**U.S.
        Securities and Exchange Commission**
  **Washington,
        D. C. 20549**
  **Form
        10-K**
 
 **x** **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
 For
        the
        fiscal year ended December 30, 2006
 
 ** ̈** **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
 For
        the
        transition period from ________ to ________
 
 Commission
        File Number : 0-26226
 
 **MICROFIELD
        GROUP, INC.**
 (Name
        of
        small business issuer in its charter)
  **Oregon**
              **93-0935149**(State
                  or other jurisdiction of incorporation or organization)
              (I.
                  R. S. Employer Identification No.)
 
 **111
        SW Columbia Ave., Suite 480**
 **Portland,
        Oregon 97201**
 (Address
        of principal executive offices and zip code)
 
 **(503)
        419-3580**
 (Issuer’s
        telephone number)
 
 **Securities
        registered under Section 12(b) of the Exchange Act: None**
 **Securities
        registered under Section 12(g) of the Exchange Act:**
 **Common
        Stock**
 
 Indicate
        by check mark if the registrant is a well-know seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. o Yes x No
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(b) of the Act. o Yes x No
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the Registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days:     Yes x No o
 
 Check
        if
        disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
        not
        contained in this form, and no disclosure will be contained, to the best
        of
        Registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See the definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 
 o Large
        Accelerated Filer x Accelerated Filer o Non-Accelerated Filer
 
 Issuer’s
        revenues for its most recent fiscal year were $76,141,000.
 
 Indicate
        by check mark whether Registrant is a shell company (as defined in Rule 12b-2
        of
        the Exchange Act). o
 
 The
        aggregate market value of voting stock held by non-affiliates of the registrant
        at March 1, 2007 was
 $38,538,000
        computed by reference to the average bid and asked prices as reported on
        the
        Nasdaq Bulletin Board Market.
 
 The
        number of shares outstanding of the Registrant’s Common Stock as of March 1,
        2006 was 79,023,905 shares.
 
 The
        index
        to exhibits appears on page 91 of this document.
 
 Transitional
        Small Business Disclosure Format (check one):   Yes o No x
  
  
  **MICROFIELD
        GROUP, INC.**
 **FORM
        10-K INDEX**
  **PART
        I**
 PageItem
                  1.
              Description
                  of BusinessItem
                  1A.
              Risk
                  FactorsItem
                  1B.
              Unresolved
                  Staff CommentsItem
                  2.
              Description
                  of PropertyItem
                  3.
              Legal
                  ProceedingsItem
                  4.
              Submission
                  of Matters to a Vote of Security Holders**PART
                  II**Item
                  5.
              Market
                  for Common Equity and Related Stockholder MattersItem
                  6.
              Selected
                  Financial dataItem
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition
                  orPlan of OperationItem
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market
                  RiskItem
                  8
              Financial
                  StatementsItem
                  9.
              Changes
                  in and Disagreements with Accountants on
                  Accounting and Financial DisclosureItem
                  9A.
              Controls
                  and ProceduresItem
                  9b.
              Other
                  Information**PART
                  III**Item
                  10.
              Directors,
                  Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(a) of the Exchange
                  ActItem
                  11.
              Executive
                  CompensationItem
                  12.
              Security
                  Ownership of Certain Beneficial Owners and
                  ManagementItem
                  13.
              Certain
                  Relationships and Related
                  TransactionsItem
                  14.
              Principal
                  Accountant Fees and
                  Services**PART
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement
                  Schedules
  2
 ***Index***
  *THIS
          FILING INCLUDES STATEMENTS THAT MAY CONSTITUTE “FORWARD-LOOKING” STATEMENTS.
          THESE STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
          PRIVATE
          SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INHERENTLY
          INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE OR CONTRIBUTE TO SUCH
          DIFFERENCES THAT INCLUDE, BUT ARE NOT LIMITED TO, COMPETITIVE FACTORS,
          THE
          SUCCESS OF NEW PRODUCTS AND SERVICES IN THE MARKETPLACE, DEPENDENCE UPON
          THIRD
          PARTY VENDORS, AND THE ABILITY TO OBTAIN FINANCING. BY MAKING THESE
          FORWARD-LOOKING STATEMENTS, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
          THESE
          STATEMENTS FOR REVISIONS OR CHANGES AFTER THE DATE OF THIS
          FILING.*
  **PART
        I**
 
 **Item
        1.Description of Business**
 
 **General**
 
 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
        revenues and savings. Included in those acquisitions were the capabilities
        to
        service high voltage facilities including wind farms and solar energy collection
        facilities. These subsidiaries are Christenson Electric, Inc. (“CEI”), acquired
        in July 2005 and EnergyConnect, Inc. (ECI”), acquired in October 2005. In
        January 2006, the operations of Christenson Velagio (“CVI”) and CEI were
        combined and are operating as Christenson Electric, Inc. Currently, CEI and
        ECI
        are the remaining wholly-owned operating subsidiaries of the Company. 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
 o
              Controls,
                  lighting, and cabling
 o
              Building
                  electric service
 o
              Solar,
                  wind, distributed generation, and
                  substations
 o
              Information
                  technology networks
 o
              Telecommunications,
                  computer telephony, and integrated
                  systems
 o
              Life
                  safety and security systems
 o
              Redistribution
                  in malls and shopping centers
 ·
              Construction,
                  maintenance, inspection, and
                  upgrades
 o
              Integrated
                  building controls, wiring, and
                  cabling
 §
              HVAC,
 §
              Lighting
 §
              Life
                  safety systems
 o
              Telecommunications
                  systems integration and
                  infrastructure
 §
              Computer
                  telephony integration
 §
              Digital
                  Video CCTV systems
 §
              Enterprise
                  security systems
 §
              Wireless
                  networking solutions
 §
              Information
                  technology networks
 §
              Voice
                  / data systems
 o
              Electrical
                  construction service
 §
              Buildings
                  and industrial systems
 §
              Substations
 §
              Wind
                  farms, solar collectors, and distributed
                  generation
 §
              Redistribution
                  in malls and shopping centers
 ·
              Software
                  development products
 o
              Commercial
                  building energy data management, data acquisition, and
                  modeling
 o
              Regional
                  grid data monitoring, data management, and price
                  forecasting
 o
              Electric
                  consumer transactional interface, wholesale products, and transaction
                  management
  3
 ***Index***
  o
              Settlement
                  systems and related protocols
 ·
              Electric
                  Power Transactions
 o
              Service
                  electric energy, capacity, and reserve needs of regional electric
                  grids
 o
              Service
                  wholesale electric markets to improve electric supply and delivery
                  efficiencies
 o
              Enable
                  buildings and industrial consumers to contribute to these
                  services
  CEI
        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 also 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. ECI operates on a national footprint currently
        serving consumers and grid operators in more than 25 states. Integrating
        CEI and
        ECI combines the breadth of services needed to deliver full service solutions
        to
        our customers.
 
 CEI
        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 CEI
        business is repeat business under long-standing relationships with it customers.
        CEI operates a fleet of service trucks that help us 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.
        CEI 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.
 
 For
        the
        fiscal year ended December 30, 2006 we generated $76,141,000 in revenues
        and
        recorded net income of $833,000. In the fiscal year ended December 31, 2005,
        we
        generated $57,935,000 in revenues and had a net loss of $77,953,193. This
        loss
        included charges of $77,419,759 due to impairment of the 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.
 
 Christenson
        Electric was acquired on July 20, 2005. Therefore the revenue and net loss
        numbers for the fiscal year ended December 31, 2005 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 for the fiscal year ended December 31, 2005 only include revenue
        and expenses of EnergyConnect from October 14, 2005 through December 31,
        2005.
 
 **Recent
        Developments**
 
 ***Acquisitions***
 
 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.
  4
 ***Index***
  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 term 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.
 
 *Private
        Placements*
 
 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. In connection with the private placement, we entered
        into a registration rights agreement with the investors in the private placement
        pursuant to which we filed 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. 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. The registration statement was declared effective
        by
        the SEC by September 29, 2006.
 
 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.
 
 **Principal
        Offices**
 
 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 annual report.
 
 
 **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 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.
        CEI’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. CEI’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.
  5
 ***Index***
  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 CEI 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 customers in evaluating site
        requirements or weaknesses in their existing systems and provides a basis
        for
        recommendations for improvements. 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 current and future 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, we 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
        construct 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.
  6
 ***Index***
  Discontinued
        Lines
 
 Prior
        to
        October 24, 2000 the Company 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
        CEI
        subsidiary generates sales through the relationships we have cultivated and
        the
        quality work product we have maintained over our 61 year history of the
        companies. Christenson Electric has 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 our existence
        has
        been achieved by entering into additional markets within the electrical services
        industry.
 
 The
        ECI
        subsidiary produces revenue from transactions between electricity users and
        power grid operators. These transactions are facilitated by long-standing
        relationships between us 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
        capabilities currently include risk-managed energy, capacity, and ancillary
        service products that assist 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. We 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 customer base has
        become participants. National companies for which we provide electrical,
        technology, and other services are potential 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.
  7
 ***Index***
  Approximately
        half of our current revenue base comes as subcontracting work through general
        contractors. For the year ended December 30, 2006 two customers accounted
        for
        approximately 17% and 12%, respectively, 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,
        both of which had significant built-in intangible values that we are developing.
        Part of ECI’s value is contained in the proprietary software that we 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.
 
 The
        Company’s 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.
 
 Since
        the
        acquisition of ECI in 2005 we have been expanding our influence 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 limited. We have developed the systems
        and business processes enabling energy consumers to contribute to products
        serving selected components of the regional wholesale markets. In each market
        served by us, there exist other 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 help in expanding these market
        segments, we will face increased competition. 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 then provides 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,
        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.
  8
 ***Index***
  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 Wilson Electric, Rosendon Electric and Alliant
        Energy.
        CEI has several competitors in the high voltage and utility service markets,
        consisting of several of the companies that compete with us across other
        lines
        of our business.
 
 There
        are
        several entities that are in competition with us in the energy, capacity
        and
        operating reserve markets we serve. These entities compete with us over several
        of our product lines. These competitors include Enernoc, Comverge and Computer
        Powerlines. Some of these entities may be larger than we are and may have
        considerably more resources than we have.
 
 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 our ability to execute 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 financial condition.
  **Manufacturing
        and Supply**
 
 We
        purchase telecommunication equipment, networking equipment, cabling, wiring
        and
        various other equipment and supplies that are used 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.
 
 At
        the
        end of 2006, we hired a professional material parts purchasing manager in
        an
        effort to provide additional controls and efficiencies in the area of inventory
        management. This addition will also help facilitate implementation of many
        of
        the internal controls we are undertaking in conjunction with our Sarbanes-Oxley
        efforts
 
 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 operating subsidiaries have had negative operating
        cash flows in their 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 were to deteriorate.
 
 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.
  9
 ***Index***
  We
        do not
        have any long-term contracts for the purchase of products or supplies with
        any
        of our material vendors.
  The
        operations of ECI turn our traditional customer base of buildings and industrial
        sites into vendors that provide modifications to energy demands 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**
 
 Through
        the September 2003 acquisition of Christenson Technology Services, now
        known as CEI, 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.
 
 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 of an independent
        intangible asset valuation firm. This firm assists us annually in evaluating
        whether these intangible assets retain their value or have an impairment
        that
        may cause us to write down their value as we did in 2005.
 
 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 our service excellence, technical knowledge
        and innovative design abilities, than upon such protection. Notwithstanding
        the
        foregoing, we will strongly defend all intellectual property rights from
        infringement.
  **Government
        Approval or Regulations**
 
 The
        Company is 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 regional 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
        December 30, 2006, the Company employed approximately 293 persons. The Company’s
        workforce fluctuates based on the project work flow at any specific point
        in
        time. Approximately 220 of the Company’s employees are covered by collective
        bargaining agreements, and the Company believes its relations with its employees
        are good.
  **Item
        1a. Risk Factors**
 
 **CAUTIONARY
        FACTORS THAT MAY AFFECT FUTURE RESULTS**
 
 We
        provide the following cautionary discussion of risks, uncertainties and possible
        inaccurate assumptions relevant to our business and our products. These are
        factors that we think could cause our actual results to differ materially
        from
        expected results. Other factors besides those listed here could adversely
        affect
        us. Investors should carefully consider all of such risk factors before making
        an investment decision with respect to our Common Stock.
  10
 ***Index***
  **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 an operating loss of $5,631,000 for the twelve months ended December
        30, 2006 and net losses of $77,953,193 and $6,181,683 for the years ended
        December 31, 2005 and January 1, 2005, respectively. The loss for the twelve
        months ended December 30, 2006 includes expenses of $1,976,000 due to non-cash
        charges for stock based compensation and amortization of intangible assets.
        Of
        the loss amount in 2005, $77,420,000 was due to a non-cash write-off of impaired
        goodwill from the ECI transaction, and other intangible asset, non-cash
        impairment charges. 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 Experience Continuing Losses and 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.**
 
 Additional
        capital may 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 business development plans. Any additional
        equity financing may involve substantial dilution to our then existing
        shareholders.
 
 **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.
        The energy transaction business has many competitors, some larger than we
        are
        and with greater resources. 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
 
 ·
              hiring,
                  training and management of
                  employees.
 11
 ***Index***
 
 Our
        future growth may be attributable to acquisitions of new product lines and
        new
        businesses. We anticipate that future acquisitions, if successfully consummated,
        may 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 may 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. No goodwill or intangible asset value was written off in the
        twelve
        months ended December 30, 2006.
 
 **If
        We Are Unable to Retain the Services of Messrs. Boucher, Walter and Ameduri,
        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, Mr. A. Mark Walter, our President,
        and
        Gene Ameduri, our ECI President. We do not have employment agreements with
        Messrs. Boucher, Walter or Ameduri. Loss of the services of any of these
        officers could have a material adverse effect on our growth, revenues, and
        prospective business. We do not maintain key-man insurance on the lives of
        Messrs. Boucher, Walter or Ameduri. 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.
 12
 ***Index***
  **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, and passage of favorable energy tax legislation
        by
        Congress. 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, 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;
 
 ·
              Weather
                  abnormalities;
 
 ·
              Unexpected
                  price increases;
 
 ·
              Changes
                  in the rules by the electric grid operators regarding payments
                  for our
                  transactional energy services;
 
 ·
              While
                  opportunities for transactional revenue is higher in cold weather
                  months,****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;
 13
 ***Index***
  ·
              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 electrical,
        technology, and transactional 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 provide, 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.
 14
 ***Index***
  **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 power lines 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 75-85% 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.
 15
 ***Index***
  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 1999 — 2001 (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:
 16
 ***Index***
  ·
              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.
 
 **Potential
        Fluctuations in Annual Operating Results**
 
 Our
        annual operating results may fluctuate significantly in the future as a result
        of a variety of factors, most of which are outside our control, including:
        the
        demand for our products and services; seasonal trends in purchasing, the
        amount
        and timing of capital expenditures and other costs relating to the real estate
        construction and development; price competition or pricing changes in the
        market; technical difficulties or system downtime; general economic conditions
        and economic conditions specific to the construction industry.
 
 Our
        annual results may also be significantly impaired by the impact of the
        accounting treatment of acquisitions, financing transactions or other matters.
        Particularly at our early stage of development, such accounting treatment
        can
        have a material impact on the results for any quarter. Due to the foregoing
        factors, among others, it is likely that our operating results may fall below
        our expectations or those of investors in some future quarter.
 
 **Limitation
        of Liability and Indemnification of Officers and Directors**
 
 Our
        officers and directors are required to exercise good faith and high integrity
        in
        our management affairs. Our Articles of Incorporation provide, however, that
        our
        officers and directors shall have no liability to our shareholders for losses
        sustained or liabilities incurred which arise from any transaction in their
        respective managerial capacities unless they violated their duty of loyalty,
        did
        not act in good faith, engaged in intentional misconduct or knowingly violated
        the law, approved an improper dividend or stock repurchase, or derived an
        improper benefit from the transaction. Our Articles and By-Laws also provide
        for
        the indemnification by us of the officers and directors against any losses
        or
        liabilities they may incur as a result of the manner in which they operate
        our
        business or conduct the internal affairs, provided that in connection with
        these
        activities they act in good faith and in a manner that they reasonably believe
        to be in, or not opposed to, the best interests of Microfield, and their
        conduct
        does not constitute gross negligence, misconduct or breach of fiduciary
        obligations.
  17
 ***Index***
  **Continued
        Influence of Current Officers and Directors**
 
 The
        present officers and directors own approximately 19% of the outstanding shares
        of Common Stock, and therefore are in a position to elect a significant number
        of our Directors and otherwise influence the Company, including, without
        limitation, authorizing the sale of equity or debt securities of Microfield,
        the
        appointment of officers, and the determination of officers' salaries.
        Shareholders have no cumulative voting rights. (See Security Ownership of
        Certain Beneficial Owners and Management)
 
 **Management
        of Growth**
 
 We
        may
        experience growth, which will place a strain on our managerial, operational
        and
        financial systems resources. To accommodate our current size and manage growth
        if it occurs, we must devote management attention and resources to improve
        our
        financial strength and our operational systems. Further, we will need to
        expand,
        train and manage our sales and distribution base. There is no guarantee that
        we
        will be able to effectively manage our existing operations or the growth
        of our
        operations, or that our facilities, systems, procedures or controls will
        be
        adequate to support any future growth. Our ability to manage our operations
        and
        any future growth will have a material effect on our stockholders.
  **Item
        2. Description of Property**
 
 The
        Company leased six facilities in Portland and Eugene, Oregon, and one facility
        in San Jose, California during 2006. These facilities consist of approximately
        40,000 square feet of office space, The remaining facilities are occupied
        pursuant to both fixed-term, and month-to-month leases. The Company does
        not own
        or lease any manufacturing space.
  **Item
        3. 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.
 
 **Item
        4. Submissionof Matters of a Vote of Security
        Holders**
 
 No
        matters were submitted to a vote of the Company’s shareholders during the
        quarter ended December 30, 2006.
  18
 ***Index***
  **PART
        II**
 
 **Item
        5.Market for Common Equity and Related Stockholder
        Matters**
 
 The
        Company’s 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.
 
 Fiscal
                  2005First
                  Quarter
              
              $
              0.48
              
              $
              0.24Second
                  Quarter
              
              
              0.62
              
              
              0.25Third
                  Quarter
              
              
              2.60
              
              
              0.50Fourth
                  Quarter
              
              
              2.68
              
              
              1.46Fiscal
                  2006First
                  Quarter
              
              $
              5.00
              
              $
              2.32Second
                  Quarter
              
              
              4.38
              
              
              2.70Third
                  Quarter
              
              
              2.98
              
              
              1.73Fourth
                  Quarter
              
              
              1.68
              
              
              0.52
 
 As
        of
        December 30, 2006, we had 241 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 2006 or 2005.
 
 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.
 
 In
        October 2005, 5,233,603 shares of common stock were issued in a private
        placement which totaled $3,664,000, including $230,000 in commission to the
        placement agent that was issued in stock as a part of the transaction. 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
        the Company’s common stock at $0.90 per
        share
        which are exercisable until 2010.
 
 Under
        the
        terms of the private placement agreements and the debt conversion agreements,
        a
        6.5% cumulative dividend based on the debt value converted and issued, is
        due to
        those shareholders of these two series of preferred shares, as well as the
        Series 2 preferred shares, if 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 have sufficient cash for continued operation of the business.
        The Company does not anticipate declaring such dividends on the converted
        amounts in the near future. The Company does not anticipate declaring any
        dividends on common stock.
 
 **Securities
        Authorized for Issuance Under Equity Compensation Plans**
 
 The
        following equity compensation information, as of December 30, 2006, is presented
        in compliance with SEC regulation S-K Item 201(d).
 
 Plan
                  category
              
              Number
                  of Securities to be issued upon exercise of outstanding options
                  and
                  warrants
                (a)
              
              Weighted
                  average exercise price of outstanding options and warrants
                (b)
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))
                (c)Equity
                  compensation plans approved by security holders
              
              
              8,927,577
              
              $
              0.54
              
              
              11,677,423Equity
                  compensation plans not approved by security holders
              
              
              28,687,317
              
              $
              2.46
              
              
              N/ATotal
              
              
              37,614,894
              
              $
              2.00
              
              
              N/A
 19
 ***Index***
  The
          Company has a Stock Incentive Plan. At December 30, 2006, 9,057,577 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 the Company's common stock at fair market value 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, the Company entered into an agreement to purchase all the
        outstanding shares of ECI in exchange for 27,365,305 shares of the Company’s
        common stock at $2.34 per common share, issuance of 19,695,432 warrants to
        purchase the Company’s common shares at $2.58 per share, and issuance of
        3,260,940 options to purchase the company’s common stock at $0.32 per share. The
        transaction was valued at approximately $108 million.
 
 On
        October 5, 2005, the Company completed a private placement in the amount
        of
        $3,434,000 in exchange for 4,905,717 shares of the Company’s common stock, and warrants
        to purchase another 2,944,693 shares of the Company’s common stock at $0.90 per
        share. The
        Company 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, the Company was required to pay $1.1 million to JMW Group,
        LLC and Christenson Leasing, LLC (CLLLC), both related parties, to reduce
        the
        debt in the Company’s 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, the Company entered into a Master Vehicle Lease Termination
        Agreement with CLLLC (see Note 17), under which the Company terminated its
        previous master vehicle lease agreement with CLLLC. Under the terms of this
        termination agreement, the Company was released from its obligation under
        the
        previous master vehicle lease agreement. In consideration for this release
        the
        Company issued 1,000,000 warrants to purchase the Company’s common shares, which
        were valued at $515,000 using the Black Scholes model. This warrant value
        was
        recorded in the Company’s consolidated balance sheet as common stock warrants,
        with a corresponding expense recorded in the Company’s consolidated statement of
        operations.
 
 In
        connection with the August 24, 2004 debt issuance by Destination Capital,
        LLC
        (see Note 17), the
        Company is obligated to issue warrants to purchase the Company’s 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, the Company
        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 the
        Company’s 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, the Company’s 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.
  20
 ***Index***
  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, the Company is
        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 charge 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 the Company was obligated to issue
        during
        the first six months of fiscal year, 2005. On August 1, 2005, the Company
        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 the Company’s statement of
        operations after July 1, 2005.
 
 On
        July
        28, 2004, The Company 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 12), the
        Company is obligated to issue warrants to purchase the Company’s common stock.
        According to the terms of the debt issuance, warrants in the amount of one
        percent of the Company’s fully diluted common stock will be issued to the debt
        holders on the first day of each calendar month that the debt is outstanding.
        The Company 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, the Company 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 statements using the Black-Scholes model, and any subsequent
        changes in the Company’s 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,
        the Company’s 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.
 
 **Stock
        Price Performance Graph**
 
 The
        following graph sets forth our total cumulative shareholder return as compared
        to the return of the NASDAQ Stock Market (U.S.) Index (“NASDAQ”) and the NASDAQ
        Industrial Index for the period of December 31, 2002 through December 31,
        2006.
        The graph reflects the investment of $100 on December 31, 2002 in our stock,
        the
        NASDAQ and the NASDAQ Industrial Index.
 
 Total
        return also assumes reinvestment of dividends. As noted above, we have never
        paid dividends on our common stock. Historical stock price performance should
        not be relied upon as indicative of future stock price performance.
  21
 ***Index***
  
 
 Cumulative
                  Total Return12/2002
              12/2003
              12/2004
              12/2005
              12/2006Microfield
              100.00
              128.571
              107.142
              595.24
              152.38NASDAQ
              100.00
              148.83
              161.35
              163.56
              179.13NASDAQ
                  Industrial
              100.00
              154.94
              179.76
              180.22
              187.21
   1 01/03/2004 was Microfield’s fiscal year end and was used for the calculation of
          Microfield’s total return.
 2 01/01/2005
          was Microfield’s fiscal year end and was used for the calculation of
          Microfield’s total return.
  22
 ***Index***
  **Item6.
        Selected Financial Data**
 
 **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 30, 2006, December 31, 2005, and January 1,
        2005
        and the balance sheet data at December 30, 2006, and December 31, 2005 are
        derived from our audited financial statements which are included elsewhere
        in
        this annual report. The statement of operations data for the years ended
        January
        3, 2004, and December 28, 2002 and the balance sheet data at January 3, 2004,
        and December 28, 2002 are derived from our audited financial statements which
        are not included in this annual report. 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.
  **Fiscal years ended****December 30,**
              
              **December 31,**
              
              **January 1,**
              
              **January 3,**
              
              **December 28,****2006**
              
              **2005**
              
              **2005**
              
              **2004**
              
              **2002**Statements
                  of Operations:Sales
              
              $
              76,141
              
              $
              57,935
              
              $
              36,467
              
              $
              10,342
              
              $
              —Cost
                  of sales
              
              
              66,860
              
              
              47,702
              
              
              30,335
              
              
              8,712
              
              
              —Gross
                  profit
              
              
              9,281
              
              
              10,233
              
              
              6,132
              
              
              1,630
              
              
              —Operating
                  expense
              
              
              14,912
              
              
              86,179
              *
              
              10,639
              
              
              4,104
              
              
              279(Loss)
                  from continuing operations
              
              
              (5,631
              )
              
              (78,000
              )
              
              (6,394
              )
              
              (3,143
              )
              
              (241
              )Net
                  income (loss)
              
              
              833
              
              
              (77,953
              )
              
              (6,182
              )
              
              (6,046
              )
              
              (364
              )Net
                  income (loss) per share
              
              $
              0.01
              
              $
              (2.88
              )
              $
              (0.36
              )
              $
              (0.59
              )
              $
              (0.06
              )Weighted
                  average shares
              
              
              71,374
              
              
              27,048
              
              
              17,340
              
              
              10,309
              
              
              5,615Balance
                  Sheet Data:Cash
              
              
              2,545
              
              $
              729
              
              $
              11
              
              $
              131
              
              $
              91Total
                  assets
              
              
              57,147
              
              
              55,241
              
              
              11,775
              
              
              14,042
              
              
              1,045Total
                  liabilities
              
              
              13,019
              
              
              27,337
              
              
              12,334
              
              
              14,034
              
              
              270Shareholders’
                  equity (deficit)
              
              $
              43,616
              
              $
              27,904
              
              $
              (559
              )
              $
              8
              
              $
              775
  
 *
              Includes
                  write-off of impaired goodwill of $77,420,000 resulting from the
                  re-valuation of goodwill purchased in the acquisition of ECI in
                  October
                  2005.
  
