resigned as a director on October 13, 2005. On December 13, 2005, the board of directors appointed Mr. Ameduri as the member of the Compensation committee, and Gary Conley was added as a member on February 22, 2006. The compensation committee had one formal meeting during the year and numerous informal meetings and discussions throughout 2005. The committee determines the compensation level, option grants and other compensation for our executive officers.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by it, or written representations from certain reporting persons, we believe that, during 2005, all executive officers, directors and greater than 10% shareholders complied with all applicable filing requirements. Destination Capital LLC, Christenson Group, LLC, A. Mark Walter, Robert J. Jesenik, Energy Fund II, LLC, Gary M. Kapral and Randall R. Reed each had one late Form 4 Filing. Michael Stansell and William C. McCormick each had two late Form 4 Filings. Steven M. Wright had ten late Form 4 Filings.

EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer and other executive officers of our Company whose total annual salary and bonus exceeded $100,000 (collectively, the “named officers”) for fiscal years 2005, 2004 and 2003.

SUMMARY COMPENSATION TABLE

				Long Term Compensation Awards
	Annual Compensation			Securities	All Other
	Fiscal Year	Salary($)	Bonus($)	Underlying Options (#)	Compensation ($)
Rodney M. Boucher (1)	2005	62,500	—	—	—
Chief Executive Officer	2004	—	—	—	—
and Director	2003	—	—	—	—
A. Mark Walter (2)	2005	153,939	—	1,000,000	7,200
President and Director	2004	68,289	—	200,000	7,200
	2003	89,362	—	—	7,200
Randall R. Reed (3)	2005	56,000	—	100,000	—
Chief Financial Officer	2004	—	—	—	—
	2003	—	—	—	—
Gene Ameduri (4)	2005	41,667	—	—	—
President of EnergyConnect	2004	—	—	—	—
And Director	2003	—	—	—	—
William C. McCormick (5)	2005	—	—	1,050,000	—
Former Interim Chief Executive	2004	—	—	1,200,000	—
Officer and Director	2003	—	—	—	—
Gary M. Kapral (6)	2005	68,289	—	—	—
Chief Financial Officer	2004	138,462	—	150,000	—
	2003	—	—	—	—

(1) Mr. Boucher was appointed our Chief Executive Officer on October 13, 2005.

(2) Mr. Walter was appointed our President effective November 18, 2004. Prior to this appointment he served as our Senior Vice President and Chief Operating Officer.

(3) Mr. Reed was appointed our Chief Financial Officer on September 19, 2005.

(4) Mr. Ameduri was appointed President of EnergyConnect on October 13, 2005.

(5) Mr. McCormick was appointed Interim CEO effective January 21, 2004. He held this position with no cash compensation. He resigned that position effective November 15, 2004 with the appointment of A. Mark Walter as President. Mr. McCormick is Chairman of the Board of Directors.

(6) Mr. Kapral was appointed our Chief Financial Officer effective May 17, 2004. He left the Company in March 2005.

Options Granted in Last Fiscal Year

During 2005, we granted 1,000,000 incentive stock options to purchase Microfield Group, Inc. common stock under our Stock Incentive Plan to the named officers. One nonqualified option for 100,000 options was issued to a current executive officer, in 2005, prior to his employment with us. No other current executive officers received options exercisable for shares of our Common Stock during fiscal 2005. All other employees who are not currently executive officers of the Company received options exercisable for a total of 3,310,940 shares of Common Stock during fiscal 2005. There were an additional 1,370,000 nonqualified stock options awarded to individuals or entities not employed by us. These included 1,200,000 options that were issued to directors of the Company, and 170,000 options that were issued to outside consultants.

Option Exercise and Holdings

The following table provides information concerning the exercise of options during fiscal 2005 and unexercised options held as of the end of the fiscal year with respect to the named officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

			Number of
			Securities		Value of
			Underlying		Unexercised
			Unexercised		In-The-Money
	Shares		Options		Options
	Acquired	Value	At FY-End (#)		At FY-End ($) (2)
	On Exercise	Realized	exerciseable/		Exerciseable/				Grant	Expiration
Name	(#)	($) (1)	Unexerciseable		Unexerciseable				Date	Date
A. Mark Walter	—	—	47,917	52,083	$	91,042	$	98,958	1/22/04	1/22/09
			25,000	75,000	52,500		157,500		12/3/04	12/3/09
			166,667	833,333	358,333		1,791,667		4/29/05	4/29/10
Randy Reed	—	—	100,000	—	$	166,000	—		8/23/05	8/23/10
William C. McCormick	—	—	1,150,000	50,000	$	2,369,000	$	103,000	11/12/04	11/12/09
	—	—	50,000	—	112,000		—		4/7/05	4/7/10
	—	—	166,667	833,333	276,667		1,383,333		8/23/05	8/23/10

(1) Market value of the underlying securities at exercise date, minus exercise price of the options.