 **Item
        7. 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. One can identify these statements by
        forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. One should read statements that
        contain these words carefully because they:
 **•**
                discuss
                    future expectations;
 
 **•**
                contain
                    projections of future results of operations or of 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 Form 10-K. See “Risk Factors beginning on page
        32.”
  23
 ***Index***
  **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
        those acquisitions were the capabilities to service high voltage facilities
        including wind farms and solar energy collection facilities. These subsidiaries
        are Christenson Electric, Inc. (“CEI”), acquired in July 2005 and EnergyConnect,
        Inc. (ECI”), acquired in October 2005. In January 2006, the operations of
        Christenson Velagio (“CVI”) and CEI were combined and are operating as
        Christenson Electric, Inc. Currently, CEI and EnergyConnect (“ECI”) are the
        remaining wholly-owned operating subsidiaries of the Company. 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
 o
              Controls,
                  lighting, and cabling
 o
              Building
                  electric service
 o
              Solar,
                  wind, distributed generation, and
                  substations
 o
              Information
                  technology networks
 o
              Telecommunications,
                  computer telephony, and integrated
                  systems
 o
              Life
                  safety and security systems
 o
              Redistribution
                  in malls and shopping centers
 ·
              Construction,
                  maintenance, inspection, and
                  upgrades
 o
              Integrated
                  building controls, wiring, and
                  cabling
 §
              HVAC,
 §
              Lighting
 §
              Life
                  safety systems
 o
              Telecommunications
                  systems integration and
                  infrastructure
 §
              Computer
                  telephony integration
 §
              Digital
                  Video CCTV systems
 §
              Enterprise
                  security systems
 §
              Wireless
                  networking solutions
 §
              Information
                  technology networks
 §
              Voice
                  / data systems
 o
              Electrical
                  construction service
 §
              Buildings
                  and industrial systems
 §
              Substations
 §
              Wind
                  farms, solar collectors, and distributed
                  generation
  24
 ***Index***
  ·
              Software
                  development
 o
              Commercial
                  building energy data management, data acquisition, and
                  modeling
 o
              Regional
                  grid data monitoring, data management, and price
                  forecasting
 o
              Electric
                  consumer transactional interface, wholesale products, and transaction
                  management
 o
              Settlement
                  systems and related protocols
 ·
              Electric
                  Power Transactions
 o
              Service
                  electric energy, capacity, and reserve needs of regional electric
                  grids
 o
              Service
                  wholesale electric markets to improve electric supply and delivery
                  efficiencies
 o
              Enable
                  buildings and industrial consumers to contribute to these
                  services
 
 CEI
        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 the
        market
        is expanded to include additional regions in the US. CEI also 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.
 
 CEI
        has
        continuously provided electrical design, engineering, and construction services
        for more than 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 CEI
        revenue is repeat business with long-standing relationships with it customers.
        CEI operates a fleet of service trucks that supply the electricity 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 expansion of 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. CEI also continues to provide services to Bonneville Power
        Administration and other major utilities under long-standing contractual
        relationships.
 
 ECI
        provides wholesale electricity market transaction services to regional
        electricity grids. Selected needs of electric grid operators, including untapped
        energy, capacity, and reserves have been formed into products that can be
        delivered through ECI software systems to the grid. ECI technologies, processes,
        and services enable buildings and electricity consumers to contribute to
        such
        wholesale services.
 
 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 within CEI based on our revenue
        recognition policy. These bookings are reviewed twice weekly by our President,
        the Chief Financial Officer and several of their direct reports. Revenues
        of ECI
        are reviewed by our CEO, ECI’s President, Microfield’s Corporate Controller and
        the ECI employee in charge of technology. Decisions about various aspects
        of the
        business are made, and actions are taken based on the prior week’s transactions,
        and whether or not it met weekly revenue goals and expectations. Monthly
        customer revenue for both subsidiaries is also examined on a plan versus
        actual
        basis, as a part of a monthly review of our financial statements for the
        prior
        month, by our executive team.
  25
 ***Index***
  Expense
        Control .
        We have
        various controls in place to monitor spending. These range from authorization
        and approvals by the head of each subsidiary, our CFO or Controllers as well
        as
        review of the periodic check runs by the CFO or Controllers, 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 monthly to review reports that
        monitor
        expenses and cost efficiency, among other factors. Additionally, the executive
        team of CEI comprised of our President, CFO and Controller, meets twice weekly
        to review those subsidiaries’ operations and cash usage. All expenses of
        EnergyConnect are reviewed and approved by the President of EnergyConnect.
        Additionally, our CEO, the President of ECI, our Corporate Controller and
        several other ket ECI employees meet weekly to review operations within ECI.
        Each subsidiary’s financial statements are reviewed monthly with our CEO, each
        division’s President, our CFO and several other key financial and operational
        employees on a plan versus actual basis to monitor and review spending patterns
        and expenses within each operating entity. These financial statements are
        also
        reviewed quarterly with the board of directors.
 
 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 CEO, CEI President,
        CFO,
        Controller and the ECI 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
        invest a certain amount of funds in the upcoming year for research and
        development in ECI to develop proprietary tools and software in producing
        new
        energy management products and services, and in increasing the efficiency
        and
        utilization of our current products.
 
 Customer
        service. We
        consider our reputation as one of our most valuable assets. Much of the revenue
        in CEI 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 is integral to ECI’s business as we
        build its customer base.
 
 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. Additionally, all employees
        of CEI
        are required to comply with random drug tests.
 
 *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 energy transactions are driven primarily
        by the acquisition of energy consumers to participate in our programs and
        support delivery of increasing capabilities 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 CEI. These borrowings are
        repaid through collections from customers’ accounts. CEI 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.
  26
 ***Index***
  ECI’s
        source of cash is generated from its transactions. This cash is received
        once a
        month from the grid operators after a settlement process is completed. This
        process gathers and verifies all of ECI’s participant’s energy management
        transactions. Based on the results of the settlement process, a wire transfer
        is
        sent to ECI in the third week of each month to record revenue.
 
 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,
        temperatures in our markets where we participate in energy management programs,
        increased competition in the energy transaction markets, changes in the rules
        promulgated by grid operators, interruption of our work force through
        disagreements with our union, business contraction and expansion caused by
        the
        economy, seasonality, 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 up or down. 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.*
 
 The
        company exceeded its revenue goals within CEI in 2006 but fell short of its
        net
        income goals. The shortfall was due mainly to a specific wind project involving
        operations outside of the Portland area. Our management has analyzed the
        reasons
        for this occurrence, and implemented safeguards to help prevent these issues
        from arising in the future. ECI fell considerably short of its revenue and
        net
        income goals in 2006. This was due mainly to slower than anticipated acceptance
        and use of the energy transaction products by our participants.
 
 Management
        has set specific goals within the subsidiaries regarding revenue, net income,
        customer contract signings, revenue ramp rates, expense control, etc. Management
        will review these goals and the attainment levels on a monthly basis, and
        will
        take corrective action where appropriate to ensure the company meets or exceeds
        its goals in 2007.
 
 *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
        are not expanding, our service projects are more focused toward changes,
        adds,
        moves, maintenance and fixes within this customer base. We continue to see
        a
        positive climate for construction projects in the economy currently. We
        experience 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 projects during those months. EnergyConnect is less
        affected by changes in the economy. Its business is based on energy usage
        and
        prices. During periods of higher 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
        and increase their cash flow. ECI is greatly affected by weather as severe
        cold
        or heat waves drive energy prices up, which presents more opportunities for
        participants to utilize ECI products.
 
 It
        is
        anticipated that as the economy continues at its current rate, we will see
        increasing revenue from the sales of technology products and services. Also,
        with the extension of the energy tax credit bill by Congress, CEI should
        continue to benefit from alternative energy projects.
  27
 ***Index***
  In
        addition to the weather patterns in its market areas, ECI is affected by
        the
        market price for natural gas. This contributes significantly to the fluctuations
        in the market for wholesale electricity since it is the main source of fuel
        for
        most of the electricity generators in the United States.
 
 **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
        continuously evaluate, 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;
        and
 
 Warrant
        liability.
 
 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
        use 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 60-80 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. An additional
        source of our revenue is derived from agreements with the power grid operators
        whereby a monthly reserve fee is paid for our agreement to standby, ready
        to
        provide relief in the form of curtailment of energy usage, in times of high
        energy demand. These payments are recorded as revenue on a cash basis, as
        payments are received. We will apply the accrual method of accounting for
        revenues when we are satisfied that we can estimate monthly revenue to be
        settled with the grid, with a higher degree of certainty.
 28
 ***Index***
  *Accruals
        for contingent liabilities*
 
 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.
 
 *Inventories
        and reserves for shrinkage and obsolescence*
 
 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 December 30, 2006
        the
        allowance for inventory obsolescence was $60,000 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.
 
 *Bad
        debt reserves*
 
 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
        December 30, 2006, the allowance for doubtful accounts was $194,798. This
        allowance was determined by reviewing customer accounts and considering each
        customer’s creditworthiness as of December 30, 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.
 
 *Purchase
        price allocation and impairment of intangible and long-lived
        assets*
 
 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.
 
 *Warrant
        Liability*
 
 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.
 29
 ***Index***
  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.
 
 At
        September 30, 2006, both of the warrant liabilities had been reclassified
        to
        equity as a result of the effective registration of the underlying shares
        and
        warrants issued in both of the private placements. These derivative instruments
        were revalued on the date each of the registrations was declared effective,
        with
        the incremental revaluation amount recorded as a gain in the consolidated
        statement of operations.
 
 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 fiscal years 2006, 2005,
        and
        2004. 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 statements
        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 has not been amortized. Instead, the trade
        name
        is tested annually for impairment, with any impairment charged against earnings
        in the Company’s consolidated statement of earnings.
 
 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 current estimated value of $872,771.
        The
        value of the Christenson name in each of the previously separate Christenson
        subsidiaries were combined and are reported as one amount in the Company’s
        records at December 30, 2006.
  **Recent
        Accounting Pronouncements**
 
 New
        Accounting Pronouncements
 
 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. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
 
 The
        FASB
        issued SFAS No. 156, “Accounting for Servicing of Financial Assets an
        amendment of FASB Statement No. 140” (“SFAS No. 156”) in March
        2006. SFAS No. 156 requires a company to recognize a servicing asset
        or servicing liability each time it undertakes an obligation to service a
        financial asset. A company would recognize a servicing asset or servicing
        liability initially at fair value. A company will then be permitted to choose
        to
        subsequently recognize servicing assets and liabilities using the amortization
        method or fair value measurement method. SFAS No. 156 is effective for
        fiscal years beginning after September 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
 30
 ***Index***
 
 On
        July 13, 2006, the FASB issued FASB Interpretation No. 48, “Accounting
        for Uncertainty in Income Taxes-an Interpretation of FASB Statement
        No. 109” (“FIN No. 48”). FIN No. 48 clarifies what
        criteria must be met prior to recognition of the financial statement benefit
        of
        a position taken in a tax return. FIN No. 48 will require companies to
        include additional qualitative and quantitative disclosures within their
        financial statements. The disclosures will include potential tax benefits
        from
        positions taken for tax return purposes that have not been recognized for
        financial reporting purposes and a tabular presentation of significant changes
        during each period. The disclosures will also include a discussion of the
        nature
        of uncertainties, factors which could cause a change, and an estimated range
        of
        reasonably possible changes in tax uncertainties. FIN No. 48 will also
        require a company to recognize a financial statement benefit for a position
        taken for tax return purposes when it will be more-likely-than-not that the
        position will be sustained. FIN No. 48 will be effective for fiscal
        years beginning after December 15, 2006 **.**
  On
        September 15, 2006, the FASB issued SFAS No. 157, “Fair Value
        Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how
        companies should measure fair value when they are required to use a fair
        value
        measure for recognition and disclosure purposes under generally accepted
        accounting principles. SFAS No. 157 will require the fair value of an
        asset or liability to be based on a market based measure which will reflect
        the
        credit risk of the company. SFAS No. 157 will also require expanded
        disclosure requirements which will include the methods and assumptions used
        to
        measure fair value and the effect of fair value measures on earnings.
        SFAS No. 157 will be applied prospectively and will be effective for
        fiscal years beginning after November 15, 2007 and to interim periods
        within those fiscal years.
  In
        September 2006, the Financial Accounting Standards Board issued FASB Statement
        No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans” (“SFAS 158”). SFAS 158 requires the Company to
        record the funded status of its defined benefit pension and other postretirement
        plans in its financial statements. The Company is required to record an asset
        in
        its financial statements if a plan is overfunded or record a liability in
        its
        financial statements if a plan is underfunded with a corresponding offset
        to
        shareholders’ equity. Previously unrecognized assets and liabilities are
        recorded as a component of shareholders’ equity in accumulated other
        comprehensive income, net of applicable income taxes. SFAS 158 also
        requires the Company to measure the value of its assets and liabilities as
        of
        the end of its fiscal year ending after December 15, 2008. The Company has
        implemented SFAS 158 using the required prospective method. The recognition
        provisions of SFAS 158 are effective for the fiscal year ending after
        December 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
        to measure many financial instruments, and certain other items, at fair value.
        SFAS 159 applies to reporting periods beginning after November 15, 2007.
        The
        adoption of SFAS 159 is not expected to have a material impact on the Company’s
        financial condition or results of operations.
 
 **Results
        of Operations**
 
 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
                  2006**
              
              **Fiscal
                  2005**
              
              **Fiscal
                  2004**Net
                  sales
              
              
              100
              %
              
              100
              %
              
              100
              %Cost
                  of goods sold
              
              
              88
              
              
              82
              
              
              83Gross
                  profit
              
              
              12
              
              
              18
              
              
              17Operating
                  expenses
              
              
              19
              
              
              149
              
              
              29Loss
                  from continuing operations
              
              
              (7
              )
              
              (131
              )
              
              (12
              )Other
                  income (expense)
              
              
              8
              
              
              (4
              )
              
              (5
              )Gain
                  (loss) before income taxes
              
              
              1
              
              
              (135
              )
              
              (17
              )Benefit
                  from income taxes
              
              
              -
              
              
              -
              
              
              -Gain
                  (loss) before discontinued operations
              
              
              1
              
              
              (135
              )
              
              (17
              )Discontinued
                  operations
              
              
              -
              
              
              -
              
              
              1Net
                  gain (loss)
              
              
              1
              %
              
              (135
              )%
              
              (16
              )%
 
 31
 ***Index***
  The
        financial information presented for the fiscal year ended December 30, 2006
        includes information for CEI and ECI for the full fiscal year. 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.
 
 *Sales* .
        Revenue
        for the fiscal year ended December 30, 2006 was $76,141,000 compared to
        $57,935,000 and $36,467,000 for the fiscal years ended December 31, 2005
        and
        January 1, 2005, respectively. The increase in revenue between periods is
        due to
        there being a full twelve months of revenue in 2006 from the entities acquired
        during the year 2005. The acquisitions of the high voltage division of CEI
        and
        of ECI contributed revenue of approximately $33,103,000 compared to $18,482,000
        in 2005 and none in 2004. Revenue within ECI was $3.2 million in fiscal year
        2006 compared to $1.2 million in 2005 and none in 2004. There were sales
        to two
        customers that comprised 17% and 12% of the Company’s 2006 consolidated revenue.
        There were no customers that comprised more than 10% of consolidated revenue
        in
        2005. The company’s revenue is subject to seasonal influences, with the second
        and third fiscal quarters typically producing the largest revenues of the
        year.
        Due to the effects of weather on the timing of some of the wind projects,
        portions of that revenue may fall into the first or fourth quarter in some
        years
        and not in others.
 
 *Cost
        of Sales* .
        Cost of
        sales totaled $66,860,000 (88%) compared to $47,702,000 (82%) for the fiscal
        year ended December 31, 2005, and $30,335,000 (83%), for the fiscal year
        ended
        January 1, 2005. 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 for both subsidiaries while the amount for the fiscal
        year ended December 31, 2005 includes costs of the operations of the former
        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, increased due to reduced margins on a specific
        wind project in 2006. Costs of sales within CEI totaled approximately
        $63,828,000 which represented 87% of sales of the consolidated group. Costs
        of
        sales within ECI totaled approximately $3,037,000 which represented 1% of
        sales
        of the consolidated entities.
 
 *Gross
        Profit.* Gross
        profit for the fiscal year ended December 30, 2006, was $9,281,000 (12%)
        compared to $10,233,000 (18%) and $6,132,000 (17%) for the fiscal years ended
        December 31, 2005 and January 1, 2005, respectively. This decrease in gross
        profit is due primarily to the lower profits produced on the specific wind
        power
        project in CEI. ECI produced gross profit of $170,000 (5%) for the fiscal
        year
        ended December 30, 2006. The gross profit in ECI is lower than anticipated
        due
        to approximately $100,000 in out of period expenses from 2005 that were not
        recognized until 2006. Additionally, there is expense of approximately $240,000
        due to the amortization of the developed technology intangible recorded in
        ECI
        at the date of acquisition. This expense represents 8% of current year’s revenue
        within ECI.
 
 Future
        gross profits and gross margins will depend on the volume and mix of sales
        of
        products and services to the Company’s customers, as well as the Company’s
        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 from prior year percentages 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 for the fiscal
        year ended December
        30, 2006 were $14,912,000 (19.6%) compared to $8,759,000 (15.1%) and $9,748,000
        (26.7%) for the fiscal
        years ended December 31, 2005,  January
        1, 2005 .
        This
        increase in dollar amounts between years is due to expenses incurred within
        CEI
        and ECI for a full year in 2006 compared to expenses only from the dates
        of the
        acquisitions of those entities in 2005 through the end of that fiscal year.
        The
        increase in percentage of S, G & A expenses is due to the expenses within
        ECI to build the sales organization and develop new products, in relation
        to the
        relatively low revenue at this stage of the development of that business.
        The
        percentage increase also is due to $1,244,000 in stock-based compensation
        which
        was not required to be recorded in fiscal year ended December 31, 2006, and
        increased legal fees resulting from an increased level of stock transfer
        activity.
  32
 ***Index***
  S,
        G
& A expenses for CEI, ECI and Microfield corporate entity totaled
        $8,836,000, $2,869,000 and $3,207,000, respectively. The totals within CEI
        consist mainly of payroll and payroll related costs of $5,332,000, building
        rent
        and equipment lease payments of $1,440,000, and depreciation and amortization
        of
        $524,000. These expenses within ECI consisted mainly of payroll and payroll
        related costs of $1,703,000 and software development costs of $717,000.
        Corporate S, G & A costs included $1,442,000 in stock-based compensation
        costs, $913,000 in professional fees and Sarbanes-Oxley compliance, $447,000
        for
        payroll and payroll related costs, and $255,000 for investor relations and
        other
        SEC compliance.
 
 *Write-off
        of impaired goodwill and intangibles* .
        The
        Company hired an independent valuation firm at the end of each of the last
        three
        fiscal years to perform its impairment test on the goodwill and intangible
        assets contained in the two operating subsidiaries. This independent appraisal
        concluded that there was no impairment of either the goodwill or the intangibles
        as of December 30, 2006. Prior year charges included a write-off of $77,191,000
        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. The Company
        will continue to perform annual impairment tests on its goodwill and intangible
        assets. Future impairment charges, if any, will be recorded as a charge against
        earnings.
 
 *Interest
        Expense* .
        Interest expense was $2,228,000 for the year ended December 30, 2006 compared
        to
        $1,580,000 and $1,959,000 for the years ended December
        31, 2005 and January
        1, 2005, respectively. The increase in interest expense was primarily a result
        of the charge for the timing of the filing of the company’s registration
        statement associated with the October 2005 private placement. According to
        the
        registration rights document, the company had a total of 90 days to file
        its
        initial registration document and an additional 30 days to have it declared
        effective by the SEC. The cost for this totaled $825,000 in the current year
        and
        was paid for with the company’s common stock. Excluding this charge, interest
        expense in 2006 of $1,296,000 compared to the interest expense in 2005 was
        lower
        as a result of the lower levels of debt within the company.
 
 *Gain/(Loss)
        on valuation of warrant liability* .
        As a
        part of the private placements in October 2005 and June 2006, the Company
        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. Any subsequent changes in the Company’s stock price would
        cause the warrant liability to be re-valued at the end of each quarter, with
        the
        resulting decrease or increase in liability recorded as a gain or loss in
        the
        company’s consolidated statement of operations. This
        June
        2006 warrant issuance and the subsequent changes in values of the warrant
        liabilities resulted in non-cash income during the fiscal year ended December
        30, 2006 of $8,319,000, and non-cash expense in 2005 of $503,543. (See Non-cash
        Expense Table below.) Both of these warrant liabilities were reclassified
        to
        equity when their respective registrations were declared effective by the
        SEC.
 
 *Gain
        / Loss From Discontinued Operation.*  Discontinued
        operations consist of a gain of $17,000 on the sale of the SoftBoard business.
        (See Item 1, Description of Business - General) The SoftBoard business was
        sold
        in 2000. As part of the sale price, the Company receives 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 2006, 2005 or 2004 due to tax losses
        incurred by the Company in those years. No tax benefit from loss carryback
        was
        recorded in these years 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
        (see
        Note 15).
 
 **Non-cash
        Expense Items**
 
 The
        Company has entered into several acquisitions, financings, debt conversions
        and
        other transactions where goodwill and amortizable intangible assets were
        recorded, and/or common stock or warrants were issued as a part of the
        transactions. Many of the issuances resulted in non-cash charges to the
        Company’s statement of operations. 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
        the Company’s statements of operations for the fiscal years ended December 30,
        2006, December 31, 2005 and January 1, 2005.
  33
 ***Index***
  Year
                  ended
              
              Year
                  ended
              
              Year
                  endedNon-cash
                  (income) or expense item description*
              
              December
                  30, 2006
              
              December
                  31, 2005
              
              January
                  1, 2005Stock-based
                  derivative liability re-measurement
              
              $
              -
              
              $
              88,024
              
              $
              16,150Interest
                  expense on warrant issuances and re-measurements
              
              
              -
              
              
              320,967
              
              
              912,402Re-valuation
                  (gain)/ loss of warrant liability
              
              
              (8,319,107
              )
              
              503,543
              
              
              -Common
                  stock issued for services
              
              
              -
              
              
              -
              
              
              560,000Stock-based
                  compensation issued for services
              
              
              718,990
              
              
              243,920
              
              
              -Stock-based
                  compensation issued to directors and employees
              
              
              723,261
              
              
              -
              
              
              -Interest
                  expense on amortization of debt discount
              
              
              -
              
              
              13,564
              
              
              158,869Intangible
                  write-off and amortization
              
              
              533,185
              
              
              220,750
              
              
              110,556Interest
                  expense on late filing, paid with stock
              
              
              824,899
              
              
              69,000
              
              
              -Gain
                  on disposal of assets and lease termination
              
              
              -
              
              
              (7,145
              )
              
              (92,137
              )Write
                  down of impaired intangible asset
              
              
              -
              
              
              77,419,759
              
              
              376,000Unused
                  reserve for legal fees to contest lawsuit
              
              
              -
              
              
              (120,000
              )
              
              205,568Loss
                  on debt extinguishment
              
              
              -
              
              
              -
              
              
              515,000Total
                  transactional non-cash (income) and expense
              
              $
              (5,518,772
              )
              $
              78,752,382
              
              $
              2,762,408
 
 *This
        table does not include depreciation expense.
 
 
 **Liquidity
        and Capital Resources**
 
 Since
        inception, the Company has financed its operations and capital expenditures
        through public and private sales of equity securities, cash from operations,
        and
        borrowings under bank lines of credit. At December
        30, 2006 ,
        the
        Company had working capital of approximately $2,680,000 and its primary source
        of liquidity consisted of cash and its operating lines of credit.
 
 Accounts
        receivable increased to $9,105,000 at December 30, 2006 from $8,536,000 at December
        31, 2005 .
        The
        increase is due to increased business at the end of 2006 over the activity
        occurring at the same time in 2005. Accounts receivable in CEI and ECI were
        $9,007,000 and 99,000, respectively, at December 30, 2006. These receivables
        are
        net of allowances for doubtful accounts of $195,000 and $229,000 at December
        30 2006 and December
        31 ,
        2005,
        respectively. Management expects these receivables to remain fairly constant
        as
        a percentage of sales, decreasing slightly as efficiencies in the billing
        and
        collection processes are achieved.
 
 Inventory
        decreased to $513,000 at December
        30, 2006 from
        $721,000 at December
        31, 2005 .
        The
        decrease is due primarily to excess inventory on hand at December 31, 2005
        that
        was subsequently used on a wind project early in 2006. The excess inventory
        levels associated with the wind business of CEI at December 31, 2005 were
        from
        materials required for a specific project in 2005. It was determined that
        rather
        than send the materials back to the vendor when the project was complete,
        they
        would be used on the next wind project. CEI does not maintain a regular stock
        of
        inventory for the wind business. The Company maintains a fleet of trucks
        and
        vans which each maintain a certain level of inventory needed to provide timely
        products and services to the Company’s customers. Inventory in CEI should remain
        within a narrow range, changing only slightly as revenue fluctuates from
        period
        to period. ECI does not maintain any inventory.
 
 The
        Company records costs in excess of billings which reflect those costs incurred
        on construction and services, which have not yet been billed to customers.
        These
        amounts were $2,350,000 and $2,039,000 at December
        30 ,
        2006
        and December
        31 ,
        200 5 ,
        respectively. The increase of $311,000 is due to normal fluctuations in business
        between years. The Company tries to minimize this amount and keep its billing
        as
        current as possible as costs are incurred. Under terms of certain contracts,
        the
        Company groups its costs on specific projects and bills customers on a periodic
        basis instead of as costs are incurred.
 
 Property
        and equipment, net of depreciation increased to $659,000 at December 31,
        2005
        compared to $451,000 at December 31, 2005. This increase was due to $139,000
        in
        leasehold improvements in its new headquarters location to which the company
        moved in April 2006. The company also purchased $164,000 in new computer
        hardware and software for new employees in ECI, to add to the Forefront software
        system, and to replace outdated servers. W e
        do not
        anticipate spending any material amounts to acquire fixed assets for the
        foreseeable future.
  34
 ***Index***
  In
        the
        acquisition of CEI in July 2005, the Company 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 is not being amortized. The Company
        also recorded a $1,687,335 customer relationship intangible asset in this
        transaction. This amount was calculated during testing performed at the end
        of
        2005, and as such was reclassified from goodwill previously recorded. This
        intangible asset has a ten-year life and is being amortized monthly on a
        straight-line basis, over that period. There were no write downs of the
        intangible assets or goodwill during 2006 due to impairments.
 
 The
        Company recorded $106,545,000 in goodwill from the acquisition of ECI in
        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. The Company does not
        amortize goodwill. There was no write down of goodwill during 2006.
  The
        Company 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 is being amortized monthly, over that period.
  Accounts
          payable to all parties decreased to $5,063,000 at December 30, 2006 from
          $7,142,000 at December 31, 2005. This decrease is the result of a reduction
          in
          the time for payment of accounts payables. At December 31, 2005 the payables
          were $3,403,000 in CEI, $914,000 in ECI and $513,000 in the Microfield
          corporate
          entity. Payables consist primarily of the costs of inventory, services,
          materials and supplies used in providing services to our customers in CEI
          and
          payments for energy automation transactions made by ECI’s participants. An
          increase in payables and accrued expenses provides cash for operations.
 
 Accrued
        payroll, payroll taxes and benefits were $1,659,000 at December 30, 2006
        compared to $1,763,000 at December 31, 2005. The
        amount at December 30, 2006 consists of one week of union and non-union payroll.
        Additionally, this liability included December’s health and welfare benefit,
        owed to the unions representing the
        Company’s electricians and technicians ,
        and
        other payroll related obligations .
        The
        remainder of this amount is comprised of payroll withholdings and payroll
        taxes
        owed by the company. 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 the revenues of the Company and as such, represents
        a main
        cash use of the Company’s funds. As revenues increase, the amounts due for these
        types of expenses will increase as well. 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
        Company has two borrowing facilities with two lenders. The amount outstanding
        under these bank lines of credit was approximately $3,830,000 at December
        30,
        2006. This is a decrease of $2,127,000 from the end of the prior fiscal year.
        The decrease is due primarily to payment of a large amount of the operating
        line
        made in July 2006 shortly after the Company completed its private placement.
        At
        the end of 2006 ECI had $118,000 outstanding under its line of credit. These
        lending facilities are the prime sources of funds for the Company. Amounts
        are
        drawn against the CEI line each day based on the amount of eligible revenues
        that are billed by the Company. As receivables are collected daily, those
        funds
        are used to pay down the lines. The borrowing limit of the two lines totals
        $10,120,000 and borrowing capacity is based on 85% of eligible accounts
        receivable. This debt facility was extended at the end of January 2007 to
        March
        2007 at the request of its lender. The Company anticipates that the operating
        line will be renewed at that date for another year. The Company is in compliance
        with its covenants under this loan.
 
 During
        the past two years, the Company has issued shares of both common and preferred
        shares in exchange for cash. On October 5, 2005, the Company completed a
        private
        placement in the amount of $3,434,000 in exchange for 4,905,717 shares of
        the
        Company’s common stock. The Company 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, the Company was required
        to pay
        $1.1 million to JMW Group, LLC and Christenson Leasing, LLC, both related
        parties, to reduce debt within the Company’s subsidiaries. On June 29, 2006, the
        Company issued 7.5 million shares of its common stock and 5,625,000 warrants
        to
        purchase common stock in exchange for $15 million in a private
        placement.
  35
 ***Index***
  In
          2006,
          we incurred an operating loss of $5,631,000. In 2005, we incurred a net
          loss of
          $77,953,000 due to the write down of $77.1 million of impaired goodwill.
          In
          2004, the Company and its subsidiary suffered a significant loss from ongoing
          operations and experienced negative cash flows from continuing operating
          activities. While it is anticipated that we can produce income from continuing
          operations, our history of recurring losses and liquidity issues may recur,
          in
          which case the Company may have to raise additional funds to continue to
          operate. The financial statements do not include any adjustments that might
          result from the outcome of this uncertainty. The Company may not have sufficient
          resources to satisfy cash requirements for the next twelve months. The
          Company
          believes it has good relations in the financial community and is optimistic
          about its ability to raise additional capital if needed to support operations.
 
 The
          Company had no commitments for capital expenditures in material amounts
          at
          December 30, 2006.
 
 The
          Company believes it has sufficient access to capital to meet its working
          capital
          requirements through the fiscal year 2007 in available cash, in cash generated
          from operations and from its available credit facilities. Additional financing
          may be required in order to meet growth opportunities in financing and/or
          investing activities. If additional capital is required and the Company
          is not
          successful in generating sufficient liquidity from operations or in raising
          sufficient capital resources on terms acceptable to the Company, this could
          have
          a material adverse effect on the Company’s business, results of operations,
          liquidity and financial condition.
 ________
 
 **Inflation**
 
 In
        the
        opinion of management, inflation will not have an impact on the Company’s
        financial condition and results of its operations.
 
 **Off-Balance
        Sheet Arrangements**
 
 The
        Company does not maintain off-balance sheet arrangements nor does it participate
        in any non-exchange traded contracts requiring fair value accounting
        treatment.
 
 **Related
        Party Transactions**
 
 The
        Company has 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 December 30, 2006 by related party.
 
 Related
                  Party
              Type
                  of Obligation
              Maturity
                  Date
              Amount
                  of Obligation
              Monthly
                  PaymentChristenson
                  Leasing LLC(a)
              T.
                  I. lease
              December
                  2007
              110,620
              7,940Christenson
                  Leasing LLC(a)
              Vehicle
                  leases
              various
              51,385
              variousChristenson
                  Leasing LLC(a)
              Equipment
                  lease
              December
                  2007
              -
              (d)60,000Rod
                  Boucher
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Mark
                  Walter
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Destination
                  Microfield, LLC
              Vehicle
                  lease
              December
                  2007
              -
              (c)46,350William
                  C. McCormick
              Indemnity
                  fees
              Open
                  obligation
              -
              (e)14,913John
                  B. Conroy
              Note
                  receivable
              September
                  2005
              66,250
              -
 
 (a)
              Robert
                  J. Jesenik, a significant shareholder of Microfield and 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)
              These
                  payments vary over the term of the loan. This amount represents
                  the
                  monthly payment in effect on December 30,
                  2006.
 (d)
              This
                  payment was reduced to $60,000 per month by terms of the reissued
                  note,
                  starting November 1, 2005.
 (e)
              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.
 
 *Note
        Payable to Destination Capital, LLC*
 
 On
        August
        24, 2004 we entered into a Business Loan Agreement with Destination Capital,
        LLC
        (“Destination”) under which we could borrow up to $2,000,000 based on
        Destination’s discretion and funds availability. Robert Jesenik, a significant
        shareholder of Microfield and a former director, is a principal indirect
        owner
        of Destination. Under the terms of the agreement, we paid 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 was 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.
  36
 ***Index***
  Date
              
              Loan
                  Balance
              
              Warrants
                  to be IssuedAugust
                  1, 2004
              
              $
              300,000
              
              
              37,500September
                  1, 2004
              
              $
              750,000
              
              
              93,750October
                  1, 2004
              
              $
              1,200,000
              
              
              150,000November
                  1, 2004
              
              $
              1,200,000
              
              
              150,000December
                  1, 2004
              
              $
              1,200,000
              
              
              150,000January
                  1, 2005
              
              $
              1,200,000
              
              
              150,000February
                  1, 2005
              
              $
              1,200,000
              
              
              150,000March
                  1, 2005
              
              $
              1,200,000
              
              
              150,000April
                  1, 2005
              
              $
              1,200,000
              
              
              150,000May
                  1, 2005
              
              $
              1,200,000
              
              
              150,000June
                  1, 2005
              
              $
              1,200,000
              
              
              150,000July
                  1, 2005
              
              $
              1,158,334
              
              
              144,792Total
                  warrants issued as of December 30, 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). Robert Jesenik, a significant shareholder of Microfield
        and a
        former director, is a principal shareholder of JMW. The three notes contained
        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
        Christenson Velagio, Inc. Also, as a result of the renegotiation of these
        notes,
        the warrant obligation, contained in the business loan agreement was eliminated.
        The remaining note payable was paid in full in July 2006.
 
 *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 $317,207, with monthly payments
        of
        $11,309, including interest at prime plus 10%, due on the 13 th of each
        month through September 13, 2008. On May 8, 2006, Mr. Boucher advanced an
        additional $100,000 to the Company. This amount was added to the principal
        amount of the note. This loan and the accrued interest were paid in full
        in
        August 2006.
  37
 ***Index***
  *Note
        Payable to William McCormick*
 
 On
        January 28, 2005, the Company 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, were due on the
        28 th day of
        each month starting on February 28, 2005. The note was to be paid in full
        on
        July 28, 2005. This note and the accrued interest were repaid in full in
        July
        2006.
 
 *Bond
        Guarantee Fees*
 
 Mark
        Walter/Rod Boucher
 A
        certain
        number of CEI construction projects require us to maintain a surety bond.
        The
        bond surety company requires an additional guarantee for issuance of the
        bond.
        We have agreements with Mark Walter, our President and Rod Boucher, our CEO,
        under which at quarter end pays Walter and Boucher between $1,000 and $4,000
        each per month for their personal guarantees of this bond liability. The
        guarantee fee is computed as 10% of the open liability under bonds issued
        for
        CEI.
 
 William
        McCormick
 Certain
        construction projects within CEI 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.
 
 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
        required a secondary indemnity, should funds be drawn against this letter
        of
        credit, the substantial majority of which was provided by Aequitas Capital
        Management, a related party. Robert Jesenik, a significant shareholder of
        Microfield and a former director, is a principal shareholder and CEO of
        Aequitas. Aequitas charged an additional fee of 15% of the letter of credit
        amount. Aequitas was also indemnified by Christenson Electric should it have
        had
        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. R obert
        Jesenik, a significant shareholder of Microfield and a former director, is
        a
        principal shareholder of Christenson Leasing. T he
        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. Robert Jesenik,
        a
        significant shareholder of Microfield and a former director, is a principal
        shareholder of Aequitas. Prior to 2006, 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 was 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
        September 30, 2006, this note was paid in full.
 
 *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. Mr. Robert Jesenik, a significant shareholder of Microfield and a
        former
        director is a significant shareholder in Christenson Leasing. The agreement
        called for payments of $97,255 starting on January 2, 2003 through December
        2007. On September 1, 2003, Christenson’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 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.
  38
 ***Index***
  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*
 
 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 December 30, 2006 is $46,350. This
        adjustment is made on an annual basis.
 
 We,
        through our subsidiary CEI, are a party to an agreement with CLC under which
        CEI
        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 of vehicles.
 
 *Real
        Property Sub Leases*
 
 On
        September 1, 2003, our formerly separate subsidiary, Christenson Velagio,
        entered into seven real property subleases with Christenson Electric, then
        a
        separate, unrelated entity, 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.
        The monthly sublease payments totaled $54,464 through November 30, 2004.
        On
        November 30, 2004, Christenson Velagio terminated its 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. The Company moved from this space in
        April
        2006 and is pursuing potential sublease options.
 
 We
        are
        lessees to a facility which we subleased to a third party through February
        2006.
        Under this lease, we pay $32,352 per month to our lessor, and received $25,000
        per month from our subleasee. This agreement terminated in February, 2006.
        Our
        obligation under the master lease for this facility ends in September 2008.
        On
        April 17, 2006, the Company moved to this facility, and is 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
        December 30, 2006 our total real property lease payments totaled $88,491,
        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.
  39
 ***Index***
 *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
          September 30, 2006, accrued interest receivable under this note totaled
          $27,082.
          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 December 30, 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**Operating
                    Leases
                
                $
                3,307,938
                
                $
                2,460,607
                
                $
                817,679
                
                $
                29,653
                
                $
                -Employment
                    and Consulting Agreements
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Total
                    obligations
                
                $
                3,307,938
                
                $
                2,460,607
                
                $
                817,679
                
                $
                29,653
                
                $
                -
  We
        were
        obligated under a registration rights agreement dated October 5, 2005 to
        file a
        registration statement by January 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 January 5, 2005 and the
        registration statement was not declared effective by the SEC by February
        5,
        2006, therefore for every 30-day period it is not filed and declared effective
        we must pay an aggregate $73,270, 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 72,188 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. During 2006, we accrued
        $825,000 in financial penalties to such selling stockholders which resulted
        in
        the issuance of 440,344 shares of common stock. We issued these additional
        shares during 2006 to satisfy this obligation.
 
 **Recent
        Accounting Pronouncements**
 
 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. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
 
 The
        FASB
        issued SFAS No. 156, “Accounting for Servicing of Financial Assets an
        amendment of FASB Statement No. 140” (“SFAS No. 156”) in March
        2006. SFAS No. 156 requires a company to recognize a servicing asset
        or servicing liability each time it undertakes an obligation to service a
        financial asset. A company would recognize a servicing asset or servicing
        liability initially at fair value. A company will then be permitted to choose
        to
        subsequently recognize servicing assets and liabilities using the amortization
        method or fair value measurement method. SFAS No. 156 is effective for
        fiscal years beginning after September 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
  40
 ***Index***
 
 On
        July 13, 2006, the FASB issued FASB Interpretation No. 48, “Accounting
        for Uncertainty in Income Taxes-an Interpretation of FASB Statement
        No. 109” (“FIN No. 48”). FIN No. 48 clarifies what
        criteria must be met prior to recognition of the financial statement benefit
        of
        a position taken in a tax return. FIN No. 48 will require companies to
        include additional qualitative and quantitative disclosures within their
        financial statements. The disclosures will include potential tax benefits
        from
        positions taken for tax return purposes that have not been recognized for
        financial reporting purposes and a tabular presentation of significant changes
        during each period. The disclosures will also include a discussion of the
        nature
        of uncertainties, factors which could cause a change, and an estimated range
        of
        reasonably possible changes in tax uncertainties. FIN No. 48 will also
        require a company to recognize a financial statement benefit for a position
        taken for tax return purposes when it will be more-likely-than-not that the
        position will be sustained. FIN No. 48 will be effective for fiscal
        years beginning after December 15, 2006 **.**
  On
        September 15, 2006, the FASB issued SFAS No. 157, “Fair Value
        Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how
        companies should measure fair value when they are required to use a fair
        value
        measure for recognition and disclosure purposes under generally accepted
        accounting principles. SFAS No. 157 will require the fair value of an
        asset or liability to be based on a market based measure which will reflect
        the
        credit risk of the company. SFAS No. 157 will also require expanded
        disclosure requirements which will include the methods and assumptions used
        to
        measure fair value and the effect of fair value measures on earnings.
        SFAS No. 157 will be applied prospectively and will be effective for
        fiscal years beginning after November 15, 2007 and to interim periods
        within those fiscal years.
  In
        September 2006, the Financial Accounting Standards Board issued FASB Statement
        No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans” (“SFAS 158”). SFAS 158 requires the Company to
        record the funded status of its defined benefit pension and other postretirement
        plans in its financial statements. The Company is required to record an asset
        in
        its financial statements if a plan is overfunded or record a liability in
        its
        financial statements if a plan is underfunded with a corresponding offset
        to
        shareholders’ equity. Previously unrecognized assets and liabilities are
        recorded as a component of shareholders’ equity in accumulated other
        comprehensive income, net of applicable income taxes. SFAS 158 also
        requires the Company to measure the value of its assets and liabilities as
        of
        the end of its fiscal year ending after December 15, 2008. The Company has
        implemented SFAS 158 using the required prospective method. The recognition
        provisions of SFAS 158 are effective for the fiscal year ending after
        December 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
  In
        February 2007, the FASB issued SFAS No. 159, “ The
        Fair
        Value Option for Financial Assets and Financial Liabilities ” SFAS 159 permits entities to choose to measure many
        financial
        instruments, and certain other items, at fair value. SFAS 159 applies to
        reporting periods beginning after November 15, 2007. The adoption of SFAS
        159 is not expected to have a material impact on the Company’s financial
        condition or results of operations.
  **Item
        7a.** **Quantitativeand
        Qualitative Disclosures About Market
        Risk**
 
 The
        Company does not own or trade any financial instruments about which disclosure
        of quantitative and qualitative market risks are required to be
        disclosed.
  41
 ***Index***
  **Item
        8. FinancialStatements**
 
 **RUSSELL
        BEDFORD** **STEFANOU
        MIRCHANDANI LLP**
 **CERTIFIED
          PUBLIC ACCOUNTANTS**
 
 
 **REPORT
        OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
        FIRM**
 
 
 Board
        of
        Directors
 Microfield
        Group, Inc.
 Portland,
        Oregon
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Microfield Group,
        Inc.
        and its wholly-owned subsidiaries (the "Company") as of December 30, 2006
        and
        December 31, 2005 and the related consolidated statements of operations,
        stockholders' equity, and cash flows for each of the three years in the periods
        ended December 30, 2006, December 31, 2005 and January 1, 2005. These financial
        statements are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these financial statements based
        upon
        our audits.
 
 We
        conducted our audits in accordance with standards of the Public Company
        Accounting Oversight Board (United States of America). Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        the financial statements are free of material misstatements. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe our audit
        provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Microfield Group, Inc.
        and
        its wholly-owned subsidiaries as of December 30, 2006 and December 31, 2005
        and
        January 1, 2005, and the results of its operations and its cash flows for
        each
        of the three years in the period ended December 30, 2006 in conformity with
        accounting principles generally accepted in the United States of America.
 As
          discussed in Note 1 to the consolidated financial statements, the Company
          adopted the provisions of Statement of Financial Accounting Standards No.
          123(R), “Share-Based Payment”, effective January 1, 2006.
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company's internal
        control over financial reporting as of December 30, 2006, based on the criteria
        established in *Internal Control—Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission and
        our
        report dated February 15, 2007 expressed an unqualified opinion on management's
        assessment of the effectiveness of the Company's internal control over financial
        reporting and an adverse opinion on the effectiveness of the Company's internal
        control over financial reporting because of a material weakness.
 
 
 /s/RUSSELL
                  BEDFORD STEFANOU MIRCHANDANI LLP
 
 
 McLean,
        Virginia
 February
        15, 2007
  42
 ***Index***
  **MICROFIELD
        GROUP, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF DECEMBER 30, 2006 AND DECEMBER 31, 2005**
 
 December
                  30, 2006
              
              December
                  31, 2005Current
                  assets:Cash
                  and cash equivalents
              
              $
              2,193,308
              
              $
              729,016Certificates
                  of deposit
              
              
              351,476
              
              
              -Accounts
                  receivable, net of allowances of $194,798 and $228,767
              
              
              9,105,485
              
              
              8,536,851Accounts
                  receivable - related parties
              
              
              -
              
              
              20,904Inventory,
                  net of allowances (Note 3)
              
              
              513,127
              
              
              720,769Costs
                  in excess of billings (Note 5)
              
              
              2,350,338
              
              
              2,039,040Other
                  current assets
              
              
              437,103
              
              
              607,793Total
                  current assets
              
              
              14,950,837
              
              
              12,654,373Property
                  and equipment, net (Note 4)
              
              
              659,295
              
              
              450,988Intangible
                  assets, net (Note 6 & 7)
              
              
              5,466,087
              
              
              6,008,937Goodwill
                  (Note 6 & 7)
              
              
              35,977,047
              
              
              35,962,766Other
                  assets
              
              
              94,081
              
              
              164,283Total
                  Assets
              
              $
              57,147,347
              
              $
              55,241,347Current
                  liabilities:Cash
                  disbursed in excess of available funds
              
              $
              -
              
              **$**
              942,436Accounts
                  payable
              
              
              5,063,271
              
              
              7,141,573Accrued
                  payroll taxes and benefits
              
              
              1,659,193
              
              
              1,762,626Bank
                  line of credit (Note 13)
              
              
              3,830,321
              
              
              5,957,470Current
                  portion of notes payable (Note 13)
              
              
              460,576
              
              
              950,993Current
                  portion of notes payable - related parties (Notes 13 &
                  17)
              
              
              -
              
              
              727,766Billings
                  in excess of costs (Note 5)
              
              
              899,071
              
              
              802,640Other
                  current liabilities
              
              
              358,051
              
              
              78,878Total
                  current liabilities
              
              
              12,270,483
              
              
              18,364,382Long-term
                  liabilities:Long
                  term notes payable (Note 13)
              
              
              1,260,859
              
              
              1,605,477Long
                  term notes payable - related parties (Notes 13 & 17)
              
              
              -
              
              
              453,151Warrant
                  liability (Note 10)
              
              
              -
              
              
              6,790,462Derivative
                  liability - notes (Note 11)
              
              
              -
              
              
              123,928Total
                  long-term liabilities
              
              
              1,260,859
              
              
              8,973,018Commitments
                  and contingencies (Note 18)
              
              
              
              
              
              -Shareholders’
                  equity:Convertible
                  Series 2 preferred stock, no par value, 10,000,000 shares authorized,
                  0
                  and 5,875,241 shares issued and outstanding (Note 9)
              
              
              -
              
              
              2,367,699Convertible
                  Series 3 preferred stock, no par value, 10,000,000 shares authorized,
                  2,040 and 3,485 shares issued and outstanding, respectively (Note
                  9)
              
              
              856,670
              
              
              1,463,658Convertible
                  Series 4 preferred stock, no par value, 10,000,000 shares authorized,
                  526
                  and 4,392 shares issued and outstanding, respectively (Note
                  9)
              
              
              174,423
              
              
              1,643,423Common
                  stock, no par value, 225,000,000 shares authorized, 79,023,905
                  and
                  55,557,870 shares issued and outstanding, respectively
              
              
              113,067,867
              
              
              91,532,139Common
                  stock warrants (Note 12)
              
              
              36,178,218
              
              
              38,391,161Accumulated
                  deficit
              
              
              (106,661,173
              )
              
              (107,494,133
              )Total
                  shareholders’ equity
              
              
              43,616,005
              
              
              27,903,947Total
                  liabilities and shareholders’ equity
              
              
              57,147,347
              
              $
              55,241,347
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
 43
 ***Index***
  **MICROFIELD
        GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE YEARS ENDED DECEMBER 30, 2006, DECEMBER 31, 2005 AND JANUARY 1,
        2005**
  December
                  30,
              
              December
                  31,
              
              January
                  1,2006
              
              2005
              
              2005Sales
              
              
              76,140,699
              
              $
              57,935,035
              
              $
              36,466,618Cost
                  of goods sold
              
              
              66,859,917
              
              
              47,702,498
              
              
              30,334,987Gross
                  profit
              
              
              9,280,782
              
              
              10,232,537
              
              
              6,131,631Operating
                  expensesSales,
                  general and administrative
              
              
              (14,911,672
              )
              
              (8,759,333
              )
              
              (9,748,188
              )Write-off
                  of impaired goodwill and intangible assets (Note 6)
              
              
              -
              
              
              (77,419,759
              )
              
              (376,000
              )Loss
                  on lease termination (Notes 12)
              
              
              -
              
              
              -
              
              
              (515,000
              )Loss
                  from operations
              
              
              (5,630,890
              )
              
              (75,946,555
              )
              
              (4,507,557
              )Other
                  income (expense)Interest
                  income
              
              
              355,969
              
              
              -
              
              
              1,126Interest
                  expense
              
              
              (2,228,294
              )
              
              (1,580,462
              )
              
              (1,959,104
              )Gain
                  on debt extinguishment (Note 12)
              
              
              -
              
              
              111,847
              
              
              -Derivative
                  expense (Note 11)
              
              
              -
              
              
              (88,024
              )
              
              (16,150
              )Gain
                  (loss) on disposal of assets
              
              
              -
              
              
              7,145
              
              
              87,795Gain
                  (loss) on valuation of warrant liability (Note 10)
              
              
              8,319,107
              
              
              (503,543
              )
              
              -Total
                  other income (expense)
              
              
              6,446,782
              
              
              (2,053,039
              )
              
              (1,886,333
              )Income
                  (loss) before provision for income taxes
              
              
              815,892
              
              
              (77,999,592
              )
              
              (6,393,890
              )Provision
                  for income taxes (Note 15)
              
              
              -
              
              
              -
              
              
              -Income
                  (loss) from continuing operations
              
              
              815,892
              
              
              (77,999,592
              )
              
              (6,393,890
              )Discontinued
                  operations:Gain
                  on discontinued operations - Velagio and IST (Note 8)
              
              
              -
              
              
              -
              
              
              149,380Gain
                  on sale of discontinued operations - SoftBoard (Note 8)
              
              
              17,068
              
              
              46,399
              
              
              62,827Net
                  income (loss)
              
              $
              832,960
              
              $
              (77,953,193
              )
              $
              (6,181,683
              )Deemed
                  preferred stock dividend (Note 9)
              
              
              -
              
              
              (411,060
              )
              
              (1,170,641
              )Net
                  income (loss) attributable to common shareholders
              
              $
              832,960
              
              $
              (78,364,253
              )
              $
              (7,352,324
              )Basic
                  and diluted net income (loss) per share from continuing operations
                  (Note
                  16)
              
              $
              0.01
              
              $
              (2.88
              )
              $
              (0.37
              )Basic
                  and diluted net income (loss) per share from discontinued Operations
                  (Note
                  16)
              
              $
              0.00
              
              $
              0.00
              
              $
              0.01Basic
                  and diluted net income (loss) loss per share (Note 16)
              
              $
              0.01
              
              $
              (2.88
              )
              $
              (0.36
              )Basic
                  and diluted net income (loss) per share attributable to common
                  shareholders
              
              $
              0.01
              
              $
              (2.89
              )
              $
              (0.42
              )Weighted
                  average shares used in per share calculations:Basic
              
              
              68,347,814
              
              
              27,048,127
              
              
              17,340,152Diluted
              
              
              71,374,268
              
              
              27,048,127
              
              
              17,340,152
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 44
 ***Index***
  **Microfield
        Group, Inc.**
 **Statement
        of Changes in Shareholders’ Equity (Deficit)**
 **Fiscal
        Years Ended December 30, 2006, December 31, 2005 and January 1,
        2005**
  Convertible
                        Series 2
                      Preferred
                        Stock
                    
                    Convertible
                        Series 3
                      Preferred
                        Stock
                    
                    Convertible
                        Series 4
                      Preferred
                        Stock
                    
                    Common
                        Stock
                    
                    Common
                        Stock Warrants
                    
                    Accumulated
                        Deficit
                    
                    Total
                        Shareholders’ Equity (Deficit)Shares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Warrants
                    
                    AmountBalance,
                        January 3, 2004
                    
                    
                    6,940,484
                    
                    $
                    2,815,101
                    
                    
                    -
                    
                    $
                    -
                    
                    
                    -
                    
                    $
                    -
                    
                    
                    16,772,570
                    
                    $
                    18,502,354
                    
                    
                    2,066,000
                    
                    $
                    468,000
                    
                    $
                    (21,777,556
                    )
                    $
                    7,899Convertible
                        Series 3 preferred shares issued for retirement of related
                        party
                        debt
                    
                    
                    
                    
                    
                    
                    
                    
                    3,640.803
                    
                    $
                    546,121
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    983,017
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,529,138Partial
                        satisfaction of note receivable through reduction of account
                        payable (see
                        Note 17)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,137
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,137Convertible
                        Series 4 preferred shares issued in private placement, net
                        of issuance
                        costs
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4,605.265
                    
                    $
                    1,125,739
                    
                    
                    
                    
                    
                    598,684
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,724,423Conversion
                        of preferred Series 2 shares to common shares
                    
                    
                    (119,048
                    )
                    