(2) Market value of the underlying securities at December 31, 2005, $2.50 per share, minus exercise price of the unexercised options.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of September 15, 2006 as to (i) each person who is known by us to own beneficially more than 5% of the outstanding shares of any class of our common or preferred stock, (ii) each of our directors, (iii) each of the executive officers named in the Summary Compensation Table below and (iv) all directors and executive officers as a group. Except as otherwise noted, we believe the persons listed below have sole investment and voting power with respect to the Common Stock owned by them.

		Common Stock and Common Stock Equivalents
Five Percent Shareholders, Directors, Director Nominees and Certain Executive Officers		Equivalent Common Shares Beneficially Owned (1)	Approximate Voting Percentage (2)
(3)	Vince Cushing c/o Entwistle & Cappucci, LLP 333 West Wacker Dr., Suite 2070 Chicago, IL 60606	9,703,245	12.3	%
(4)	Robert J. Jesenik 805 SW Broadway, Suite 560 Portland, OR 97205	8,309,407	10.7	%
(5)	Christenson Group, LLC / CEAC 805 SW Broadway, Suite 560 Portland, OR 97205	6,237,338	8.0	%
(6)	Brian Oliver 805 SW Broadway, Suite 560 Portland, OR 97205	3,933,759	5.2	%
(7)	Rodney M. Boucher 111 SW Columbia, Suite 400 Portland, OR 97201	14,818,025	18.3	%
(8)	Gene Ameduri 111 SW Columbia, Suite 400 Portland, OR 97201	9,500,199	12.1	%
(9)	William C. McCormick 111 SW Columbia, Suite 400 Portland, OR 97201	2,226,722	2.9	%
(10)	A. Mark Walter 111 SW Columbia, Suite 400 Portland, OR 97201	483,333	*
(11)	Michael Stansell 111 SW Columbia, Suite 400 Portland, OR 97201	127,100	*
(12)	Randall R. Reed 111 SW Columbia, Suite 400 Portland, OR 97201	29,168	*
(13)	Gary D. Conley 111 SW Columbia, Suite 400 Portland, OR 97201	8,333	*
(14)	All directors and executive officers as a group (7 persons)	27,189,880	31.1	%

* Less than 1%

(1) Shares to which the person or group has the right to acquire within 60 days after September 15, 2006 are deemed to be outstanding in calculating the percentage ownership of the person or group but are not deemed to be outstanding as to any other person or group.

(2) Percentage prior to offering is based on 74,544,339 shares of common stock outstanding as of September 15, 2006

(3) Includes 4,060,914 warrants convertible into common stock within 60 days after September 15, 2006.

(4) Includes 2,129,613 common equivalent preferred shares outstanding as of September 15, 2006, and 955,654 warrants convertible into common stock within 60 days after September 15, 2006.

(5) Includes 4,328,017 common equivalent preferred shares outstanding as of September 15, 2006.

(6) Includes 1,054,549 common equivalent preferred shares outstanding as of September 15, 2006, and 468,803 warrants convertible into common stock within 60 days after September 15, 2006.

(7) Includes 263,158 common equivalent preferred shares outstanding as of September 15, 2006, and 6,091,371 warrants convertible into common stock within 60 days after September 15, 2006.

(8) Includes 3,857,868 warrants convertible into common stock within 60 days after September 15, 2006.

(9) Includes 263,158 common equivalent preferred shares outstanding as of September 15, 2006, and 1,837,486 warrants and options convertible into common stock within 60 days after September 15, 2006.

(10) Includes 483,333 options convertible into common stock within 60 days after September 15, 2006.

(11) Includes 50,000 options convertible into common stock within 60 days after September 15, 2006.

(12) Includes 29,168 options convertible into common stock within 60 days after September 15, 2006.

(13) Includes 8,333 options convertible into common stock within 60 days after September 15, 2006.

(14) Includes 526,316 common equivalent preferred shares outstanding as of September 15, 2006, and 12,357,558 warrants and options convertible into common stock within 60 days after September 15, 2006.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We have a number of promissory notes, lines of credit and lease obligations owing to related parties. The following table lists the notes and obligations outstanding at July 1, 2006 by related party.

Related Party	Type of Obligation	Maturity Date	Amount of Obligation	Monthly Payment
Christenson Leasing LLC(a)(g)	T. I. lease	December 2007	129,875	7,940
Christenson Leasing LLC(a)(g)	Vehicle leases	various	58,785	various
Christenson Leasing LLC(a)(g)	Equipment lease	December 2007	—	(f)60,000
JMW Group, LLC(a)	Note payable	August 2006	83,333	(c) 41,667
Aequitas Capital Management(a)	Note payable	April 2006	19,907	various
Rod Boucher(h)	Note payable	September 13, 2008	417,207	11,309
William C. McCormick	Note payable	July 2005	250,000	interest only
Mark Walter	Bond guarantee fees	Open obligation	—	(b)4,000
Destination Microfield, LLC(d)	Vehicle lease	August 2006	—	(e)36,350
William C. McCormick	Indemnity fees	Open obligation	—	(h)14,913
John B. Conroy	Note receivable	September 2005	66,250	—