                    (50,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    119,048
                    
                    
                    50,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Warrant
                        values recognized upon warrant issuance (Note 12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,693,750
                    
                    
                    798,988
                    
                    
                    
                    
                    
                    798,988Warrant
                        reclassification recorded upon expansion of authorized common
                        shares (Note
                        12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,885,689
                    
                    
                    989,124
                    
                    
                    
                    
                    
                    989,124Common
                        stock issued for services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,600,000
                    
                    
                    560,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    560,000Amortization
                        of beneficial conversion features accounted for as deemed
                        preferred stock
                        dividend (See Note 9)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    727,546
                    
                    
                    
                    
                    
                    443,095
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,170,641
                    )
                    
                    -Net
                        loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (6,181,683
                    )
                    
                    (6,181,683
                    )BalanceJanuary
                        1,
                        2005
                    
                    
                    6,821,436
                    
                    $
                    2,765,101
                    
                    
                    3,640.803
                    
                    $
                    1,273,667
                    
                    
                    4,605.265
                    
                    $
                    1,568,834
                    
                    
                    18,491,618
                    
                    $
                    20,707,192
                    
                    
                    5,645,439
                    
                    $
                    2,256,112
                    
                    $
                    (29,129,880
                    )
                    
                    (558,974
                    )Amortization
                        of beneficial conversion features accounted for as deemed
                        preferred stock
                        dividend (See Note 9)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    255,471
                    
                    
                    
                    
                    
                    155,589
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (411,060
                    )
                    
                    -Warrant
                        values recognized upon warrant issuance (Note 12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    894,792
                    
                    
                    320,967
                    
                    
                    
                    
                    
                    320,967Common
                        shares issued in the acquisition of Christenson Electric
                        (Note
                        6)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,000,000
                    
                    
                    1,280,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,280,000Common
                        shares issued in private placement
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    5,233,603
                    
                    
                    3,434,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,434,000Common
                        shares issued in the acquisition of EnergyConnect (Note 6)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    27,365,305
                    
                    
                    64,034,814
                    
                    
                    19,695,432
                    
                    
                    36,495,391
                    
                    
                    
                    
                    
                    100,530,205Stock
                        options issued in the acquisition of EnergyConnect (Note
                        6)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,769,711
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,769,711Stock
                        options issued to outside consultants
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    244,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    244,000Common
                        shares issued upon conversion of preferred shares
                    
                    
                    (946,195
                    )
                    
                    (397,402
                    )
                    
                    (155.905
                    )
                    
                    (65,480
                    )
                    
                    (213.158
                    )
                    
                    (81,000
                    )
                    
                    1,315,258
                    
                    
                    543,882
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Common
                        shares issued upon exercise and forfeiture of warrants (Note
                        12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,079,440
                    
                    
                    743,539
                    
                    
                    (1,815,507
                    )
                    
                    (681,309
                    )
                    
                    
                    
                    
                    62,230Common
                        shares issued upon exercise of options
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    41,000
                    
                    
                    11,920
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    11,920Common
                        shares issued upon retirement of debt
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    31,646
                    
                    
                    50,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    50,000Valuation
                        of warrant liability issued in private placement (Note 12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (6,286,919
                    )
                    
                    2,944,693
                    
                    
                    
                    
                    
                    
                    
                    
                    (6,286,919
                    )Net
                        loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (77,953,193
                    )
                    
                    (77,953,193
                    )Balance
                        December 31, 2005
                    
                    
                    5,875,241
                    
                    $
                    2,367,699
                    
                    
                    3,484.898
                    
                    $
                    1,463,658
                    
                    
                    4,392.107
                    
                    $
                    1,643,423
                    
                    
                    55,557,870
                    
                    $
                    91,532,139
                    
                    
                    27,364,849
                    
                    $
                    38,391,161
                    
                    $
                    (107,494,133
                    )
                    $
                    27,903,947Common
                        shares issued in private placement less direct expenses
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    7,500,000
                    
                    
                    13,504,101
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,504,101Stock
                        options issued to outside consultants
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    718,990
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    718,990Stock
                        options issued to Employees and directors
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    723,261
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    723,261Common
                        shares issued for delayed registration filing
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    440,344
                    
                    
                    893,899
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    893,899Valuation
                        of warrant liability issued in private placement (Note 12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (14,758,004
                    )
                    
                    5,625,000
                    
                    
                    
                    
                    
                    
                    
                    
                    (14,758,004
                    )Common
                        shares issued upon conversion of preferred shares
                    
                    
                    (5,875,241
                    )
                    
                    (2,367,699
                    )
                    
                    (1,445.210
                    )
                    
                    (606,988
                    )
                    
                    (3,865.790
                    )
                    
                    (1,469,000
                    )
                    
                    11,186,241
                    
                    
                    4,443,687
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Common
                        shares issued upon exercise and forfeiture of warrants (Note
                        12)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,996,962
                    
                    
                    2,385,557
                    
                    
                    (4,440,667
                    )
                    
                    (2,212,943
                    )
                    
                    
                    
                    
                    172,614Common
                        shares issued upon exercise of options
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    265,188
                    
                    
                    100,875
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    100,875Conversion
                        of warranty liability upon registration of warrants
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,229,360
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,229,360Common
                        shares issued upon conversion of debt
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    77,300
                    
                    
                    294,002
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    294,002Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    832,960
                    
                    
                    832,960Balance
                        December 30, 2006
                    
                    
                    -
                    
                    $
                    -
                    
                    
                    2,039.688
                    
                    $
                    856,670
                    
                    
                    526.317
                    
                    $
                    174,423
                    
                    
                    79,023,905
                    
                    $
                    113,067,867
                    
                    
                    28,549,182
                    
                    $
                    36,178,218
                    
                    $
                    (106,661,173
                    )
                    $
                    43,616,005
 Each
        share of Series 3 and Series 4 preferred stock is convertible into one thousand
        shares of the Company’s common stock.
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
 
 45
 ***Index***
  **MICROFIELD
        GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 30, 2006, DECEMBER 31, 2005 AND JANUARY 1,
        2005**
 
 December
                  30, 2006
              
              December
                  31, 2005
              
              January
                  1, 2005Cash
                  Flows From Operating Activities:Net
                  Income (loss)
              
              $
              832,960
              
              $
              (77,953,193
              )
              $
              (6,181,683
              )Add
                  (deduct):(Gain)
                  loss on discontinued operations (Note 8)
              
              
              -
              
              
              -
              
              
              (149,380
              )(Gain)
                  on sale of discontinued operations (Note 8)
              
              
              (17,068
              )
              
              (46,399
              )
              
              (62,827
              )Income
                  (loss) from continuing operations
              
              
              815,892
              
              
              (77,999,592
              )
              
              (6,393,890
              )Depreciation
                  on fixed assets (Note 4)
              
              
              241,682
              
              
              116,174
              
              
              409,081Amortization
                  on intangible assets (Note 7)
              
              
              533,184
              
              
              220,702
              
              
              110,552Amortization
                  of debt discount
              
              
              -
              
              
              7,563
              
              
              158,869Issuance
                  of common stock resulting from delayed registration
              
              
              893,899
              
              
              -
              
              
              -Noncash
                  interest expense recorded on warrant issuance
              
              
              -
              
              
              320,967
              
              
              882,522Gain
                  on disposal of fixed assets
              
              
              -
              
              
              -
              
              
              (85,795
              )Warrants
                  issued with lease termination
              
              
              -
              
              
              -
              
              
              515,000Warrants
                  and stock options issued for services
              
              
              1,442,251
              
              
              244,000
              
              
              560,000Gain
                  on debt extinguishment
              
              
              -
              
              
              (111,847
              )
              
              -Re-measurement
                  of warrant liability
              
              
              (8,319,107
              )
              
              503,543
              
              
              43,409Re-measurement
                  of derivative associated with Steelcase note
              
              
              -
              
              
              88,024
              
              
              6,264Write
                  down of goodwill and intangible assets
              
              
              -
              
              
              77,419,759
              
              
              376,000Changes
                  in current assets and liabilities, net of effect of
                  acquisitions:Accounts
                  receivable
              
              
              (568,634
              )
              
              (217,254
              )
              
              (808,955
              )Accounts
                  receivable - related party
              
              
              
              
              
              (16,166
              )
              
              206,222Inventory
              
              
              207,643
              
              
              (481,441
              )
              
              190,201Other
                  current assets
              
              
              170,690
              
              
              282,604
              
              
              (56,359
              )Costs
                  in excess of billings
              
              
              (311,298
              )
              
              (531,877
              )
              
              694,570Other
                  long term assets
              
              
              70,202
              
              
              (63,729
              )
              
              52,057Cash
                  disbursed in excess of available funds
              
              
              (942,436
              )
              
              916,311
              
              
              (191,656
              )Accounts
                  payable
              
              
              (2,082,918
              )
              
              (856,623
              )
              
              (443,882
              )Accounts
                  payable - related party
              
              
              20,904
              
              
              (99,932
              )
              
              (101,618
              )Billings
                  in excess of cost
              
              
              96,432
              
              
              (99
              )
              
              169,375Accrued
                  expenses
              
              
              (72,108
              )
              
              (185,333
              )
              
              -Other
                  current liabilities
              
              
              279,173
              
              
              (200,555
              )
              
              52,632Net
                  cash used by continuing operations
              
              
              (7,524,549
              )
              
              (644,801
              )
              
              (3,655,401
              )Net
                  cash provided by discontinued operations
              
              
              -
              
              
              -
              
              
              149,380Net
                  cash provided by sale of discontinued operations
              
              
              17,068
              
              
              46,399
              
              
              62,827Net
                  cash used by operating activities
              
              
              (7,507,481
              )
              
              (598,402
              )
              
              (3,443,194
              )Cash
                  flows from investing activitiesPurchases
                  of fixed assets
              
              
              (449,989
              )
              
              (47,238
              )
              
              (117,713
              )Purchase
                  of certificates of deposit
              
              
              (351,476
              )
              
              -
              
              
              -Loan
                  to non-related company
              
              
              -
              
              
              -
              
              
              (200,000
              )Net
                  cash acquired in mergers with CEI and ECI
              
              
              -
              
              
              254,820
              
              
              -Net
                  cash provided (used) by investing activities
              
              
              (801,465
              )
              
              207,582
              
              
              (317,713
              )Cash
                  flows from financing activities:Borrowings
                  on line of credit
              
              
              73,867,430
              
              
              60,508,869
              
              
              36,149,231Repayments
                  on line of credit
              
              
              (75,994,579
              )
              
              (60,305,851
              )
              
              (36,087,355
              )Borrowing
                  on Union note payable
              
              
              -
              
              
              188,012
              
              
              958,572Repayments
                  on Union note payable
              
              
              (475,816
              )
              
              (665,104
              )
              
              -Repayments
                  on notes payable
              
              
              (656,973
              )
              
              (278,095
              )
              
              (69,773
              )Repayments
                  on notes payable - related party
              
              
              (789,020
              )
              
              (1,689,137
              )
              
              (600,000
              )Borrowings
                  on note payable - related party
              
              
              44,607
              
              
              -
              
              
              1,800,000Repayments
                  on lease obligation
              
              
              -
              
              
              -
              
              
              (233,732
              )Proceeds
                  from issuance of preferred stock
              
              
              13,504,101
              
              
              -
              
              
              1,724,423Proceeds
                  from issuance of common stock
              
              
              273,488
              
              
              3,350,150
              
              
              -Net
                  cash provided by financing activities
              
              
              9,773,238
              
              
              1,108,844
              
              
              3,641,366Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,464,292
              
              
              718,024
              
              
              (119,541
              )Cash
                  and cash equivalents, beginning of period
              
              
              729,016
              
              
              10,992
              
              
              130,533Cash
                  and cash equivalents, end of period
              
              
              2,193,308
              
              $
              729,016
              
              $
              10,992Supplemental information
                  on interest and taxesInterest
                  paid during the year
              
              $
              1,341,379
              
              $
              1,173,007
              
              $
              867,383Income
                  taxes paid during the year
              
              $
              -
              
              $
              -
              
              $
              -Supplemental
                  schedule of non-cash financing and investing activities:Beneficial
                  conversion feature of Series 3 and Series 4 preferred
                  stock
              
              $
              -
              
              $
              -
              
              $
              1,581,701Amortization
                  of beneficial conversion feature
              
              $
              -
              
              $
              411,060
              
              $
              1,170,641Series
                  3 preferred stock issued for related party operating lease
                  obligations
              
              $
              -
              
              $
              -
              
              $
              130,000Conversion
                  of account payable-related party to preferred stock
              
              $
              -
              
              $
              -
              
              $
              210,209Issuance
                  of preferred stock in exchange for conversion of related party
                  debt (See
                  Note 17)
              
              $
              -
              
              $
              -
              
              $
              1,188,919Valuation
                  of warrants issued with related party debt
              
              $
              -
              
              $
              320,967
              
              $
              172,734Conversion
                  of derivative liabilities to shareholders’ equity
              
              $
              -
              
              $
              -
              
              $
              989,124Conversion
                  of preferred stock to common stock
              
              $
              -
              
              $
              543,882
              
              $
              -Reduction
                  of note receivable secured by common stock
              
              $
              -
              
              $
              -
              
              $
              13,137Acquisition
                  of CEI:Assets
                  purchased
              
              $
              -
              
              $
              4,610,103
              
              $
              -Goodwill
              
              $
              -
              
              $
              5,934,438
              
              $
              -Liabilities
                  assumed
              
              $
              -
              
              $
              (8,916,022
              )
              $
              -Common
                  stock issued
              
              $
              -
              
              $
              (1,280,000
              )
              $
              -Direct
                  acquisition costs
              
              $
              -
              
              $
              (348,519
              )
              $
              -Cash
                  paid for acquisition
              
              $
              -
              
              $
              -
              
              $
              -Acquisition
                  of ECI:Assets
                  purchased
              
              $
              -
              
              $
              2,689,348
              
              $
              -Goodwill
              
              $
              -
              
              $
              106,544,871
              
              $
              -Liabilities
                  assumed
              
              $
              -
              
              $
              (1,509,930
              )
              $
              -Common
                  stock and stock options issued
              
              $
              -
              
              $
              (70,804,525
              )
              $
              -Common
                  stock previously issued
              
              $
              -
              
              $
              (200,000
              )
              $
              -Warrants
                  issued upon acquisitions
              
              $
              -
              
              $
              (36,495,391
              )
              $
              -Direct
                  acquisition costs
              
              $
              -
              
              $
              (224,373
              )
              $
              -Cash
                  paid for acquisition
              
              $
              -
              
              $
              -
              
              $
              -
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  46
 ***Index***
  **MICROFIELD
        GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        30, 2006, DECEMBER 31, 2005 AND JANUARY 1, 2005**
 
 
 **1.
        Description of the Business**
 
 Microfield
        Group, Inc. (the “Company,” “Microfield,” “we,” “us,” or “our”) through its
        subsidiaries Christenson Electric, Inc. (“CEI”) and EnergyConnect, Inc. (“ECI”)
        specializes 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’s objective is
        to leverage our assets and resources and build a viable, profitable, energy
        and
        electrical services infrastructure business.
 
 The
        condensed consolidated financial statements include the accounts of Microfield
        and its wholly owned operating subsidiaries, Christenson Electric, Inc. and
        EnergyConnect, Inc. (collectively the "Company"). All significant intercompany
        accounts and transactions have been eliminated in consolidation.
 
 The
        Company was incorporated in October 1986 as an Oregon corporation, succeeding
        operations that began in October 1984. The Company’s headquarters are located in
        Portland, Oregon.
 
 
 **2.
        Summary of Significant Accounting Policies**
 
 ***Fiscal
        Year***
 
 The
        Company’s fiscal year is the 52- or 53-week period ending on the Saturday
        closest to the last day of December. The Company’s current fiscal year is the
        52-week period ending December
        30 ,
        2006.
        The Company’s last two fiscal years were the 52-week periods ended December
        31 ,
        2005
        and January 1, 2005.
 
 ***Principles
        of Consolidation***
 
 The
        Consolidated Statements of Operations presented above, contain revenue and
        expense data of Microfield Group, Inc. for the years ended December
        30 ,
        2006, December
        31 ,
        2005
        and January 1, 2005. On July 20, 2005 and October 13, 2005, the Company acquired
        two wholly-owned subsidiaries, Christenson Electric, Inc. (CEI) and
        EnergyConnect, Inc. (ECI), respectively (see Note 6). The revenue and expense
        data of CEI and ECI are included in the Consolidated Statement of Operations
        from the respective acquisition dates, to the end of the period presented.
        All
        significant inter-company accounts and transactions between the Company and
        its
        subsidiaries have been eliminated in consolidation.
 
 ***Cash
        and Cash Equivalents***
 
 The
        Company considers all highly liquid investments with an original maturity
        or
        remaining maturity of three months or less at the date of purchase to be
        cash
        equivalents. Cash and cash equivalents are primarily maintained at two financial
        institutions.
 
 ***Fair
        Value of Financial Instruments***
 
 The
        carrying value of the Company’s financial instruments, including cash and cash
        equivalents, accounts receivable, accounts payable and accrued liabilities
        are
        carried at cost, which approximates fair value due to the relative short
        maturities of these instruments. The carrying value of debt, derivatives
        and the
        liability for warrant settlement are recorded at the estimated fair value
        of
        these instruments.
 
 ***Inventories***
 
 Inventories
        are stated at the lower of cost or market, using the first-in, first-out
        method.
        Inventory is comprised almost entirely of the cost of material. The Company
        provides inventory allowances based on estimates of excess and obsolete
        inventories.
  47
 ***Index***
  ***Advertising
        Costs***
 
 Advertising
        and marketing costs of $99,000, $40,000 and $40,000 were expensed as incurred
        in
        each of the years ended December
        30 ,
        2006, December
        31 ,
        2005
        and January 1, 2005, respectively.
 
 ***Property
        and Equipment***
 
 Property
        and equipment are stated at cost less accumulated depreciation and amortization.
        Depreciation of computer equipment and software is computed using straight
        line
        or accelerated declining balance method over the estimated useful lives of
        the
        assets. Estimated lives of three to five years are used for computer equipment
        and software. Depreciation of vehicles is computed using the straight-line
        method over the estimated useful lives of the assets. Estimated lives of
        three
        years are used for vehicles. Depreciation of furniture and fixtures is computed
        using straight line or accelerated declining balance method over the estimated
        useful lives of the assets. Estimated lives of five to seven years are used
        for
        furniture and fixtures.
 
 ***Concentrations***
 
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk consist primarily of accounts receivable. During
        the year ended December 30, 2006, revenues from two major customers approximated
        $11,700,000 or 17% of sales and $8,300,000 or 12% of sales.  At December
        30 ,
        2006
        there was one customer whose accounts receivable accounted for 11% of total
        outstanding trade accounts receivable. During
        the year ended December 31, 2005, revenues from one major customer
        approximated $5,680,000 or 10% of sales. At December 31, 2005 and
        January 1, 2005 there were no customers whose accounts receivable accounted
        for more than 10% of total outstanding trade accounts receivable. The
        Company performs limited credit evaluations of its customers, does not require
        collateral on accounts receivable balances, but does often retain lien rights
        to
        reduce its risk. The Company has not experienced material credit losses for
        the
        periods presented. The level of sales to any single customer may vary and
        the
        loss of any one of these customers, or a decrease in the level of sales to
        any
        one of these customers, could have a material adverse impact on the Company’s
        financial condition and results of operations.
 
 The
        Company currently relies on various sources for key components and services
        used
        in the installation and sales of its products and services. During
        the year ended December 30, 2006, purchases of parts or services from three
        major vendors approximated 20.5%, 18.6% and 11.6% of purchases, respectively.
        During the year ended December 31, 2005, purchases from two major vendors
        approximated 17.3% and 10.2% of purchases, respectively. None
        of
        the Company’s products or supplies used in the performance of its services is
        from a single source. The inability of any limited source suppliers to fulfill
        supply and production requirements, could materially impact future operating
        results.
 
 The
        Company’s business is concentrated in the electrical services, technology
        services and energy transaction services industries. Its future success depends
        on the buying patterns of its customers and continued demand by customers
        for
        the Company’s products and services. The Company’s success will depend on its
        ability to maintain its history of first rate quality in designing customer
        solutions and performing its services, enhancing its existing products and
        services and to develop and introduce, on a timely basis, successful new
        products or services.
 
 ***Revenue
        and Cost Recognition***
 
 Significant
        portions of the Company’s 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 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. As of December
        30 ,
        2006,
        accounts receivable includes retainage of $270,000 that is over one year
        old.
        Revenue from discontinued operations was 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.
  48
 ***Index***
  We
        also
        produce revenue through agreements with both building owners and the power
        grid
        operators. Under our agreements with facilities owners, we use software and
        other electrical and energy related products that interact with energy controls
        in their facilities. 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. An additional
        source of our revenue is derived from agreements with the power grid operators
        whereby a monthly reserve fee is paid for our agreement to standby, ready
        to
        provide relief in the form of curtailment of energy usage, in times of high
        energy demand. These payments are recorded as revenue on a cash basis, as
        payments are received. We will apply the accrual method of accounting for
        revenues when we are satisfied that we can estimate monthly revenue to be
        settled with the grid, with a higher degree of certainty.
 
 ***Impairment
        of Long-lived Assets***
 
 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
        discounted future cash flows resulting from the use of the asset and its
        eventual disposition. Measurement of an impairment loss for 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. (See Note 7)
 
 The
        Company measures 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, the Company has two reporting units.
        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.
 
 ***Income
        Taxes***
 
 The
        Company accounts for income taxes using the asset and liability approach
        in
        accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
        Accounting for Income Taxes. The asset and liability approach requires the
        recognition of deferred tax liabilities and assets for the expected future
        tax
        consequences of temporary differences between the carrying amounts and the
        tax
        basis of assets and liabilities. The effect on deferred taxes of a change
        in tax
        rates is recognized in operations in the period that includes the enactment
        date. Due to recurring losses, there has been no provision for income taxes
        in
        the periods presented.
 
 ***Computation
        of Net Income(Loss) per Share***
 
 Basic
        earnings (loss) per common share is computed using the weighted-average number
        of common shares outstanding during the period. Diluted earnings per common
        share is computed using the combination of dilutive common share equivalents,
        which include convertible preferred shares, options and warrants and the
        weighted-average number of common shares outstanding during the period. During
        the years ended December 31, 2005 and January 1, 2005, common stock equivalents
        are not considered in the calculation of the weighted average number of common
        shares outstanding because they would be anti-dilutive, thereby decreasing
        the
        net loss per common share.
 
 ***Pension
        Plan Contributions***
 
 The
        Company contributes to several Multi-Employer Pension Benefit Plans on behalf
        of
        its employees covered by a collective bargaining agreement. During the years
        ended December
        30 ,
        2006, December
        31 ,
        2005
        and January 1, 2005, the Company contributed $3,943,000, $2,704,000 and
        $1,895,000 to these plans, respectively, which was expensed as
        incurred.
  49
 ***Index***
  ***Stock
        Based Compensation***
 
 On
        January 1, 2006, the Company adopted Statement of Financial Accounting Standards
        No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which
        requires the measurement and recognition of compensation expense for all
        share-based payment awards made to employees and directors including employee
        stock options based on estimated fair values. SFAS 123(R) supersedes the
        Company’s previous accounting under Accounting Principles Board Opinion
        No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods
        beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission
        issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS
        123(R). The Company has applied the provisions of SAB 107 in its adoption
        of
        SFAS 123(R).
 
 The
        Company adopted SFAS 123(R) using the modified prospective transition method,
        which requires the application of the accounting standard as of January 1,
        2006,
        the first day of the Company’s fiscal year 2006. The Company’s Consolidated
        Financial Statements for twelve months ended December 30, 2006 reflect the
        impact of SFAS 123(R). In accordance with the modified prospective transition
        method, the Company’s Consolidated Financial Statements for prior periods have
        not been restated to reflect, and do not include,
        the impact of SFAS 123(R). Stock-based compensation expense recognized under
        SFAS 123(R) for the twelve months ended December 30, 2006 was
        $1,442,000.
  SFAS
        123(R) requires companies to estimate the fair value of share-based payment
        awards on the date of grant using an option-pricing model. The value of the
        portion of the award that is ultimately expected to vest is recognized as
        expense over the requisite service periods in the Company’s Consolidated
        Statement of Operations. Prior to the adoption of SFAS 123(R), the Company
        accounted for stock-based awards to employees and directors using the intrinsic
        value method in accordance with APB 25 as allowed under Statement of Financial
        Accounting Standards No. 123, “Accounting for Stock-Based Compensation”
(“SFAS 123”). Under the intrinsic value method, no stock-based compensation
        expense had been recognized in the Company’s Consolidated Statement of
        Operations because the exercise price of the Company’s stock options granted to
        employees and directors equaled the fair market value of the underlying stock
        at
        the date of grant.
 
 Stock-based
        compensation expense recognized during the period is based on the value of
        the
        portion of share-based payment awards that is ultimately expected to vest
        during
        the period. Stock-based compensation expense recognized in the Company’s
        Consolidated Statement of Operations for the twelve
        months ended December 30, 2006 included
        compensation expense for share-based payment awards granted prior to, but
        not
        yet vested as of December 31, 2005 based on the grant date fair value estimated
        in accordance with the pro forma provisions of SFAS 123 and compensation
        expense
        for the share-based payment awards granted subsequent to December 31, 2005
        based
        on the grant date fair value estimated in accordance with the provisions
        of SFAS
        123(R). SFAS 123(R) requires forfeitures to be estimated at the time of grant
        and revised, if necessary, in subsequent periods if actual forfeitures differ
        from those estimates. In the Company’s pro forma information required under SFAS
        123 for the periods prior to fiscal 2006, the Company accounted for forfeitures
        as they occurred.
 
 Upon
        adoption of SFAS 123(R), the Company is using the Black-Scholes option-pricing
        model as its method of valuation for share-based awards granted beginning
        in
        fiscal 2006, which was also previously used for the Company’s pro forma
        information required under SFAS 123. The Company’s determination of fair value
        of share-based payment awards on the date of grant using an option-pricing
        model
        is affected by the Company’s stock price as well as assumptions regarding a
        number of highly complex and subjective variables. These variables include,
        but
        are not limited to the Company’s expected stock price volatility over the term
        of the awards, and certain other market variables such as the risk free interest
        rate.
 
 The
        following table shows the effect on net earnings and earnings per share had
        compensation cost been recognized based upon the estimated fair value on
        the
        grant date of stock options for the twelve months ended December 31, 2005
        and
        January 1, 2005, in accordance with SFAS 123, as amended by SFAS No. 148
        “Accounting for Stock-Based Compensation - Transition and
        Disclosure”:
  50
 ***Index***
  December
                  31, 2005
              
              January
                  1, 2005Net
                  loss
              
              
              As
                  reported
              
              $
              (77,953,193
              )
              $
              (6,181,683
              )Less:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for awards, not including amounts to non-employees
                  already included in the calculation of net income, net of related
                  tax
                  effects
              
              
              
              
              
              (591,024
              )
              
              (244,354
              )Net
                  loss
              
              
              Pro
                  forma
              
              $
              (78,544,217
              )
              $
              (6,426,037
              )Net
                  loss attributable to common shareholders
              
              
              Pro
                  forma
              
              
              (78,955,277
              )
              
              (7,596,678
              )Basic
                  and diluted net loss per share
              
              
              As
                  reported
              
              $
              (2.88
              )
              $
              (0.36
              )Pro
                  forma
              
              $
              (2.90
              )
              $
              (0.37
              )Basic
                  and diluted net loss per share attributable to common
                  shareholders
              
              
              Pro
                  forma
              
              $
              (2.92
              )
              $
              (0.44
              )
 
 
 ***Comprehensive
        Income***
 
 The
        Company has no items of other comprehensive income or expense. Accordingly,
        the
        Company’s comprehensive loss and net loss are the same for all periods
        presented.
 
 ***Use
        of Estimates***
 
 The
        preparation of financial statements and related disclosures in conformity
        with
        accounting principles generally accepted in the United States requires
        management to make estimates and assumptions that
        affect the reported amounts of assets, liabilities, revenues and expenses,
        and
        related disclosure of contingent assets and liabilities. The Company evaluates,
        on an on-going basis, its 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.
        Its
        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.
 
 ***Segment
        Information***
 
 Statement
        of Financial Accounting Standards No. 131, "Disclosures about Segments of
        an
        Enterprise and Related Information" ("SFAS 131") establishes standards for
        reporting information regarding operating segments in annual financial
        statements and requires selected information for those segments to be presented
        in interim financial reports issued to stockholders. SFAS 131 also establishes
        standards for related disclosures about products and services and geographic
        areas. Operating segments are identified as components of an enterprise about
        which separate discrete financial information is available for evaluation
        by the
        chief operating decision maker, or decision-making group, in making decisions
        how to allocate resources and assess performance.
 
 ***Recent
        Accounting Pronouncements***
 
 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. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
 
 The
        FASB
        issued SFAS No. 156, “Accounting for Servicing of Financial Assets an
        amendment of FASB Statement No. 140” (“SFAS No. 156”) in March
        2006. SFAS No. 156 requires a company to recognize a servicing asset
        or servicing liability each time it undertakes an obligation to service a
        financial asset. A company would recognize a servicing asset or servicing
        liability initially at fair value. A company will then be permitted to choose
        to
        subsequently recognize servicing assets and liabilities using the amortization
        method or fair value measurement method. SFAS No. 156 is effective for
        fiscal years beginning after September 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
  51
 ***Index***
 
 On
        July 13, 2006, the FASB issued FASB Interpretation No. 48, “Accounting
        for Uncertainty in Income Taxes-an Interpretation of FASB Statement
        No. 109” (“FIN No. 48”). FIN No. 48 clarifies what
        criteria must be met prior to recognition of the financial statement benefit
        of
        a position taken in a tax return. FIN No. 48 will require companies to
        include additional qualitative and quantitative disclosures within their
        financial statements. The disclosures will include potential tax benefits
        from
        positions taken for tax return purposes that have not been recognized for
        financial reporting purposes and a tabular presentation of significant changes
        during each period. The disclosures will also include a discussion of the
        nature
        of uncertainties, factors which could cause a change, and an estimated range
        of
        reasonably possible changes in tax uncertainties. FIN No. 48 will also
        require a company to recognize a financial statement benefit for a position
        taken for tax return purposes when it will be more-likely-than-not that the
        position will be sustained. FIN No. 48 will be effective for fiscal
        years beginning after December 15, 2006 **.**
  On
        September 15, 2006, the FASB issued SFAS No. 157, “Fair Value
        Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how
        companies should measure fair value when they are required to use a fair
        value
        measure for recognition and disclosure purposes under generally accepted
        accounting principles. SFAS No. 157 will require the fair value of an
        asset or liability to be based on a market based measure which will reflect
        the
        credit risk of the company. SFAS No. 157 will also require expanded
        disclosure requirements which will include the methods and assumptions used
        to
        measure fair value and the effect of fair value measures on earnings.
        SFAS No. 157 will be applied prospectively and will be effective for
        fiscal years beginning after November 15, 2007 and to interim periods
        within those fiscal years.
  In
        September 2006, the Financial Accounting Standards Board issued FASB Statement
        No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans” (“SFAS 158”). SFAS 158 requires the Company to
        record the funded status of its defined benefit pension and other postretirement
        plans in its financial statements. The Company is required to record an asset
        in
        its financial statements if a plan is overfunded or record a liability in
        its
        financial statements if a plan is underfunded with a corresponding offset
        to
        shareholders’ equity. Previously unrecognized assets and liabilities are
        recorded as a component of shareholders’ equity in accumulated other
        comprehensive income, net of applicable income taxes. SFAS 158 also
        requires the Company to measure the value of its assets and liabilities as
        of
        the end of its fiscal year ending after December 15, 2008. The Company has
        implemented SFAS 158 using the required prospective method. The recognition
        provisions of SFAS 158 are effective for the fiscal year ending after
        December 15, 2006. The
        Company does not expect its adoption of this new standard to have a material
        impact on its financial position, results of operations or cash
        flows.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
        to measure many financial instruments, and certain other items, at fair value.
        SFAS 159 applies to reporting periods beginning after November 15, 2007.
        The
        adoption of SFAS 159 is not expected to have a material impact on the Company’s
        financial condition or results of operations.
 
 **3.
        Inventories**
 
 Inventories
        are stated at the lower of first-in, first-out, cost or market value, and
        consist of the following:
 
 December
                  30,
              
              December
                  31,2006
              
              2005Raw
                  materials
              
              $
              247,162
              
              $
              530,298Finished
                  Goods
              
              
              325,965
              
              
              405,143573,127
              
              
              935,441Less
                  allowance for obsolete inventory
              
              
              (60,000
              )
              
              (214,
                  672
              )$
              513,127
              
              $
              720,
                  769
 52
 ***Index***
  **4.
        Property and Equipment**
 
 Property
                  and equipment consist of the following:
              
              December
                  30,
              
              December
                  31,2006
              
              2005Tools
                  and equipment
              
              $
              488,098
              
              $
              483,861Software
              
              
              400,643
              
              
              109,118Furniture
              
              
              16,377
              
              
              -Leasehold
                  Improvements
              
              
              333,555
              
              
              196,460Vehicles
              
              
              117,329
              
              
              117,3291,356,002
              
              
              906,768Less
                  accumulated depreciation and amortization
              
              
              (696,707
              )
              
              (455,780
              )$
              659,295
              
              $
              450,988
 
 Depreciation
        expense included as a charge to income was $241,682, $116,174 and $409,081
        for
        the years ended December 30, 2006, December 31, 2005 and January 1, 2005,
        respectively **.**
 
 **5.
        Construction Contracts in Progress**
 
 Revenues
        and costs recognized on construction contracts in progress contrast the related
        billings as follows:
 
 December
                  30,
              
              December
                  31,2006
              
              2005Direct
                  costs to date
              
              $
              66,859,917
              
              $
              28,200,939Gross
                  profit to date
              
              
              9,280,782
              
              
              4,354,967Earned
                  contract revenue
              
              
              76,140,699
              
              
              32,559,906Contract
                  billings to date
              
              
              (74,689,432
              )
              
              (31,319,506
              )Net
                  under billings
              
              $
              1,451,267
              
              $
              1,236,400
 
 Included
        in the accompanying consolidated balance sheets under the following captions
        are:
 
 December
                  30,
              
              December
                  31,2006
              
              2005Costs
                  and estimated earnings in excess of billings
              
              $
              2,350,338
              
              $
              2,039,040Billings
                  in excess of costs and estimated earnings
              
              
              (899,071
              )
              
              (802,640
              )Net
                  under billings
              
              $
              1,451,267
              
              $
              1,236,400December
                  30,
              
              December
                  31,2006
              
              2005Direct
                  costs to date
              
              $
              66,859,917
              
              $
              28,200,939Gross
                  profit to date
              
              
              9,280,782
              
              
              4,354,967Earned
                  contract revenue
              
              
              76,140,699
              
              
              32,559,906Contract
                  billings to date
              
              
              (74,689,432
              )
              
              (31,319,506
              )Net
                  under billings
              
              $
              1,451,267
              
              $
              1,236,400
 53
 ***Index***
  The
        following table represents the Company’s backlog activity for the current year
        ended December 30, 2006.
 
 December
                  30,2006Backlog,
                  beginning of year
              
              $
              12,962,362Contract
                  additions
              
              
              69,003,117Billings
              
              
              (72,664,321
              )Backlog,
                  end of year
              
              $
              9,301,158
  **6.
        Acquisitions**
 
 *Acquisition
        of Christenson Electric, Inc.*
 On
        July
        20, 2005, the Company acquired Christenson Electric, Inc. (CEI) in exchange
        for
        2,000,000 shares of the Company’s common stock and the assumption of certain
        liabilities within CEI. The shares of common stock issued in conjunction
        with
        the merger were not registered under the Securities Act of 1933. The acquisition
        of CEI was accounted for using the purchase method in accordance with SFAS
        141,
“Business Combinations.” The results of operations for CEI have been included in
        the Consolidated Statements of Operations since the date of
        acquisition.
 
 CEI
        provides services to utilities and other energy related companies. 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 business of wind
        farm construction and electrical maintenance and construction of substation
        distribution and transmission facilities across the United States. CEI also
        provides services to Bonneville Power Administration and other major utilities
        under long-standing contractual relationships.
 
 The
        value
        of the Company’s common stock issued as a part of the acquisition was determined
        based on the average price of the Company's common stock for several days
        before
        the acquisition of CEI. The components of the purchase price were as
        follows:
 
 Common
                  stock
              
              $
              1,280,000Direct
                  acquisition costs
              
              
              348,519Total
                  purchase price
              
              $
              1,628,519
 
 In
        accordance with Financial Accounting Standard (SFAS) No. 141, Business
        Combinations, the total purchase price was allocated to the estimated fair
        value
        of assets acquired and liabilities assumed. The estimate of fair value of
        the
        assets acquired was based on management’s and an independent appraiser’s
        estimates. The total purchase price was allocated to the assets and liabilities
        acquired as follows:
 
 Cash
                  and other current assets
              
              $
              3,420,300Equipment
                  and other assets
              
              
              317,032Intangible
                  assets - Trade name
              
              
              872,771Goodwill
              
              
              5,934,438Current
                  liabilities
              
              
              (7,046,401
              )Notes
                  payable
              
              
              (1,869,621
              )Total
              
              $
              1,628,519
 
 The
        intangible asset of $872,771 at the date of acquisition consisted of a trade
        name. The intangible asset acquired has an indefinite estimated useful life.
        Goodwill of $5,934,438 at the acquisition date represents the excess of the
        purchase price over the fair value of the net tangible and intangible assets
        acquired. In accordance with SFAS 142, goodwill is not amortized and will
        be
        tested for impairment at least annually. The goodwill value was tested for
        impairment as of December 30, 2006 and December 31, 2005 using both the market
        value approach and the discounted cash flow approach. In both cases, the
        goodwill was determined to not be impaired.
  54
 ***Index***
  At
        December 31, 2005, the Company had an independent purchase allocation performed
        as of the acquisition date. It was determined that there existed an additional
        intangible other than that those that were recorded on the acquisition date.
        This additional intangible, a customer relationship intangible, amounted
        to
        $1,687,335. An entry was recorded at December 31, 2005 to reclassify this
        amount
        out of goodwill into intangible assets, and a charge was taken against earnings
        for amortization of this asset from the date of acquisition through the end
        of
        the year. This customer relationship intangible is being amortized over its
        estimated useful life of 10 years. In accordance with SFAS 144, Accounting
        for
        the Impairment or Disposal of Long-Lived Assets, the intangible asset subject
        to
        amortization was reviewed for impairment at December 30, 2006, and the fair
        value of customer relationship intangible remains at $1,687,335.
 
 The
        Company tested the trade name value for impairment as of the end both 2006
        and
        2005. The result for 2005 indicated that the recorded book value of trade
        name
        exceeded its fair value, as determined by discounted cash flows. Upon completion
        of the assessment, the Company recorded a non-cash impairment charge of $114,415
        at December 31, 2005 to reduce the carrying value of the trade name to its
        estimated value of $758,356 (Note 7). Impairment test at December 30, 2006
        indicated fair value of the trade name remains at $758,356.
 
 *Acquisition
        of EnergyConnect, Inc.*
 On
        October 13, 2005, the Company acquired EnergyConnect, Inc. (ECI) in exchange
        for
        27,365,305 shares of the Company’s common stock, 19,695,432 warrants to purchase
        shares of the Company’s common stock and 3,260,940 stock options to purchase the
        Company’s common shares. The shares of common stock issued in conjunction with
        the merger were not registered under the Securities Act of 1933. The acquisition
        of ECI was accounted for using the purchase method in accordance with SFAS
        141,
“Business Combinations.” The results of operations for ECI have been included in
        the Consolidated Statements of Operations since the date of
        acquisition.
 
 Through
        EnergyConnect’s energy automation software systems, we have the capability to
        develop and provide solutions and infrastructure for the electric energy
        supply
        chain. ECI’s energy automation is a suite of products that deliver new
        energy-related revenues to energy consumers and major benefits to the electric
        grid. It’s anticipated that a portion of ECI’s services will drive additional
        growth in CEI.
 
 The
        value
        of the Company’s common stock issued as a part of the acquisition was determined
        based on the average price of the Company's common stock for several days
        before
        and after the acquisition of ECI. The fair value of employee stock options
        issued in conjunction with this acquisition has been included in the
        determination of the purchase price. The fair value of such options was
        determined using the Black-Scholes model. The components of the purchase
        price
        were as follows:
 
 Common
                  stock
              
              $
              64,234,814Warrant
                  issuance value
              
              
              36,495,391Stock
                  option issuance value
              
              
              6,769,711Direct
                  acquisition costs
              
              
              224,374Total
                  purchase price
              
              $
              107,724,290
 
 In
        accordance with Financial Accounting Standard (SFAS) No. 141, Business
        Combinations, the total purchase price was allocated to the estimated fair
        value
        of assets acquired and liabilities assumed. The estimate of fair value of
        the
        assets acquired was based on management’s and an independent appraiser’s
        estimates. The total purchase price was allocated to the assets and liabilities
        acquired as follows:
 
 Cash
                  and other current assets
              
              $
              263,256Equipment
                  and other assets
              
              
              35,426Intangible
                  asset - Developed technology
              
              
              2,390,667Goodwill
              
              
              106,544,871Current
                  liabilities
              
              
              (1,509,930
              )Total
              
              $
              107,724,290
 55
 ***Index***
  The
        intangible asset of $2,390,667 at the date of acquisition consisted 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. Goodwill of $106,544,871 represented 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. The Company
        tested the value of the goodwill at December 30, 2006 and concluded that
        there
        was no further impairment of the goodwill asset in ECI during the twelve
        months
        ended December 30, 2006.
 
 The
        following unaudited proforma information presents a summary of the consolidated
        results of operations of the Company assuming the acquisitions of CEI and
        ECI
        occurred on the first day of 2004. The
        following information is unaudited.
 
 Year
                    Ended
                
                Year
                    EndedDecember
                    31,
                
                January
                    1,2005
                
                2005(unaudited)
                
                (unaudited)Sales
                
                $
                69,512,107
                
                $
                47,319,895Net
                    loss
                
                $
                (79,647,557
                )
                $
                (7,116,315
                )Basic
                    and diluted net loss per share
                
                $
                (1.59
                )
                $
                (0.15
                )
 
 *
        This
        amount includes a charge of $77,191,344 for the write-off of impaired goodwill
        at December 31, 2005.
  **7.
        Intangible Assets and Goodwill**
 
 We
        amortize intangible assets on a straight-line basis. As a result of acquisitions
        in previous years, the Company had intangibles totalling $1,536,076 at January
        1, 2005. Impairment test were performed on these assets at December 30, 2006
        and
        December 31, 2005, which indicated that there was no impairment of those
        intangibles as of December 30, 2006. Accordingly, the consolidated statement
        of
        operations for the twelve months ended December 31, 2006 includes only charges
        for amortization of intangibles.
 
 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 (see Note
        6).
 
 The
        CEI
        customer relationship was determined to have a ten-year life. This intangible
        was amortized using that life, and amortization from the date of the acquisition
        through December 31, 2005, was taken as a charge against income in the
        consolidated statement of operations.
 
 As
        a
        result of our acquisition of ECI we recorded an intangible asset of $2,390,667
        at the date of acquisition representing developed technology that is currently
        used within ECI. The intangible asset acquired has an estimated useful life
        of
        ten years, and as such is being amortized monthly, over that period. Goodwill
        of
        $106,544,871 represented 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.
  56
 ***Index***
  Intangible
                  assets consist of the following:
              
              December
                  30,
              
              December
                  31,2006
              
              2005Christenson
                  Velagio trade name
              
              $
              872,771
              
              
              872,771Christenson
                  Velagio customer lists
              
              
              663,305
              
              
              663,305Christenson
                  Electric trade name
              
              
              758,356
              
              
              758,356Christenson
                  Electric customer relationships
              
              
              1,687,335
              
              
              1,687,335EnergyConnect
                  developed technology
              
              
              2,390,667
              
              
              2,390,6676,372,434
              
              
              6,372,434Less
                  accumulated amortization
              
              
              (906,347
              )
              
              (363,497
              )$
              5,466,087
              
              $
              6,008,937
 
 Amortization
        of intangible assets included as a charge to income was $241,682, $220,702
        and
        $110,552 for the years ended December 30, 2006, December 31, 2005 and January
        1,
        2005, respectively **.** Based
        on
        the Company’s current intangible assets, amortization expense for the five
        succeeding years will be as follows:
 
 AmortizationYear
              
              Expense2007
              
              $
              526,6842008
              
              
              523,5182009
              
              
              481,5012010
              
              
              407,8012011
                  and beyond
              
              
              1,895,456Total
              
              $
              3,834,960
 
 The
        Company does not amortize goodwill. As a result of the acquisitions of CEI
        and
        ECI, the Company recorded goodwill in the amount of $112,479,309 during fiscal
        year 2005. The changes in the carrying amount of goodwill for the years ended December
        30 ,
        2006
        and December
        31 ,
        2005
        are recorded below.
 
 December
                  30,
              
              December
                  31,2006
              
              2005Beginning
                  goodwill balance
              
              $
              35,962,766
              
              $
              2,276,243Goodwill
                  recorded upon acquisition of CEI
              
              
              -
              
              
              5,934,438Goodwill
                  allocation due to prior period adjustments in CEI
              
              
              14,281
              
              
              85,893Goodwill
                  recorded upon acquisition of ECI
              
              
              -
              
              
              106,544,871Goodwill
                  write off due to impairment - ECI
              
              
              -
              
              
              (77,191,344
              )Reduction
                  of goodwill for reallocation of intangible asset - CEI
              
              
              -
              
              
              (1,687,335
              )Ending
                  goodwill balance
              
              $
              35,977,047
              
              $
              35,962,766
 
 Considerable
        management judgment is necessary to estimate fair value. We enlisted the
        assistance of an independent valuation consultant to determine the values
        of our
        intangible assets and goodwill, both at the dates of acquisition and at specific
        dates annually. Based on various market factors and projections used by
        management, actual results could vary significantly from managements'
        estimates.
 
 **8.
        Discontinued Operations**
 
 *SoftBoard*
 
 On
        September 7, 2000, the Company entered into a definitive agreement with
        Greensteel, Inc. (Greensteel), a wholly-owned subsidiary of Polyvision
        Corporation, for the sale of substantially all of the Company’s assets used in
        the SoftBoard operations. The terms of the asset sale called for Greensteel
        to
        pay the Company up to $3,500,000, with $2,000,000 payable at the closing
        of the
        transaction and up to an additional $1,500,000 in contingent earn-out payments
        based on net sales of the Company’s SoftBoard products over a five-year period.
        Shareholders approved the agreement, the transaction was finalized on October
        24, 2000 and resulted in a gain of $1,221,852.
  57
 ***Index***
  A
        total
        of $17,068, $46,399 and $62,827 in contingent earn-out payments were received
        by
        the Company during the years ended December 30, 2006, December 31, 2005 and
        January 1, 2005, respectively. These amounts were recorded as gain on the
        sale
        of discontinued operations in the Consolidated Statements of
        Operations.
 
 As
        a
        result of shareholder approval of the Greensteel agreement, discontinued
        operations accounting treatment has been applied to the SoftBoard operation.
        Accordingly, the net gain incurred from the Softboard operations is reported
        in
        gain from discontinued operations for all periods presented to reflect the
        reclassification of these operations as discontinued. Also, cash flows from
        the
        Softboard operations are reported as “net cash provided by discontinued
        operations” whether associated with operating, investing or financing
        activities.
 
 In
        the
        twelve months ended January 3, 2004 the Company discontinued the operations
        of
        two previously wholly owned subsidiaries. The Company had taken charges in
        that
        period for potential costs related to unresolved issues in those subsidiaries
        as
        of the date they were discontinued. In the twelve months ended January 1,
        2005,
        those issues were resolved for less than the amounts the Company had reserved.
        Accordingly, the Company has reversed those reserves and recorded other income
        in the amount of $149,380 in the year ended January 1, 2005.
 
 **9.
        Capital**
 
 ***Common
        Stock***
 
 We
        are
        authorized to issue up to 225,000,000 shares of common stock, no par value.
        At
        our shareholders' meeting in June 2006, the shareholders voted to increase
        the
        total common shares authorized from 125,000,000 shares to 225,000,000
        shares. As of December 30, 2006, there were 79,023,905 shares of common
        stock outstanding. Holders of the common stock are entitled to one vote per
        share on all matters to be voted upon by the stockholders. Holders of common
        stock are entitled to receive ratably such dividends, if any, as may be declared
        by the Board of Directors out of funds legally available therefore. Upon
        the
        liquidation, dissolution, or winding up of our company, the holders of common
        stock are entitled to share ratably in all of our assets which are legally
        available for distribution after payment of all debts and other liabilities
        and
        liquidation preference of any outstanding common stock. Holders of common
        stock
        have no preemptive, subscription, redemption or conversion rights. The
        outstanding shares of common stock are validly issued, fully paid and
        non-assessable.
 
 On
        June
        29, 2006, the Company entered into a private placement under which it issued
        7,500,000 shares of its common stock in exchange for $15,000,000 of cash,
        before
        direct expenses.
  During
          the fiscal year ended December 30, 2006 several shareholders converted
          shares of
          Series 2, Series 3, and Series 4 preferred stock into 11,186,241 shares
          of the
          Company’s common stock. The Company issued an aggregate of 3,996,962 shares of
          common stock in exchange for common stock warrants exercised (Note 12).
          The
          exercise prices of the common stock warrants range from $0.31 to $42 per
          share.
          The Company issued 265,188 shares of common stock in exchange for stock
          options
          exercised at $0.26 to $0.84 per share (Note 12). The Company also issued
          77,300
          shares of common stock in exchange for settlement of previously incurred
          debt
          (Note 11). The Company also issued 440,344 shares of common stock in payment
          of
          a penalty for delayed registration under the terms of the private placement
          in
          October 2005 (Note 10).
 
 On
          October 13, 2005, the Company entered into a merger agreement under which
          it
          issued 27,365,305 shares of its common stock, 19,695,432 warrants to purchase
          shares of the Company’s common stock, and stock options to purchase 3,260,940
          shares of the Company’s common stock, in exchange for all of the outstanding
          shares of EnergyConnect, Inc.
 
 On
          October 5, 2005, the Company entered into a private placement under which
          it
          issued 5,233,603 shares of its common stock in exchange for $3,276,000
          of cash
          and the conversion of $158,000 of debt (Note 10).
 
 On
          July
          20, 2005, the Company acquired Christenson Electric, Inc. (CEI) in exchange
          for
          2,000,000 shares of the Company’s common stock and the assumption of certain
          liabilities within CEI (Note 6).
  58
 ***Index***
  On
        July
        28, 2004, The Company 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
        October 2004, one of the Series 2 preferred stockholders converted 119,048
        shares of Series 2 preferred stock into 119,048 shares of common
        stock.
  ***Preferred
        Stock***
 
 We
        are
        authorized to issue up to 10,000,000 shares of Preferred Stock, no par value.
        The 10,000,000 shares of Preferred Stock authorized are undesignated as to
        preferences, privileges and restrictions. As the shares are issued, the Board
        of
        Directors must establish a “series” of the shares to be issued and designate the
        preferences, privileges and restrictions applicable to that series. As of
        December 30, 2006, there were 2,040 shares of Series 3 convertible preferred
        stock issued and outstanding and 526 shares of Series 4 convertible preferred
        stock issued and outstanding.
 
 The
        terms
        of our outstanding series of preferred stock are as follows.
 
 **Series
        2 Preferred Stock**
 
 On
        September 26, 2003 the Company issued 3,607,151 shares of Series 2 preferred
        stock in conjunction with a private placement at $.42 per share .
        On
        November 17, 2003, the Company issued 3,333,334 shares of Series 2 preferred
        stock in exchange for the conversion of debt. During the year ended December
        30,
        2006, several of the Series 2 preferred stockholders converted a total of
        5,875,241 shares of Series 2 preferred stock into 5,875,241 shares of common
        stock. During the year ended December 31, 2005, several of the Series 2
        preferred stockholders converted a total of 946,195 shares of Series 2 preferred
        stock into 946,195 shares of common stock. During the year ended January
        1,
        2005, one of the Series 2 preferred stockholders converted a total of 119,050
        shares of Series 2 preferred stock into 119,050 shares of common stock. As
        of
        December 30, 2006, all of the shares of Series 2 Preferred stock had been
        converted to common. The terms of the Series 2 preferred stock are as
        follows.
 
 **Dividends.** Series
        2
        preferred stock issued and outstanding shall be entitled to receive a cash
        dividend in the amount of 6.5% of the Issue Price per annum. The Series 2
        preferred stock dividends shall be payable in cash, quarterly, subject to
        the
        declaration of the dividend by the board of directors, if and when the board
        of
        directors deems advisable. Any declared but unpaid dividend will not bear
        interest and will be payable out of net profits; if net profits are not
        sufficient to pay this dividend, either in whole or in part, then any unpaid
        portion of the dividend will be paid in full out of net profits of the
        Corporation in subsequent quarters before any dividends are paid upon shares
        of
        Junior Stock. Thus far, no dividends have been declared.
 
 **Liquidation
        Preference** .
        In the
        event of any liquidation, dissolution or winding up of the Corporation, either
        voluntary or involuntary, except in certain circumstances, the holders of
        each
        share of Series 2 preferred stock shall be entitled to be paid out of the
        assets
        of the Corporation available for distribution to its shareholders, before
        any
        declaration and payment or setting apart for payment of any amount shall
        be made
        in respect of Junior Stock, an amount equal to the Issue Price and all accrued
        but unpaid dividends. ******
 
 **Conversion.** Each
        holder of any share(s) of Series 2 preferred stock may, at the holder's option,
        convert all or any part of such share(s) from time to time held by the holder
        into shares of common stock at any time after the date of issuance. Each
        such
        share of Series 2 preferred stock shall be converted into one share of
        fully-paid and non-assessable shares of common stock. Each
        share of Series 2 preferred stock shall automatically be converted into shares
        of common stock on a one-for-one basis immediately upon the consummation
        of the
        Company’s sale of its common stock in a bona fide, firm commitment,
        underwritten public offering under the Securities Act of 1933, as amended,
        which
        results in aggregate cash proceeds (before underwriters’ commissions and
        offering expenses) to the Company of $5,000,000 or
        more.
        In any event, if not converted to common stock, each share of Series 2 preferred
        stock shall automatically be converted into shares of common stock on a
        one-for-one basis immediately upon the third anniversary of the date of issuance
        of the Series 2 preferred stock.
  59
 ***Index***
  **Voting
        Rights.** Each
        holder of Series 2 preferred stock shall have the right to one vote for each
        share of Common Stock into which such Series 2 preferred stock could then
        be
        converted.
  ***Series
        3 Preferred Stock***
  On
        April
        3, 2004 the Company issued 3,640.803 shares of Series 3 preferred stock at
        $420
        per share in exchange for conversion of $1,529,000 of outstanding debt. During
        the year ended December 30, 2006, several of the Series 3 preferred stockholders
        converted a total of 1,445.210 shares of Series 3 preferred stock into 1,445,210
        shares of common stock. During the year ended December 31, 2005, several
        of the
        Series 3 preferred stockholders converted a total of 155.905 shares of Series
        3
        preferred stock into 155,905 shares of common stock. Each share of Series
        3
        preferred stock is convertible into 1,000 shares of the Company’s common stock.
        The terms of the Series 3 preferred stock are as follows.
 
 **Dividends** .
        Series
        3 preferred stock issued and outstanding shall be entitled to receive a cash
        dividend in the amount of 6.5% of the issue price per annum. The Series 3
        preferred stock dividends are cumulative and shall be payable in cash,
        quarterly, subject to the declaration of the dividend by the board of directors,
        if and when the board of directors deems advisable. Any declared but unpaid
        dividend will not bear interest and will be payable out of net profits. If
        net
        profits are not sufficient to pay this dividend, either in whole or in part,
        then any unpaid portion of the dividend will be paid in full out of our net
        profits in subsequent quarters before any dividends are paid upon shares
        of
        junior stock. Thus far, no dividends have been declared. As of December 30,
        2006
        there were dividends of approximately $138,304 in arrears.
 
 **Liquidation
        Preference** .
        In the
        event of any liquidation, dissolution or winding up of our company, either
        voluntary or involuntary, except in certain circumstances, the holders of
        each
        share of Series 3 preferred stock shall be entitled to be paid out of our
        assets
        available for distribution to our shareholders, before any declaration and
        payment or setting apart for payment of any amount shall be made in respect
        of
        junior stock, an amount equal to the issue price and all accrued but unpaid
        dividends.
 
 **Conversion** .
        Each
        holder of any share(s) of Series 3 preferred stock may, at the holder’s option,
        convert all or any part of such share(s) from time to time held by the holder
        into shares of common stock at any time after one year from the date of
        issuance. Each such share of Series 3 preferred stock shall be convertible
        into
        one thousand shares of fully-paid and non-assessable shares of common stock.
        Each share of Series 3 preferred stock shall automatically be converted into
        shares of common stock on a one-for-one thousand basis immediately upon the
        consummation of a sale of our common stock in a bona fide, firm commitment,
        underwritten public offering under the Securities Act of 1933, as amended,
        which
        results in aggregate cash proceeds (before underwriters’ commissions and
        offering expenses) to us of $5,000,000 or more. In any event, if not converted
        to common stock, each share of Series 3 preferred stock shall automatically
        be
        converted into shares of common stock on a one-for-one thousand basis
        immediately upon the third anniversary of the date of issuance of the Series
        3
        preferred stock. The Series 3 preferred shares were originally issued in
        April
        2004. The Company has recorded a beneficial conversion feature of $983,017,
        which represents the difference between the conversion price and the fair
        value
        of the Company’s common stock on the commitment date, which was also the
        issuance date. This beneficial conversion feature was amortized over the
        conversion period of one year. At December 30, 2006, there was no remaining
        unamortized beneficial conversion feature associated with the Series 3 preferred
        stock.
  **Voting
        Rights** *.* Each
        holder of Series 3 preferred stock shall have the right to one vote for each
        share of Common Stock into which such Series 3 preferred stock could then
        be
        converted.
 
 ***Series
        4 Preferred Stock***
 
 In
        April
        and May 2004, the Company issued 4,605.265 shares of Series 4 preferred stock
        at
        $380 per share in exchange for $1,750,000 in a private placement (Note 10)
        from
        investors, some of which include certain related parties. During
        the year ended December 30, 2006, several of the Series 4 preferred stockholders
        converted a total of 3,865.790 shares of Series 4 preferred stock into 3,865,790
        shares of common stock. During the year ended December 31, 2005, several
        of the
        Series 4 preferred stockholders converted a total of 213.158 shares of Series
        4
        preferred stock into 213,158 shares of common stock. Each share of Series
        4
        preferred stock is convertible into 1,000 shares of the Company’s common stock.
        The terms of the Series 4 preferred stock are as follows.
  60
 ***Index***
  **Dividends** *.* Series
        4
        preferred stock issued and outstanding shall be entitled to receive a cash
        dividend in the amount of 6.5% of the issue price per annum. The Series 4
        preferred stock dividends are cumulative shall be payable in cash, quarterly,
        subject to the declaration of the dividend by the board of directors, if
        and
        when the board of directors deems advisable. Any declared but unpaid dividend
        will not bear interest and will be payable out of net profits. If net profits
        are not sufficient to pay this dividend, either in whole or in part, then
        any
        unpaid portion of the dividend will be paid in full out of our net profits
        in
        subsequent quarters before any dividends are paid upon shares of junior stock.
        Thus far, no dividends have been declared. As of December 30, 2006 there
        were
        dividends of approximately $39,208 in arrears.
 
 **Liquidation
        Preference** .
        In the
        event of any liquidation, dissolution or winding up of our company, either
        voluntary or involuntary, except in certain circumstances, the holders of
        each
        share of Series 4 preferred stock shall be entitled to be paid out of our
        assets
        available for distribution to our shareholders, before any declaration and
        payment or setting apart for payment of any amount shall be made in respect
        of
        junior stock, an amount equal to the issue price and all accrued but unpaid
        dividends.
 
 **Conversion** *.* Each
        holder of any share(s) of Series 4 preferred stock may, at the holder’s option,
        convert all or any part of such share(s) from time to time held by the holder
        into shares of common stock at any time after one year from the date of
        issuance. Each such share of Series 4 preferred stock shall be convertible
        into
        one thousand shares of fully-paid and non-assessable shares of common stock.
        Each share of Series 4 preferred stock shall automatically be converted into
        shares of common stock on a one-for-one thousand basis immediately upon the
        consummation of a sale of our common stock in a bona fide, firm commitment,
        underwritten public offering under the Securities Act of 1933, as amended,
        which
        results in aggregate cash proceeds (before underwriters’ commissions and
        offering expenses) to us of $5,000,000 or more. In any event, if not converted
        to common stock, each share of Series 4 preferred stock shall automatically
        be
        converted into shares of common stock on a one-for-one thousand basis
        immediately upon the third anniversary of the date of issuance of the Series
        4
        preferred stock. The Series 4 preferred shares were originally issued in
        April
        2004. The Company has recorded a beneficial conversion feature of $598,684,
        which represents the difference between the conversion price and the fair
        value
        of the Company’s common stock on the commitment date, which was also the
        issuance date. This beneficial conversion feature was amortized over the
        conversion period of one year. At December 30, 2006, there was no remaining
        unamortized beneficial conversion feature associated with the Series 4 preferred
        stock.
 
 **Voting
        Rights** *.* Each
        holder of Series 4 preferred stock shall have the right to one vote for each
        share of Common Stock into which such Series 4 preferred stock could then
        be
        converted.
  **10.
        Private Placements**
 
 *June
        30, 2006 private placement*
 
 On
        June
        30, 2006, in conjunction with a private placement which resulted in gross
        proceeds of $15,000,000, the Company sold 7,500,000 shares of common stock
        at
        $2.00 per share, and issued warrants to purchase up to 5,625,000 shares of
        common stock. The warrants have a term of five years and an exercise price
        of
        $3.00 per share. Since the warrants are subject to certain registration rights,
        The Company recorded a warrant liability totaling $14,758,004 in accordance
        with
        EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
        Potentially Settled in, a Company’s Own Stock.” The warrant liability has been
        recalculated using the closing price of the Company’s common stock as of
        June 30, 2006 of $3.07. The registration rights provide for the Company to
        file a registration statement with the Securities and Exchange Commission
        (“SEC”) no later that 90 days after the closing of the transaction and have
        it declared effective by the SEC no later than 120 days after the closing
        of the transaction. The registration statement was filed with the SEC on
        July 21, 2006. The Company valued the warrants using the Black-Scholes
        option pricing model, applying a useful life of 5 years, a risk-free rate
        of 5.35%, an expected dividend yield of 0%, a volatility of 123% and a deemed
        fair value of the common stock of $3.07, which was the closing market price
        on
        June 30, 2006.
 
 At
        September 30, 2006, the warrant liability has been recalculated using the
        closing price of the Company’s common stock as of September 29, 2006 of $1.73.
        This revaluation from June 30, 2006 resulted in a reduction of approximately
        $7,812,000 in the warrant liability and has also has been recorded as a gain
        on
        revaluation of warrant liability in the consolidated statement of operations
        in
        the twelve months ended December 30, 2006. The registration statement was
        declared effective by the SEC on September 29, 2006.
  61
 ***Index***
  *October
        5, 2005 private placement*
 
 On
        October 5, 2005, in conjunction with a private placement which resulted in
        gross proceeds of $3,434,000, the Company sold 5,233,603 shares of common
        stock
        at $0.70 per share, and issued warrants to purchase up to 2,944,693 shares
        of
        common stock. The warrants have a term of five years and an exercise price
        of
        $0.90 per share.
 
 Since
        these warrants are subject to certain registration rights, the Company recorded
        a warrant liability totaling $6,286,919 in accordance with EITF 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
        Settled in, a Company’s Own Stock.” The Company valued the warrants using the
        Black-Scholes option pricing model, applying a useful life of 5 years, a
        risk-free rate of 4.06%, an expected dividend yield of 0%, a volatility of
        129%
        and a deemed fair value of the common stock of $2.37, which was the closing
        market price on October 4, 2005. In accordance with SFAS 133 “Accounting
        for Derivative Instruments and Hedging Activities,” the Company revalued the
        warrants as of December 31, 2005 using the Black-Scholes option pricing
        model. Assumptions regarding the life and expected dividend yield were left
        unchanged, but the Company applied a risk free rate of 4.21%, a volatility
        of
        128% and a deemed fair value of common stock of $2.50, which was the closing
        price of the Company’s common stock on December 31, 2005. The difference
        between the fair value of the warrants on October 5, 2005 and
        December 31, 2005 of $503,543 was recorded as a loss on revaluation of
        warrant liability in the consolidated statement of operations for the year
        ended
        December 31, 2005. At April 1, July 1, and August 9, 2006, the warrant liability
        was recalculated using the closing price of the company’s common stock as of
        those dates. This revaluation from the end of 2005 resulted in a reduction
        of
        approximately $507,000 in the warrant liability and has also has been recorded
        as a gain on revaluation of warrant liability in the consolidated statement
        of
        operations in the twelve months ended December 30, 2006.
 
 The
        registration rights provided for the Company to file a registration statement
        with the Securities and Exchange Commission (“SEC”) no later that 90 days
        after the closing of the transaction and have it declared effective by the
        SEC
        no later than 120 days after the closing of the transaction. The
        registration statement was filed with the SEC on February 13, 2006. This
        filing was declared effective on June 8, 2006. On August 2, 2006, a
        post-effective amendment was filed which suspended the effectiveness of this
        registration. That amendment was declared effective on August 9,
        2006.
 
 The
        registration rights agreement had a liquidated damages provision that called
        for
        additional shares to be issued to the investors in the event that the
        registration statement was not filed and declared effective within a certain
        period of time. The initial registration document was filed 40 days after
        the
        first imposed deadline, and was not declared effective by the SEC until 116
        days
        later. In accordance with this liquidated damages provision the Company issued
        an additional 440,344 shares of common stock to these investors.
 
 In
        April
        2004, 4,605.265 shares of Series 4 preferred stock were issued at $380 per
        share
        in conjunction with a $1,750,000 private placement. Each of these shares
        of
        preferred stock is convertible into 1,000 shares of the Company’s common stock
        (Note 9).
 
 **11.
        Repurchase of Common Stock**
 
 On
        February 28, 2003, the Company entered into a Stock Purchase and Pledge
        Agreement (the “Agreement”) with Steelcase, Inc. (“Steelcase”) to repurchase
        951,445 of the Company’s common shares held by Steelcase. Pursuant to the terms
        of the Agreement, the Company repurchased these shares for a base amount
        of
        approximately $209,318, or $0.22 per share, subject to adjustment. The Company
        issued a three-year Promissory Note (the “Note”) for payment of this amount.
        Payments of principal under the Note were to be made in three equal annual
        installments of approximately $69,773, on the first, second and third
        anniversaries of the date of the Note. The Note carried an interest rate
        of 12%,
        payable quarterly, starting on June 1, 2003 until the principal amount of
        the
        Note was paid in full.
 
 The
        Note
        called for a purchase price adjustment if the Note and accrued interest were
        not
        paid according to the terms of the Note. Under this purchase price adjustment,
        over the life of the Note, the purchase price was adjusted to approximately
        $333,006, or $0.35 per common share. This feature is considered to be an
        embedded derivative option under the provisions of Financial Accounting
        Standards No. 133. Under these provisions a derivative liability was established
        at inception in the amount of $14,310 using the Black-Scholes valuation model.
        Changes based on fluctuations in the Company’s stock price were reflected in the
        other expense section of the Statement of Operations in each period that
        an
        adjustment was made. From the date of inception of this note to the end of
        the
        fiscal year, December 31, 2005 this liability increased by $109,618. The value
        of this liability as of December 31, 2005 was $123,928, and was reflected
        as a
        long term liability on the Consolidated Balance Sheet.
  62
 ***Index***
  As
        of
        December 31, 2005, the Company had not made its required September 2004 and
        December 2004 quarterly interest payments of approximately $4,200 each quarter.
        On May 15, 2006, the Company settled the amount owed by releasing 77,300
        shares
        of common stock to Steelcase in exchange for cancellation of the Note amount
        then owed, including accrued interest. The remaining shares held as security
        by
        Steelcase were returned to the Company, and were retired as treasury
        stock.
  **12.
        Stock Options and Warrants**
 
 *Stock
        Incentive Plan*
 
 The
        Company has a Stock Incentive Plan (the "Plan"). At December 30, 2006 and
        December 31, 2005, 9,057,577 and 7,717,765 shares of common stock were reserved,
        respectively, for issuance to employees, officers, directors and outside
        advisors. Under the Plan, the options may be granted to purchase shares of
        the
        Company's common stock at fair market value, as determined by the Company's
        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 Plan. The options become exercisable over periods ranging
        between one and four years.
 
 The
        following table summarizes the changes in stock options outstanding and the
        related prices for the shares of the Company’s common stock issued to employees,
        officers and directors of the Company under the Plan.
 
 Options
                  Outstanding
              
              Options
                  ExercisableExercise
                Prices
              
              Number
                Outstanding
              
              Weighted
                  Average Remaining ContractualLife
                  (Years)
              
              Weighted
                Average
                Exercise
                  Price
              
              Number
                Exercisable
              
              Weighted
                Average
                Exercise
                  Price$ 
                   0.26 - $0.84
              
              
              8,596,188
              
              
              3.1
              
              $
              0.46
              
              
              6,516,605
              
              $
              0.42$  
                  1.76 - $2.70
              
              
              461,389
              
              
              4.5
              
              $
              2.14
              
              
              113,680
              
              $
              2.319,057,577
              
              
              3.6
              
              $
              0.54
              
              
              6,630,285
              
              $
              0.45
  A
        summary
        of the status of the Company’s Stock Incentive Plan as of December 30, 2006 and
        December 31, 2005 and for the years then ended is presented below:
 
 December
                  30, 2006
              
              December
                  31, 2005Shares
              
              Weighted
                average
                exercise
                price
              
              Shares
              
              Weighted
                average
                exercise
                priceOutstanding
                  at beginning of year
              
              
              7,717,765
              
              $
              .44
              
              
              2,164,049
              
              $
              .46Granted
                  at market price
              
              
              1,385,000
              
              
              1.13
              
              
              2,370,000
              
              
              .58Granted
                  at other than market price
              
              
              240,000
              
              
              .38
              
              
              3,410,940
              
              
              .32Exercised
              
              
              (265,188
              )
              
              .38
              
              
              (41,000
              )
              
              .29Cancelled
              
              
              (20,000
              )
              
              1.25
              
              
              (186,224
              )
              
              .39Outstanding
                  at end of year
              
              
              9,057,577
              
              $
              .54
              
              
              7,717,765
              
              $
              .44Options
                  exercisable at year end
              
              
              6,630,285
              
              $
              .45
              
              
              2,450,158
              
              $
              .49
 
 The
        Company granted 1,385,000 and 5,780,940 options to purchase shares of the
        Company’s common stock to employees and directors of the Company, during the
        years ended December 30, 2006 and December 31, 2005, respectively. These
        options
        are forfeited if not exercised within periods of five to ten years, and vest
        over periods ranging from immediately to forty-eight months starting with
        the
        month of grant.
  63
 ***Index***
  On
        October 13, 2005, in conjunction with the acquisition of EnergyConnect, the
        Company granted 3,260,940 options at $0.32 per share to prior holders of
        options
        in the EnergyConnect, Inc. Incentive Stock Option Plan. These options were
        granted with exercise dates of February 5, 2007 and February 5, 2008. If
        these
        options are not exercised on either of those dates, they will
        expire.
 
 The
        Company also entered into an agreement with an investor relations company,
        under
        which it granted 30,000 options per month, on the first day of each month,
        for
        each month the agreement is in effect. The agreement is for investor relations
        services, and will continue on a month-to-month basis until terminated by
        either
        party. These option grants are valued at the date of each of the awards,
        with
        that value charged as an investor relations expense in the consolidated
        statement of operations in the month of the grant. This agreement ended in
        August 2006. Over the term of the agreement, a total of 240,000 and 150,000
        options were issued to this entity during the years ended December 30, 2006
        and
        December 31, 2005, respectively.
 
 The
        weighted average per share value of options granted during the years ended
        December 30, 2006 and December 31, 2005 were $1.02 and $0.43
        respectively.
 
 The
        Company has computed for pro forma disclosure purposes the value of all options
        granted during fiscal year 2005 and 2004 using the Black-Scholes pricing
        model
        as prescribed by SFAS No. 123. The following ranges of assumptions were used
        to
        calculate the values of options granted during 2005 and 2004:
  December
                  31,
              January
                  1,2005
              2005Risk-free
                  interest rate
              
              3.50%
                  - 4.45%
              3.10%
                  - 3.97%Expected
                  dividend yield
              
              -
              -Expected
                  lives
              
              5-10
                  years
              5-10
                  yearsExpected
                  volatility
              
              121%
                  - 134%
              151%
                  - 155%
 
 Compensation
        expenses charged to operations for stock options issued to consultants amounted
        to $105,000, $244,000 and $0 for the year ended December 30, 2006, December
        31,
        2005 and January 1, 2005, respectively.
 
 *Common
        Stock Warran* *ts*
 
 In
        connection with debt financing entered into during fiscal year 2000, we issued
        two stock warrants each to purchase individually 1,033,000 common shares
        at a
        price of $0.50 per share and $0.38722 per share, respectively. Pursuant to
        the
        terms of the warrant agreements, these exercises prices were lowered to $0.408
        and $0.361, respectively. This reduction in exercise prices was triggered
        by the
        issuance of certain equity instruments at a lower price than the exercise
        price
        of these warrants. The warrants had an initial term of 5 years and were to
        expire on June 30, 2005. On September 15, 2003, we extended the life of a
        portion of these warrants until June 30, 2007 as partial consideration to
        satisfy a $150,000 promissory note between Christenson Technology Services,
        Inc.
        and Aequitas Capital Management. As of December 30, 2006, the holders of
        these
        warrants had exercised 2,066,000 of these warrants in exchange for 1,341153
        shares of our common stock.
 
 In
        connection with an April 2003 common stock private placement, we issued 111,308
        warrants to purchase common stock. Each warrant is exercisable into one share
        of
        common stock at $0.40 per share and will expire in 2008. Subsequent to this
        private placement, the Company 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 the
        private
        placement must be recorded as a liability in the financial statements using
        the
        Black-Scholes model, and any subsequent changes in the Company’s stock price to
        be recorded in earnings. Accordingly, the fair value of these warrants at
        the
        date of issuance was determined to be $19,832. At September 1, 2004, the
        Company’s 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
        $48,976. The warrant liability was reclassified to shareholders’ equity and the
        increase from the initial warrant value was recorded in earnings in the fiscal
        year ended January 1, 2005. As of December 30, 2006, the warrant holders
        have
        exercised 101,308 warrants in exchange for 101,308 shares of our common stock
        and 10,000 warrants remain outstanding.
 64
 ***Index***
  In
        September 2003, in connection with a preferred stock private placement, we
        issued 333,334 warrants to purchase common stock. Each warrant is exercisable
        into one share of common stock at $0.42 per share and will expire in 2008.
        In
        September 2003, in connection with a preferred stock private placement, the
        Company issued 333,334 warrants to purchase common stock. Each warrant is
        exercisable into one share of common stock at $0.42 per share and will expire
        in
        2008. Subsequent to this private placement, the Company 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
        the private placement must be recorded as a liability in the financial
        statements using the Black-Scholes model, and any subsequent changes in the
        Company’s stock price to be recorded in earnings. Accordingly, the fair value of
        these warrants at the date of issuance was determined to be $64,902 (Note
        10).
        At September 1, 2004, the Company’s 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 $139,000. The warrant liability was
        reclassified to shareholders’ equity and the increase from the initial warrant
        value was recorded in earnings in the fiscal year ended January 1, 2005.
        As of
        December 30, 2006, the warrant holders have exercised 183,333 warrants in
        exchange for 183,333 shares of our common stock and 150,001 warrants remain
        outstanding.
 
 In
        connection with the January 22, 2004 debt issuance by Destination Capital,
        LLC
        (see Notes 13 and 17), the
        Company is obligated to issue warrants to purchase the Company’s common stock.
        According to the terms of the debt issuance, warrants in the amount of one
        percent of the Company’s fully diluted common stock will be issued to the debt
        holders on the first day of each calendar month that the debt is outstanding.
        The Company repaid this debt in April 2004, and accordingly is obligated
        to
        issue 1,403,547 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, the Company 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 statements using the Black-Scholes model, and any subsequent
        changes in the Company’s 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,
        the Company’s 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 $780,373. The warrant liability was reclassified to shareholders’ equity
        and the increase from the initial warrant value was recorded in earnings
        in the
        fiscal year ended January 1, 2005. As of December 30, 2006, the warrant holders
        have exercised 1,403,546 warrants in exchange for 1,226,374 shares of our
        common
        stock and no warrants remain outstanding.
 
 In
          connection with the August 24, 2004 debt issuance by Destination Capital,
          LLC
          (see Notes 13 and 17), the
          Company is obligated to issue warrants to purchase the Company’s 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, the
          Company
          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
          the
          Company’s 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 September 1, 2004, the Company’s 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 $20,776. The warrant liability was
          reclassified to shareholders’ equity and the increase from the initial warrant
          value was recorded in earnings in the fiscal year ended January 1, 2005.
          For the
          months from August 1, 2004 to July 2, 2005, according to the terms of
          the warrant provision of the August 24, 2004 debt agreement, the Company
          was obligated to issue 1,626,042 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. As of December 30, 2006, the holders
          of
          these warrants exercised 1,309,616 warrants in exchange for 1,170,841 shares
          of
          the Company’s common stock.
  65
 ***Index***
  On
        September 10, 2004, the Company entered into a Master Vehicle Lease
        Termination Agreement with CLLLC, under which the Company terminated its
        previous master vehicle lease agreement with CLLLC. Under the terms of this
        termination agreement, the Company was released from its obligation under
        the
        previous master vehicle lease agreement. In consideration for this release
        the
        Company issued 1,000,000 warrants to purchase the Company’s common shares, which
        were valued at $515,000 using the Black Scholes model. This warrant value
        was
        recorded in the Company’s consolidated balance sheet as common stock warrants,
        with a corresponding expense recorded in the Company’s consolidated statement of
        operations in the third quarter of 2004. As of December 30, 2006, the holders
        of
        these warrants exercised 1,000,000 warrants in exchange for 889,648 shares
        of
        the Company’s common stock.
 
 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.
 
 On
        October 5, 2005, in conjunction with a private placement which resulted in
        gross
        proceeds of $3,276,000 (Note 10), the Company sold 5,233,603 shares of common
        stock at $0.70 per share, and issued warrants to purchase up to 2,944,693
        shares
        of common stock. The warrants have a term of five years and an exercise price
        of
        $0.90 per share. As of December 30, 2006, the warrant holders have exercised
        54,235 warrants, for 42,274 shares of common stock.
 
 On
        October 13, 2005, the Company issued an aggregate of 19,695,432 warrants
        in
        connection with acquisition of acquired EnergyConnect, Inc. The Company valued
        the warrants using the Black-Scholes option pricing model, applying a useful
        life of 5 years, a risk-free rate of 4.06%, an expected dividend yield of
        0%, a
        volatility of 129% and a fair value of the common stock of $2.17. Total value
        of
        the warrants issued amounted $36,495,391, which was included in the purchase
        price of ECI (Note 6). As of December 30, 2006, the warrant holders have
        not
        exercised any of these warrants.
 
 In
        June
        2006, in connection with a common stock private placement, we issued 5,625,000
        warrants to purchase common stock (See Note 10). Each warrant is exercisable
        into one share of common stock at $3.00 per share and will expire in 2011.
        As of
        December 30, 2006, the warrant holders have not exercised any of these
        warrants.
 
 During
        the twelve months ended December 30, 2006 warrant holders exercised 4,440,667
        warrants in exchange for 3,996,962 shares of the Company’s common stock. A
        portion of these were exercised on a cashless basis, and as a result of these
        exercises 443,705 warrants to purchase shares of the Company’s common stock were
        forfeited.
 
 **13.
        Debt**
 
 *Operating
        Line of Credit*
 
 As
        of December
        30 ,
        2006,
        the Company has a $10,000,000 credit facility. This credit facility expires
        in
        March 2007. In prior years, this facility has been renewed annually. While
        the
        Company expects this loan to be renewed for an additional twelve months,
        there
        can be no assurance that this facility will be renewed. Borrowings under
        the
        line of credit are due on demand, bear interest payable weekly at prime plus
        6%
        and are collateralized by accounts receivable. The borrowing base is limited
        by
        certain factors such as length of collection cycle, subordination of collateral
        position on bonded work and other credit related factors. Subject to these
        limitations, and allowing for certain customer receivables normally in the
        borrowing base, the Company had available borrowing capacity at December
        30 ,
        2006 of
        $1,244,000. As of December
        30 ,
        2006
        and December 31, 2005, borrowings of $3,713,000 and $5,840,000, respectively,
        were outstanding under the facility. The Company was in compliance with the
        terms of the borrowing facility at year end.
  66
 ***Index***
  The
        Company has a second loan facility which is an unsecured $120,000 line of
        credit
        at prime plus 3 3⁄4%, due on demand with interest payable monthly. As of December
        30 ,
        2006
        and December 31, 2005, there was $117,454 outstanding under this line. The
        Company was in compliance with the terms of this line of credit at December
        30 ,
        2006.
 
 *Long
        Term Debt*
 
 The
        Company had several notes payable outstanding at December 30, 2006. The total
        amount of the notes and their terms are summarized below.
 
 December
                  30,
              
              December
                  31,2006
              
              2005Steelcase,
                  Inc. promissory note, quarterly interest only payments at 12% per
                  annum
                  beginning June 1, 2003. Annual principal payments of $69,776 (See
                  Note
                  11). This note was repaid in May 2006.
              
              $
              -
              
              $
              138,749Oregon-SW
                  Washington Electrical Trust Funds (comprised of several union benefits
                  funds and pension trusts) promissory note in the amount of $952,907
                  payable monthly in payment amounts ranging from $25,000 per month
                  to
                  $75,000 per month including interest at 7% per annum, due and payable
                  in
                  full by September 1, 2006.
              
              
              -
              
              
              412,923Destination
                  Capital, LLC business loan agreement, net of debt discount of $16,054,
                  nine monthly payments of interest only, starting September 24,
                  2004, with
                  fifteen monthly payments of principal and interest of $41,667.
                  Interest
                  accrued at prime plus 10%. This note was fully paid by August,
                  2006. (See
                  Note 17)
              
              
              -
              
              
              303,225Techni-Cal
                  Enterprises, Inc. promissory note effective July 8, 2005 in the
                  amount of
                  $220,000 with a $40,000 principal payment due at signing, monthly
                  principal payments of $5,000 due beginning August 1, 2005 through
                  July 1,
                  2006, and monthly principal payments of $10,000 beginning August
                  1, 2006
                  through July 1, 2007. This is a non-interest bearing Note.
              
              
              70,000
              
              
              155,000Oregon-SW
                  Washington Electrical Trust Funds (comprised of several union benefits
                  funds and pension trusts) promissory note in the amount of $188,012.11
                  payable monthly at $32,441.18 per month, including interest at
                  12% per
                  annum, due and payable in full by February 25, 2006. This note
                  was repaid
                  as planned.
              
              
              -
              
              
              62,893Christenson
                  Leasing Company, LLC Motor Vehicle Capital Lease agreement effective
                  March
                  21, 2005 and April 1, 2005 for 1999 International and Ford F-350,
                  respectively. The lease terms are 36 months and 50 months, respectively,
                  with payments due on the 24thof
                  each month beginning in April 2005. The monthly payments vary by
                  vehicle
                  over the length of the lease from $1,800 to $2,000 and $700 to
                  $800,
                  respectively. The interest rates are 3.625% and 3.875% per annum,
                  respectively.
              
              
              43,910
              
              
              76,693William
                  C. McCormick promissory note effective January 28, 2005 in the
                  amount of
                  $250,000. Interest payments of 15% per annum are due on the 28thday of each month with the entire balance of the note to be paid
                  in full
                  on July 28, 2005. This note was repaid in July 2006.
              
              
              -
              
              
              250,000Rodney
                  M. Boucher promissory note effective October 13, 2005 and May 8,
                  2006, due
                  on demand, annualized interest accruing at 17.75%due
                  on the 13thof
                  each month through September 13, 2008. This note was paid in full
                  as of
                  August 2006.
              
              
              -
              
              
              317,207Christenson
                  Leasing Company, LLC First Addendum to Tenant Improvements Capital
                  Lease
                  agreement effective March 1, 2005. principal and interest payments
                  of
                  $7,940 are due on the first day of each month beginning March 2005
                  and
                  lasting through December 2007. The interest rate is 12% per
                  annum.
              
              
              89,369
              
              
              168,345Aequitas
                  Capital Management, Inc. promissory note effective July 5, 2005
                  in the
                  amount of $90,847. Principal and interest payments of $5,047.05
                  are due on
                  the first day of each month beginning in August 2005 and ending
                  April
                  2006. An additional principal payment of $50,000 is due on October
                  1,
                  2005. The interest rate on this Note is 7% per annum. Payments
                  on this
                  note were renegotiated in January 2006 to be made in the amount
                  of $15,000
                  per month ending in July 2006. This note was repaid in full in
                  2006.
              
              
              -
              
              
              65,447US
                  Bank Term Loan Note effective July 21, 2005 in the amount of $1,900,000.
                  Monthly interest payments of the prime rate plus 1.5% are due on
                  the first
                  day of each month beginning in August 2005 through July 2008. Principal
                  payments of $22,619 are due on the first day of each month beginning
                  on
                  August 2005 through July 2008. A balloon payment for the remaining
                  amount
                  is then due in August 2008.
              
              
              1,518,156
              
              
              1,786,905Total
                  debt
              
              
              1,721,435
              
              
              3,737,387Less
                  current portion
              
              
              (460,576
              )
              
              (1,678,759
              )Long
                  term debt
              
              $
              1,260,859
              
              $
              2,058,628
 67
 ***Index***
  Aggregate
        maturities of long-term debt as of December 30, 2006 are as
        follows:
 
 Fiscal
                  Year
              
              Amount2007
              
              $
              460,5762008
              
              
              1,258,7612009
              
              
              2,0982010
              
              
              -2011
                  and after
              
              
              -$
              1,721,435
 
 **1** **4.
        Segment Information**
 
 The
        Company is managed by specific lines of business including construction and
        services, energy related transactional and redistribution services. The
        Company’s management makes financial decisions and allocates resources based on
        the information it receives from its internal management system on each of
        its
        lines of business. Certain other expenses associated with the public company
        status of Microfield are reported at the Microfield parent company level,
        not
        within the subsidiaries. These expenses are reported separately in this
        footnote. The Company’s management relies on the internal management system to
        provide sales, cost and asset information by line of business.
 
 Summarized
        financial information by line of business for the twelve months ended December
        30, 2006, December 31, 2005, and January 1, 2005, as taken from the internal
        management system previously discussed, is listed below. Information for
        the
        twelve months ended January 1, 2005 does not include any data from ECI or
        the
        former Christenson Electric, as those acquisitions were not completed by
        those
        dates.
  68
 ***Index***
  **December
                  30,**
              
              **December 31,**
              
              **January 1,****2006**
              
              **2005**
              
              **2005****Revenue**Construction
                  services
              
              $
              72,933,646
              
              $
              56,762,252
              
              $
              36,466,618Energy
                  transactional and redistribution services
              
              
              3,207,053
              
              
              1,172,783
              
              
              —Total
                  revenue
              
              $
              76,140,699
              
              $
              57,935,035
              
              $
              36,466,618
 
 **December
                  30,**
              
              **December 31,**
              
              **January 1,****2006**
              
              **2005**
              
              **2005****Gross
                  Profit**Construction
                  services
              
              $
              9,110,597
              
              $
              9,725,339
              
              $
              6,131,631Energy
                  transactional and redistribution services
              
              
              170,185
              
              
              507,198
              
              
              —Total
                  gross profit
              
              
              9,280,782
              
              $
              10,232,537
              
              $
              6,131,631
 
 **December
                  30,**
              
              **December 31,**
              
              **January 1,****2006**
              
              **2005**
              
              **2005****Operating
                  Income (Loss)**Construction
                  services
              
              $
              274,862
              
              $
              1,840,568
              
              $
              (3,484,349
              )Energy
                  transactional and redistribution services
              
              
              (2,698,860
              )
              
              (77,336,850
              )
              
              —Corporate
              
              
              (3,206,892
              )
              
              (450,273
              )
              
              (1,023,208
              )Total
                  operating income (loss)
              
              $
              (5,630,890
              )
              $
              (75,946,555
              )
              $
              (4,507,557
              )
 
 **As Of****December
                  30, 2006**
              
              **December 31, 2005****Assets**Construction
                  services
              
              $
              24,966,396
              
              $
              22,506,345Energy
                  transactional and redistribution services
              
              
              31,691,420
              
              
              32,578,355Corporate
              
              
              489,531
              
              
              156,647Total
                  assets
              
              $
              57,147,347
              
              $
              55,241,347
 
 **As Of****December 30, 2006**
              
              **December
                  31, 2005****Capital
                  Expenditures**Construction
                  services
              
              $
              392,128
              
              $
              47,238Energy
                  transactional and redistribution services
              
              
              64,151
              
              
              —Corporate
              
              
              —
              
              
              —Total
                  capital expenditures
              
              $
              456,279
              
              $
              47,238
 
 The
        net
        operating income (loss) data listed above includes the effects of S, G & A
        expense, depreciation, amortization, charges for goodwill impairment and
        the
        write-off of intangible assets. The following tables disclose those amounts
        for
        each segment.
  **December 30,**
              
              **December 31,**
              
              **January 1,****2006**
              
              **2005**
              
              **2005****Operating
                  Expenses**Construction
                  services
              
              $
              8,835,735
              
              $
              7,884,771
              
              $
              9,615,980Energy
                  transactional and redistribution services
              
              
              2,869,045
              
              
              77,844,048
              
              
              —Corporate
              
              
              3,206,892
              
              
              450,273
              
              
              1,023,208Total
                  operating expense
              
              $
              14,911,672
              
              $
              86,179,092
              
              $
              10,639,188
  69
 ***Index***
  **December
                  30,**
              
              **December 31,**
              
              **January 1,****2006**
              
              **2005**
              
              **2005****Depreciation,
                  Amortization and Write-off of Intangibles**Construction
                  services
              
              $
              523,807
              
              $
              524,727
              
              $
              893,977Energy
                  transactional and redistribution services
              
              
              251,060
              
              
              77,231,908
              
              
              —Corporate
              
              
              —
              
              
              —
              
              
              1,656Total
                  depreciation, amortization, and write off of Intangibles
              
              
              774,867
              
              $
              77,756,635
              
              $
              895,633
 
 There
        were immaterial amounts of inter-company sales in the twelve months ended
        December 30, 2006, December 31, 2005, and January 1, 2005. All of the Company’s
        assets as of December 30, 2006, December 31, 2005, and January 1, 2005, were
        attributable to U.S. operations.
 
 **15.
        Income Taxes**
 
 The
        provision for income taxes for the years ended December 30, 2006, December
        31,
        2005 and January 1, 2005 differs from the amount which would be expected
        as a
        result of applying the statutory tax rates to the losses before income taxes
        due
        primarily to changes in the valuation allowance to fully reserve net deferred
        tax assets.
 
 As
        of
        December 30, 2006 and December 31, 2005 Microfield had deferred tax assets
        primarily consisting of its net operating loss carryforwards. However, because
        of cumulative losses in several consecutive years, the Company has recorded
        a
        full valuation allowance such that its net deferred tax asset is zero. The
        tax
        benefit recorded at the statutory rate in Microfield’s pre-tax loss in fiscal
        years 2006 and 2005 would have been approximately $3,116,927
        and $314,738, respectively. However, because of recognition of a full
        valuation allowance the effective tax rate for the Company was zero in 2006
        and 2005.
 
 
 Deferred
        tax assets are comprised of the following components:
 
 December
                  30,
                2006
              
              December
                  31,
                2005Current:Allowance
                  for doubtful accounts
              
              $
              74,997
              
              $
              88,075Employee
                  benefits
              
              
              -
              
              
              50,418Start-up
                  costs
              
              
              -
              
              
              31,486Inventory
                  allowance
              
              
              23,100
              
              
              82,649Audit
                  costs
              
              
              65,783
              
              
              -Other
                  allowances
              
              
              29,992
              
              
              58,394193,872
              
              
              311,022Non-current:Net
                  operating loss carryforwards
              
              
              13,637,517
              
              
              10,520,590Start-up
                  costs
              
              
              -
              
              
              -Research
                  and development credits
              
              
              101,445
              
              
              101,44513,738,962
              
              
              10,622,035Total
                  deferred tax asset
              
              
              13,932,834
              
              
              10,933,057Deferred
                  tax asset valuation allowance
              
              
              (13,932,834
              )
              
              (10,933,057
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              -
 
 At
        December 30, 2006, the Company had available net operating loss carryforwards
        of
        approximately $35,422,000 for federal income tax purposes. Such carryforwards
        may be used to reduce consolidated taxable income, if any, in future years
        through their expiration in 2007 to 2026 subject to limitations of Section
        382
        of the Internal Revenue Code, as amended. Utilization of net operating loss
        carryforwards may be limited due to the ownership changes resulting from
        the
        Company’s initial public offering in 1995 and the Company’s acquisitions since
        then. In addition, the Company has research and development credits aggregating
        $101,445 for income tax purposes at December 30, 2006. Such credits may be
        used
        to reduce taxes payable, if any, in future years through their expiration
        in
        2007 to 2013.
  70
 ***Index***
  **16.
        Net Income (Loss) Per Share**
 
 Net
        income per share is computed based on the weighted average number of shares
        of
        common stock and potentially dilutive securities assumed to be outstanding
        during the period using the treasury stock method. Potentially dilutive
        securities consist of stock options, convertible preferred stock and warrants
        to
        purchase common stock.
 
 The
        most
        significant difference between basic and diluted net income per share is
        that
        basic net income per share does not treat potentially dilutive securities
        such
        as preferred stock, stock options and warrants as outstanding. For all periods
        presented, the computation of net loss per share excludes the effect of stock
        options and warrants as they were antidilutive. There were 9,057,577 options
        and
        28,549,182 warrants outstanding at December 30, 2006, and 7,717,765 options
        and
        27,364,849 warrants outstanding at December 31, 2005.
 
 The
        following table presents the computation of basic and diluted losses per
        share:
 
 Year
                  ended
              
              Year
                  ended
              
              Year
                  endedDecember
                  30,
                2006
              
              December
                  31,
                2005
              
              January
                  1,
                2005Net
                  income (loss) attributable to common shareholders
              
              $
              832,960
              
              $
              (78,364,253
              )
              $
              (7,352,324
              )Basic
                  and diluted loss per share
              
              
              0.01
              
              $
              (2.88
              )
              $
              (0.36
              )Continuing
                  operations
              
              
              0.01
              
              $
              (2.88
              )
              $
              (0.37
              )Discontinued
                  operations
              
              
              0.00
              
              $
              0.00
              
              $
              0.01Basic
                  weighted average common shares outstanding
              
              
              68,347,814
              
              
              27,048,127
              
              
              17,340,152Diluted
                  weighted average common shares outstanding
              
              
              71,374,268
              
              
              27,048,127
              
              
              17,340,152
 
 **17.
        Related Party Transactions**
 
 The
        Company has 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 December 30, 2006 by related party.
 
 Related
                  Party
              Type
                  of Obligation
              Maturity
                  Date
              Amount
                  of Obligation
              Monthly
                  PaymentChristenson
                  Leasing LLC(a)
              T.
                  I. lease
              December
                  2007
              110,620
              7,940Christenson
                  Leasing LLC(a)
              Vehicle
                  leases
              various
              51,385
              variousChristenson
                  Leasing LLC(a)
              Equipment
                  lease
              December
                  2007
              -
              (d)60,000Rod
                  Boucher
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Mark
                  Walter
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Destination
                  Microfield, LLC
              Vehicle
                  lease
              December
                  2007
              -
              (c)46,350William
                  C. McCormick
              Indemnity
                  fees
              Open
                  obligation
              -
              (e)14,913John
                  B. Conroy
              Note
                  receivable
              September
                  2005
              66,250
              -
 
 (a)
              Robert
                  J. Jesenik, a significant shareholder of Microfield and 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)
              These
                  payments vary over the term of the loan. This amount represents
                  the
                  monthly payment in effect on September 30,
                  2006.
 (d)
              This
                  payment was reduced to $60,000 per month by terms of the reissued
                  note,
                  starting November 1, 2005.
 (e)
              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.
 
 *Note
        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. Robert Jesenik, a significant shareholder of Microfield and
        a
        former director, is a principal indirect shareholder of Destination. Under
        the
        terms of the agreement, we paid 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.
  71
 ***Index***
  Date
              
              Loan
                  Balance
              
              Warrants
                  to be IssuedAugust
                  1, 2004
              
              $
              300,000
              
              
              37,500September
                  1, 2004
              
              $
              750,000
              
              
              93,750October
                  1, 2004
              
              $
              1,200,000
              
              
              150,000November
                  1, 2004
              
              $
              1,200,000
              
              
              150,000December
                  1, 2004
              
              $
              1,200,000
              
              
              150,000January
                  1, 2005
              
              $
              1,200,000
              
              
              150,000February
                  1, 2005
              
              $
              1,200,000
              
              
              150,000March
                  1, 2005
              
              $
              1,200,000
              
              
              150,000April
                  1, 2005
              
              $
              1,200,000
              
              
              150,000May
                  1, 2005
              
              $
              1,200,000
              
              
              150,000June
                  1, 2005
              
              $
              1,200,000
              
              
              150,000July
                  1, 2005
              
              $
              1,158,334
              
              
              144,792Total
                  warrants issued as of December 30, 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). Robert Jesenik, a significant shareholder of Microfield
        and a
        former director, is a principal shareholder of JMW. The three notes contained
        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
        Christenson Velagio, Inc. Also, as a result of the renegotiation of these
        notes,
        the warrant obligation, contained in the business loan agreement was eliminated.
        The remaining note payable was paid in full in July 2006.
 
 *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 $317,207, with monthly payments
        of
        $11,309, including interest at prime plus 10%, due on the 13 th of each
        month through September 13, 2008. On May 8, 2006, Mr. Boucher advanced an
        additional $100,000 to the Company. This amount was added to the principal
        amount of the note. This loan and the accrued interest were paid in full
        in
        August 2006.
  72
 ***Index***
  *Note
        Payable to William McCormick*
 
 On
        January 28, 2005, the Company 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, were due on the
        28 th day of
        each month starting on February 28, 2005. The note was to be paid in full
        on
        July 28, 2005. This note and the accrued interest were repaid in full in
        July
        2006.
 
 *Bond
        Guarantee Fees*
 
 Mark
        Walter/Rod Boucher
 A
        certain
        number of CEI construction projects require us to maintain a surety bond.
        The
        bond surety company requires an additional guarantee for issuance of the
        bond.
        We have agreements with Mark Walter, our President and Rod Boucher, our CEO,
        under which at quarter end pays Walter and Boucher between $1,000 and $4,000
        each per month for their personal guarantees of this bond liability. The
        guarantee fee is computed as 10% of the open liability under bonds issued
        for
        CEI.
 
 William
        McCormick
 Certain
        construction projects within CEI 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.
 
 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
        required a secondary indemnity, should funds be drawn against this letter
        of
        credit, the substantial majority of which was provided by Aequitas Capital
        Management, a related party. Robert Jesenik, a significant shareholder of
        Microfield and a former director, is a principal shareholder and CEO of
        Aequitas. Aequitas charged an additional fee of 15% of the letter of credit
        amount. Aequitas was also indemnified by Christenson Electric should it have
        had
        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. Robert Jesenik, a
        significant shareholder of Microfield and a former director, is a principal
        shareholder of Christenson Leasing. 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. Robert Jesenik,
        a
        significant shareholder of Microfield and a former director, is a principal
        shareholder of Aequitas. Prior to 2006, 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 was 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
        September 30, 2006, this note was paid in full.
 
 *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. Mr. Robert Jesenik, a significant shareholder of Microfield and a
        former
        director is a significant shareholder in Christenson Leasing. The agreement
        called for payments of $97,255 starting on January 2, 2003 through December
        2007. On September 1, 2003, Christenson’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 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.
  73
 ***Index***
  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*
 
 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 December 30, 2006 is $46,350. This
        adjustment is made on an annual basis.
 
 We,
        through our subsidiary CEI, are a party to an agreement with CLC under which
        CEI
        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, then
        a
        separate, unrelated entity, 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.
        The monthly sublease payments totaled $54,464 through November 30, 2004.
        On
        November 30, 2004, Christenson Velagio terminated its 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. The Company moved from this space in
        April
        2006 and is pursuing potential sublease options.
 
 We
        are
        lessees to a facility which we subleased to a third party through February
        2006.
        Under this lease, we pay $32,352 per month to our lessor, and received $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, the Company moved to this facility, and is 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
        December 30, 2006 our total real property lease payments totaled $88,491,
        of
        which $675 was on a month-to-month basis. The remaining $87,816 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
        December 30, 2006, accrued interest receivable under this note totaled $27,644.
        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.
  74
 ***Index***
  **18.
        Commitments and Contingencies**
 
 *Manufacturing
        and Purchase Commitments*
 
 The
        Company purchases inventory on an as needed basis. There are no purchase
        commitments for products that the Company uses in the performance of its
        services.
 
 *Operating
        lease commitments*
 
 The
        Company is party to a number of operating lease agreements, many of which
        are
        included in Note 17 above. Following is a schedule of the Company’s annual
        operating lease commitments for the coming five years.
  Year
              
              Amount2007
              
              $
              2,460,6072008
              
              
              817,6792009
              
              
              29,6522010
              
              
              -2011
                  and beyond
              
              
              -Total
              
              $
              3,307,938
 
 Rental
        expenses charged to operations for the year ended December 30, 2006, December
        31, 2005 and January 1, 2005 were $1,535,320, $700,868 and $490,337,
        respectively.
  **19.
        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.
 
 **20. Selected
        Quarterly Data (UNAUDITED)**
 
 The
        following tables set forth certain unaudited quarterly statement of operations
        data for the eight quarters ended December 30, 2006. This data has been
        derived from unaudited financial statements that, in the Company’s opinion,
        include all adjustments, consisting only of normal recurring adjustments,
        necessary for a fair
  Quarters
                  ended in 2006
              
              April
                  1
              
              July
                  1
              
              September
                  30
              
              December
                  30Revenue
              
              $
              15,833,167
              
              $
              24,298,438
              
              $
              20,662,728
              
              $
              15,346,366Gross
                  Profit
              
              
              2,773,504
              
              
              2,839,665
              
              
              1,210,875
              
              
              2,456,738Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Basic
                  income (loss) per share
              
              
              (0.09
              )
              
              0.02
              
              
              0.09
              
              
              (0.01
              )Diluted
                  income (loss) per share
              
              $
              (0.09
              )
              $
              0.02
              
              $
              0.09
              
              $
              (0.01
              )Quarters
                  ended in 2005
              
              April
                  2
              
              July
                  2
              
              October
                  1
              
              December
                  31Revenue
              
              $
              8,894,684
              
              $
              9,006,523
              
              $
              20,073,679
              
              $
              19,960,149Gross
                  Profit
              
              
              1,890,562
              
              
              1,913,127
              
              
              3,132,520
              
              
              3,296,328Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Basic
                  income (loss) per share
              
              
              0.00
              
              
              (0.01
              )
              
              0.03
              
              
              (2.90
              )Diluted
                  income (loss) per share
              
              $
              0.00
              
              $
              (0.01
              )
              $
              0.01
              
              $
              (2.88
              )
  **Schedule
        II Valuation and Qualifying Accounts**
 
 Beginning
              
              Charged
                  toAllowance
                  for Doubtful Accounts
              
              of
                  Year
              
              Expense
              
              Deductions
              
              End
                  of yearYear
                  ended December 30, 2006
              
              $
              228,767
              
              $
              18,000
              
              $
              51,969
              
              $
              194,798Year
                  ended December 31, 2005
              
              
              103,969
              
              
              136,847
              
              
              12,049
              
              
              228,767Year
                  ended January 1, 2005
              
              $
              117,650
              
              $
              105,000
              
              $
              118,681
              
              $
              103,969
  75
 ***Index***
  **Item
        9.** **Changes
        in and Disagreements with Accountants on Accounting and Financial
        Disclosure**
  None.
 **Item
          9A. Controls and Procedures**
 
 Disclosure
          controls and procedures are controls and other procedures that are designed
          to
          ensure that information required to be disclosed by us in the reports that
          we
          file or submit under the Exchange Act is recorded, processed, summarized
          and
          reported, within the time periods specified in the Securities and Exchange
          Commission’s rules and forms. Disclosure controls and procedures include,
          without limitation, controls and procedures designed to ensure that information
          required to be disclosed by us in the reports that we file under the Exchange
          Act is accumulated and communicated to our management, including our principal
          executive and financial officers, as appropriate to allow timely decisions
          regarding required disclosure.
  Evaluation
          of Disclosure Controls and Procedures
 
 As
          of the
          end of the periods covered by this Annual Report, we carried out an evaluations,
          under the supervision and with the participation of our President and Chief
          Financial Officer (CFO), of our disclosure controls and procedures (as
          defined
          in Rules 13a-15(e) and
          15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
          Act”) .
          Based
          on that evaluation, and the existence of material weak nesses described
          below,
          our Chief
          Executive Officer and Chief Financial Officer concluded , as of the end of such period, our disclosure controls and procedures were
          not
          effective in ensuring that the information required to be filed or submitted
          under the Exchange Act is recorded, processed, summarized and reported
          as
          specified in the Securities and Exchange Commission's rules and forms,
          and
          accumulated and communicated to our management, including our Chief Executive
          Officer and Chief Financial Officer, as appropriate to allow timely decisions
          regarding required disclosure. .
          Our
          management has undergone an intensive process of identifying deficiencies
          with
          respect to our disclosure controls and procedures and implementing corrective
          measures, which includes the establishment of new internal policies related
          to
          financial reporting. However,
          we believe that the accompanying consolidated financial statements fairly
          present the financial condition and results of operations for the fiscal
          years
          presented in this Annual Report of Form 10-K.
  **Management’s
          Annual Report on Internal Control over Financial Reporting**
 Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting, as such term is defined in Exchange Act
        Rules 13a-15(f) and 15d-15(f).Those rules define internal control over
        financial reporting as a process designed to provide reasonable assurance
        regarding the reliability of financial reporting and the preparation of
        financial statements for external purposes in accordance with generally accepted
        accounting principles. Our internal control over financial reporting includes
        those policies and procedures that:
  76
 ***Index***
  ·
              pertain
                  to the maintenance of records that, in reasonable detail, accurately
                  and
                  fairly reflect the transactions and dispositions of our
                  assets;
 
 ·
              provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that receipts and expenditures are being
                  made
                  only in accordance with authorizations of our management and
                  directors;
 
 ·
              provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of our assets that
                  could have
                  a material effect on the financial
                  statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projection of any evaluation of
        effectiveness to future periods is subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
 
 A
        material weakness is a control deficiency (as defined in PCAOB Auditing Standard
        No. 2), or combination of control deficiencies, that results in there being
        more
        than a remote likelihood that a material misstatement of the annual or interim
        financial statements will not be prevented or detected.
 Management’s
          assessment of the effectiveness of our internal control over financial
          reporting
          identified the following material weaknesses as of December 30,
          2006 :
 
 ·
                Revenue
                    Recognition - Implementing a consistent application of percent
                    of
                    completion estimation, implementing accurate project costing
                    controls, as
                    well as maintaining adequate records of contracts.
  ·
                      Cash
                          Disbursements and Liability Recognition - Standardizing
                          purchasing
                          policies and procedures, segregating purchasing duties
                          where appropriate
                          and improving the receipt and approval function.
 
 Management
        has corrected many significant weaknesses and made significant progress in
        correcting these material weaknesses. The Company will continue to dedicate
        significant personnel and financial resources to the ongoing remediation
        and
        control maintenance efforts. Management expects to remediate these material
        weaknesses timely.
 
 Management’s
        assessment of the effectiveness of the Company’s internal control over financial
        reporting as of December 30, 2006 has been audited by Russell Bedford
        Stefanou Mirchandani, LLP, the Company’s independent registered public
        accounting firm, as stated in their report, which follows.
 
 **Changes
        in Internal Control over Financial Reporting**
 
 Except
        as
        described below, there were no changes in internal controls over financial
        reporting that occurred during the period covered by this report that have
        materially affected, or are reasonably likely to materially effect, our internal
        control over financial reporting.
 Among
        the
        changes in internal controls that have been implemented, or that are in the
        process of being implemented are:
 Revenue
        recognition
 
 **•**
              Criteria
                  and procedures established defining approved customer
                  contracts
 
 **•**
              Control
                  function established to review and monitor compliance to new
                  procedures
 
 **•**
              Improved
                  document control and file check out
                  procedures
  77
 ***Index***
  **•**
              Procedure
                  established defining consistent percentage completion Gross Margin
                  estimation process
  Cash
        disbursements and liability recognition
 **•**
              Document
                  control system established and monitored for
                  compliance
 
 **•**
              Cut
                  off procedures formalized and consistently
                  applied
 
 **•**
              Centralized
                  departmental budgets and accountability
                  established
 
 **•**
              Purchasing
                  procedures have been formalized and implementation has
                  begun
 
 **•**
              Procedures
                  instituted to provide for appropriate separation of
                  duties
  Other
 **•**
              Procedures
                  established and personnel assigned to reconcile key accounts on
                  a timely
                  basis
 
 **•**
              Control
                  function added to review
                  reconciliations
 
 **•**
              Control
                  evidence records and procedures for each job
                  function
 
 **•**
              Timely
                  and frequent project reviews
 
 **•**
              Timely
                  closing and review of books and
                  records
 
 **•**
              Deadlines
                  imposed for period end closings
 
 To
        correct the material weakness, checklists are being developed delineating
        tasks,
        preparation responsibilities, and review responsibilities targeting specific
        completion dates. The checklists provide evidentiary support of work performed
        and review. Specific checklists are being developed for non-quarter end months,
        quarter end months and the annual close. These checklists continue to be
        developed and have been implemented in the third quarter 2006 close process
        and
        utilized in the preparation of this Annual Report and subsequent period ends.
 
 The
        Company’s officers have been working with the Board of Directors to address
        recommendations from the Company’s registered independent public accounting firm
        regarding deficiencies in the disclosure controls and procedures. The Company
        is
        currently engaged in the implementation of a new internal software system
        and
        associated new internal control procedures. Management expects that this
        system
        along with new associated procedures, once implemented, will correct the
        deficiencies and will result in disclosure controls and procedures pursuant
        to
        Rule 13a-14 of the Exchange Act, which will timely alert the President to
        material information relating to the Company required to be included in the
        Company’s Exchange Act filings.
 
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 Board
        of
        Directors
 Microfield
        Group, Inc.
 Portland,
        Oregon
 
 We
        have
        audited management's assessment, included in the accompanying Management’s
        Report on Internal Control over Financial Reporting, that Microfield Group,
        Inc.
        and subsidiaries (the “Company”) did not maintain effective internal control
        over financial reporting as of December 30, 2006, because of the effect of
        the material weakness identified in management’s assessment based on criteria
        established in *Internal Control—Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission.
        The
        Company’s management is responsible for maintaining effective internal control
        over financial reporting and for its assessment of the effectiveness of internal
        control over financial reporting. Our responsibility is to express an opinion
        on
        management's assessment and an opinion on the effectiveness of the Company's
        internal control over financial reporting based on our audit.
  78
 ***Index***
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management's assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
 
 A
        company’s internal control over financial reporting is a process designed by, or
        under the supervision of, the company’s principal executive and principal
        financial officers, or persons performing similar functions, and effected
        by the
        company's board of directors, management, and other personnel to provide
        reasonable assurance regarding the reliability of financial reporting and
        the
        preparation of financial statements for external purposes in accordance with
        generally accepted accounting principles. A company’s internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to the maintenance of records that, in reasonable detail, accurately and
        fairly
        reflect the transactions and dispositions of the assets of the company;
        (2) provide reasonable assurance that transactions are recorded as
        necessary to permit preparation of financial statements in accordance with
        generally accepted accounting principles, and that receipts and expenditures
        of
        the company are being made only in accordance with authorizations of management
        and directors of the company; and (3) provide reasonable assurance
        regarding prevention or timely detection of unauthorized acquisition, use,
        or
        disposition of the company’s assets that could have a material effect on the
        financial statements.
 
 Because
        of the inherent limitations of internal control over financial reporting,
        including the possibility of collusion or improper management override of
        controls, material misstatements due to error or fraud may not be prevented
        or
        detected on a timely basis. Also, projections of any evaluation of the
        effectiveness of the internal control over financial reporting to future
        periods
        are subject to the risk that the controls may become inadequate because of
        changes in conditions, or that the degree of compliance with the policies
        or
        procedures may deteriorate.
 
 A
        material weakness is a significant deficiency, or combination of significant
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. The following material weaknesses have been identified and included
        in management’s assessment:
 
 The
        Company did not maintain effective controls over accounting for revenues
        generated from long-term construction contracts. The Company's processes,
        procedures and controls related to the application of percent of completion
        estimations, implementing accurate project costing controls and maintaining
        adequate contract documentation were not effective to ensure that amounts
        related to the revenues recognized under long-term contracts and related
        current
        asset and liability accounts were accurate, recorded in the proper period
        and
        determined in accordance with generally accepted accounting
        principles.
 
 The
        Company did not maintain effective controls and segregation of duties over
        accounting for purchasing, cash disbursements and recognition of liabilities.
        The Company's processes, procedures and controls related to purchasing and
        approval procedures were not effective to ensure that goods and services
        received agreed to amounts contracted for. Accordingly, the controls related
        to
        the costs recognized and related current asset and liability accounts were
        not
        effective to ensure that amounts were recorded in the proper period and
        determined in accordance with generally accepted accounting
        principles.
 
 These
        material weaknesses were considered in determining the nature, timing, and
        extent of audit tests applied in our audit of the consolidated financial
        statements and financial statement schedules as of and for the year ended
        December 30, 2006, of the Company and this report does not affect our
        report on such financial statements and financial statement
        schedules.
 
 In
        our
        opinion, management's assessment that the Company did not maintain effective
        internal control over financial reporting as of December 30, 2006, is
        fairly stated, in all material respects, based on the criteria established
        in *Internal Control—Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission.
        Also in
        our opinion, because of the effect of the material weakness described above
        on
        the achievement of the objectives of the control criteria, the Company has
        not
        maintained effective internal control over financial reporting as of
        December 30, 2006, based on the criteria established in *Internal Control—Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway
        Commission.
  We
          have
          also audited, in accordance with the standards of the Public Company Accounting
          Oversight Board (United States), the consolidated financial statements
          and
          financial statement schedules as of and for the year ended December 30,
          2006, of the Company and our report dated February 15, 2007 expressed an
          unqualified opinion on those financial statements and financial statement
          schedules and included an explanatory paragraph regarding the Company’s adoption
          of the provisions of Statement of Financial Accounting Standards
          No. 123(R), “Share-Based Payment”, effective January 1, 2006
 /s/
        RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
 
  McLean,
          Virginia
 February
        15, 2007
 
 
 **Item9B.
        Other Information**
 
 None
  79
 ***Index***
  **PART
        III**
 
 **Item
        10. Directors, Executive Officers, Promoters and
        Control Persons;**
 
 The
        following table sets forth information regarding our directors and executive
        officers as of December 30, 2006:
 
 **Name**
              **Age**
              **Positions**Rodney
                  M. Boucher
              63
              Chief
                  Executive Officer and DirectorA.
                  Mark Walter
              42
              President
                  and DirectorRandall
                  R. Reed
              50
              Chief
                  Financial OfficerGene
                  Ameduri
              58
              President
                  of ECI and DirectorWilliam
                  C. McCormick
              73
              Chairman
                  of the Board of DirectorsMichael
                  W. Stansell
              63
              DirectorGary
                  D. Conley
              46
              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, are being compensated $500 for each board meeting held at the
        Company’s 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 2006 three board members
        were awarded shares for their service on the board of directors. These awards
        are disclosed in the compensation section below. Gary Conley was also awarded
        50,000 non-qualified options in 2006 for joining the Company’s 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 in October 2005. 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, CEI, before
        his
        promotion to Senior Vice President and Chief Operating Officer of CEI in
        January 2004. Mr. Walter was appointed President of Microfield and CEI
        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 CEI,
        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. Mr. Reed holds a BS in Business Administration from Southern
        Oregon University.
  80
 ***Index***
  **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 CEI. 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 the Interim CEO 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. Mr. McCormick is currently
        employed by the Company.
 
 **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. Mr. Stansell is currently employed
        by the Company.
 
 **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.
  **Compliance
        with Section 16(a) of the Exchange Act**
 
 This
        information will be supplied in the Company’s proxy statement
        filing.
 
 **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 2006 coincident with the filing of SEC quarterly Forms 10-QSB and other
        press releases involving financial matters. Also 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 the Company’s
        financial statements; and reviews the Company’s internal controls.
 
 **Governance
        Committee**
 
 On
        December 13, 2005, the board of directors appointed Mr. Boucher and Mr. Walter
        as members of its Governance committee. The current policy requires that
        the
        governance committee consist of two Board Members. The governance committee
        had
        several informal meetings and discussions throughout 2006.  The Company
        adopted a new Code of Ethics in November 2006. A copy of the Code of Ethics
        is
        available from the Company by contacting Mr. Bill Munger, c/o Microfield
        Group,
        Inc., 111 SW Columbia St., Suite 480, Portland, Oregon 97201.
  81
 ***Index***
  **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 two formal meetings during the year
        and
        numerous informal meetings and discussions throughout 2006. The committee
        determines the compensation level, option grants and other compensation for
        our
        executive officers. Mr. McCormick resigned as a member of the Compensation
        Committee with the election of these two new committee members.
 
 **Compensation
        Committee Interlocks and Insider Participation**
 
 During
        our 2006 fiscal year, one of the two members of our compensation committee,
        Gene
        Ameduri had a position as an officer of the Company. None of the members
        of our
        compensation committee had any other relationship with us.
 
 Also
        during the fiscal year ended December 3, 2006, one of our executive officers,
        Rod Boucher served as a
        director on the board of Solfocus, Inc. whose Chief Executive Officer, Gary
        Conley sits on the compensation committee of our company. No other of our
        executive officers serves as a:
 
 A.  member
        of
        the compensation committee (or other board committee performing equivalent
        functions or, in the absence of any such committee, the entire board of
        directors) of another entity, one of whose executive officers served on our
        compensation committee;
  B.  director
        of another entity, one of whose executive officers served on our compensation
        committee; and
  C.  as
        a
        member of the compensation committee (or other board committee performing
        equivalent functions or, in the absence of any such committee, the entire
        board
        of directors) of another entity, one of whose executive officers served as
        our
        director.
 
 **Corporate
        Governance**
 
 Our
        board
        of directors has determined that Mr. Conley is “independent” as that term is
        defined by the National Association of Securities Dealers Automated Quotations
        (“NASDAQ”).  Under the NASDAQ definition, an independent director is a
        person who (1) is not currently (or whose immediate family members are not
        currently), and has not been over the past three years (or whose immediate
        family members have not been over the past three years), employed by the
        company; (2) has not (or whose immediate family members have not) been paid
        more
        than $60,000 during the current or past three fiscal years;  (3) has not
        (or whose immediately family has not) been a partner in or controlling
        shareholder or executive officer of an organization which the company made,
        or
        from which the company received, payments in excess of the greater of $200,000
        or 5% of that organizations consolidated gross revenues, in any of the most
        recent three fiscal years; (4) has not (or whose immediate family members
        have
        not), over the past three years been employed as an executive officer of
        a
        company in which an executive officer of our company has served on that
        company’s compensation committee; or (5) is not currently (or whose immediate
        family members are not currently), and has not been over the past three years
        (or whose immediate family members have not been over the past three years)
        a
        partner of our company’s outside auditor.
  82
 ***Index***
  **Item
        11. ExecutiveCompensation**
 
 **Compensation
        Discussion and Analysis**
 
 We
        believe our success depends on the continued contributions of our named
        executive officers. Personal relationships are very important in our industry.
        Our named executive officers are primarily responsible for many of our critical
        customer and supplier relationships. The maintenance of these relationships
        is
        critical to ensuring our future success. Therefore, it is important to our
        success that we retain the services of these individuals and prevent them
        from
        competing with us should their employment with us terminate.
 
 Our
        compensation programs are designed to provide our named executive officers
        competitive salaries, short term bonus opportunities, and long term equity
        incentives. Our goal is to provide our named executive officers with incentives
        that are aligned with the performance of our business and the performance
        of our
        common stock. Our salary amounts are intended to be competitive with similarly
        situated companies.
 
 Our
        compensation committee reviewed and approved the proposed compensation programs.
        Additionally, as further described
        below, on June 7, 2006, shareholders holding 55.8% of our then outstanding
        common stock approved our Stock Incentive Plan.
 
 Our
        compensation plan consists of the following components: salary, annual incentive
        bonus and long term equity incentives. The details of each these components
        are
        described in the tables and narrative below.
 
 Our
        compensation plan is aimed to further our belief that that retaining these
        officers is imperative to our success. The long-term equity incentive plan,
        under which options are issued, is designed to award activities that increase
        the trading price of our common stock. The management incentive bonus plan
        is
        designed to reward increases in our earnings before interest, taxes, and
        amortization.
 
 **Compensation
        Committee Report on Executive Compensation**
 
 The
        compensation committee is comprised of one independent non-employee director
        and
        one employee director whose name is listed at the end of this Registration
        Statement. The committee sets the principles and strategies it serves to
        guide
        the design of our compensation plans and programs. The committee will annually
        evaluate the performance of our CEO and the other named executive officers.
        Taking their performance evaluations into consideration, the committee will
        establish and approve their compensation levels, including base salary, annual
        bonuses, and equity incentives,. The committee met on November 20, 2006 and
        considered compensation plans and programs entered into between us, and the
        CEO
        and named executive officers.
 
 **Our
        Compensation Philosophy and Plans**
 
 Our
        executive compensation program is designed to attract and retain superior
        executive talent, to provide incentives and rewards to executive officers
        who
        will contribute to our long-term success and to closely align the interests
        of
        executives with those of our stockholders. The Compensation Committee reviews
        our executive compensation plans and programs through the application of
        the
        business judgment of each of its members. The Compensation Committee uses
        discretion and considers an executive’s entire compensation package when setting
        each portion of compensation, which is based upon corporate goals and
        performance, individual initiatives and performance, and overall market
        considerations. The principal elements of our executive compensation program
        consist of: (i) annual base salary, (ii) participation in our management
        incentive plan that provides for an annual bonus, and (iii) equity incentive
        plan.
 
 *Base
        Salaries* Annual
        base salaries for executive officers are initially determined by evaluating
        the
        responsibilities of the position and the experience and knowledge of the
        individual. Also taken into consideration is the competitiveness of the
        marketplace for executive talent, including a comparison of base annual salaries
        for comparable positions at peer companies.
 
 *Stock
        Incentive Plan.* The 2004
        Stock Incentive Plan permits the grant of incentive stock options, non-qualified
        stock options, restricted stock, restricted stock units, performance shares,
        stock appreciation rights (SARS) and other common stock-based awards to our
        executive officers. Options to purchase our common stock and/or SARS have
        been
        issued to each executive officer as further set forth below in the “Summary
        Compensation Table”. The options and SARS both have an exercise price equal to
        the fair market value of our common stock on the grant date. The options
        and
        SARS granted to our CEO and our executive officers on November 21, 2006 are
        2%
        vested on December 30, 2006. The Compensation Committee believes that equity
        incentives help align the interests of the executives with those of the
        stockholders and provide incentives for the executives to create long-term
        value
        for our stockholders.
  83
 ***Index***
 
 *Section
        162(m)* Section 162(m) of the Internal Revenue Code, provides that compensation in
        excess of $1,000,000 paid to the President and CEO or to any of the other
        four
        most highly compensated executive officers of a public company will not be
        deductible for federal income tax purposes unless such compensation satisfies
        one of the enumerated exceptions set forth in Section 162(m). The
        Compensation Committee has reviewed our compensation plans and programs with
        regard to the deduction limitation set forth in Section 162(m). Based on
        this
        review, the Compensation Committee anticipates that the annual bonus, long
        term
        incentive plan bonus and gain, if any, recognized by our CEO and named executive
        officers upon the exercise of stock options or SARS meet the requirements
        for
        deductibility under Section 162(m) of the Code.
 
 *Compensation
        of the Chief Executive Officer* As of
        December 30, 2006, we have not entered into employment agreements with any
        of
        our executive officers. Mr. Boucher is paid an annual salary of $300,000
        and is
        eligible for an annual bonus if our financial targets are achieved. The amount
        of the annual bonus is determined using a floating percentage of annual base
        salary based on the level of attainment of various financial metrics.. The
        Compensation Committee believes that Mr. Boucher is critical to our future
        success and that this compensation package properly aligns his interests
        with
        that of our shareholders.
 
 **The
                  Compensation Committee:**Mr.
                  Gene AmeduriMr.
                  Gary Conley
 84
 ***Index***
  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 2006, 2005 and
        2004.
 
 **Summary
        Compensation Table**
  Name
                    & Principal Position
                Year
                Salary
                    ($)
                Bonus
                    ($)
                Stock
                    Awards($)
                Option
                    Awards ($) *
                Non-Equity
                    Incentive Plan Compensation ($)
                Change
                    in Pension Value and Non-Qualified Deferred Compensation Earnings
                    ($)
                All
                    Other Compensation ($) (7)
                Total
                    ($)**Rodney
                    M. Boucher (1)**
                  Chief
                    Executive Officer and Director
                2006
                300,000
                --
                --
                2,771
                --
                --
                12,415
                    (1)
                315,1862005
                62,500
                --
                --
                --
                --
                --
                --
                62,5002004
                --
                --
                --
                --
                --
                --
                --
                --**A.
                    Mark Walter (2)**
                  President
                    and Director
                2006
                208,000
                --
                --
                92,002
                --
                --
                7,200
                307,2022005
                153,939
                --
                --
                67,433
                --
                --
                7,200
                228,5722004
                117,184
                --
                --
                10,921
                --
                --
                7,200
                135,305**Randall
                    R. Reed (3)**
                  Chief
                    Financial Officer
                2006
                208,000
                --
                --
                26,150
                --
                --
                --
                234,1502005
                56,000
                --
                --
                6,032
                --
                --
                --
                62,0322004
                --
                --
                --
                --
                --
                --
                --
                --**Gene
                    Ameduri (4)**
                  President
                    of ECI and Director
                2006
                200,000
                --
                --
                1,150
                --
                --
                5,736
                206,8862005
                41,667
                --
                --
                --
                --
                --
                --
                41,6672004
                --
                --
                --
                --
                --
                --
                --
                --**William
                    C. McCormick (5)**
                  Former
                    Interim Chief Executive Officer and Director
                2006
                --
                --
                --
                383,429
                --
                --
                --
                383,4292005
                --
                --
                --
                374,262
                --
                --
                --
                374,2622004
                --
                --
                --
                222,750
                --
                --
                --
                222,750**Gary
                    M. Kapral (6)**
                  Former
                    Chief Financial Officer
                2006
                --
                --
                --
                --
                --
                --
                --
                --2005
                68,289
                --
                --
                (1,936)
                --
                --
                --
                66,3532004
                138,462
                --
                --
                1,936
                --
                --
                --
                140,398
  
 *
              Market
                  value of the underlying securities based on the closing price,
                  $0.64, of
                  our common stock on December 29, 2006, the last trading day of
                  2006 fiscal
                  year.
  85
 ***Index***
 (1)
                Mr.
                    Boucher was appointed our Chief Executive Officer on October
                    13, 2005.
                    Other compensation in the amount of $12,415 was valued based
                    on actual
                    costs and was granted in the form of automobile lease
                    payments.
 
 (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 ECI 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.
 
 (7)
                With
                    the exception of reimbursement of expenses incurred by our named
                    executive
                    officers during the scope of their employment, none of the named
                    executives received other compensation, perquisites, personal
                    benefits in
                    excess of $10,000.
 **Employment
        Agreements With Named Executive Officers**
 
 As
        of
        December 30, 2006, we have not entered into employment agreements with any
        of
        our executive officers.
 
 **Options
        Granted in Last Fiscal Year**
 
 During
        2006, we granted 1,625,000 incentive stock options to purchase Microfield
        Group,
        Inc. common stock under our Stock Incentive Plan 527,500 of which to the
        named
        officers. No other current executive officers received options exercisable
        for
        shares of our Common Stock during fiscal 2006. Other employees who are not
        currently executive officers of the Company received options exercisable
        for a
        total of 547,500 shares of Common Stock during fiscal 2006. There were an
        additional 550,000 nonqualified stock options awarded to individuals, directors
        or entities not employed by us. These included 310,000 options that were
        issued
        to directors of the Company, and 240,000 options that were issued to outside
        consultants.
  86
 ***Index***
  **OUTSTANDING
        EQUITY AWARDS AT FISCAL YEAR-END**
 
 The
        following table sets forth information with respect to grants of options
        to
        purchase our common stock under our Stock Incentive Plan to the named executive
        officers during the fiscal year ended December 30, 2006.
  **Option
                          Awards**
                      **Stock
                          Awards**Name
                      Number
                        of
                        Securities
                        Underlying
                        Unexercised
                        Options
                        (#)
                        Exercisable
                      Number
                        of
                        Securities
                        Underlying
                        Unexercised
                        Options
                        (#)
                        Unexercisable
                      Equity
                        Incentive
                        Plan
                        Awards:
                        Number
                        of
                        Securities
                          Underlying
                        Unexercised
                        Unearned
                        Options
                        (#)
                      Option
                        Exercise
                        Price
                        ($)
                      Option
                        Expiration
                        Date
                      Number
                        of
                          Shares
                        or
                          Units
                        of
                          Stock
                        That
                          Have
                        Not
                        Vested
                        (#)
                      Market
                        Value
                          of
                        Shares
                          or
                        Units
                          of
                        Stock
                        That
                          Have
                        Not
                        Vested
                        ($)
                      Equity
                        Incentive
                        Plan
                          Awards:
                        Number
                        of
                        Unearned
                        Shares,
                        Units
                          or
                        Other
                          Rights
                        That
                          Have
                        Not
                        Vested
                        (#)
                      Equity
                          Incentive
                        Plan
                          Awards:
                        Market
                          or Payout
                        Value
                        of
                        Unearned
                        Shares,
                        Units
                          or
                        Other
                        Rights
                        That
                          Have
                        Not
                        Vested
                        ($)**Rodney
                          M. Boucher**
                      4,896
                      230,104
                      --
                      0.65
                      11/21/11
                      N/A
                      N/A
                      N/A
                      N/A**A.
                          Mark Walter**
                      72,917
                      27,083
                      --
                      0.60
                      1/22/09
                      N/A
                      N/A
                      N/A
                      N/A50,000
                      50,000
                      --
                      0.40
                      12/3/09416,667
                      583,333
                      --
                      0.35
                      4/29/102,031
                      95,469
                      --
                      0.65
                      11/21/11**Randall
                          R. Reed**
                      33,333
                      66,667
                      --
                      0.84
                      8/23/10
                      N/A
                      N/A
                      N/A
                      N/A2,031
                      95,469
                      --
                      0.65
                      11/21/11**Gene
                          Ameduri**
                      2,031
                      95,469
                      --
                      0.65
                      11/21/11
                      N/A
                      N/A
                      N/A
                      N/A**William
                          C. McCormick**
                      1,200,000
                      -
                      --
                      0.44
                      11/12/09
                      N/A
                      N/A
                      N/A
                      N/A50,000
                      -
                      --
                      0.26
                      4/7/10666,667
                      333,333
                      --
                      0.84
                      8/23/102,083
                      97,917
                      --
                      0.65
                      11/21/11**Gary
                          M. Kaplan**
                      --
                      --
                      --
                      --
                      --
                      N/A
                      N/A
                      N/A
                      N/A
 
 
  **DIRECTOR
        COMPENSATION**
 
 The
        following table sets forth with respect to the named director, compensation
        information inclusive of equity awards and payments made in the fiscal year
        ended December 30, 2006. All option awards were granted from our Stock Incentive
        Plan
  Name
                  (a)
                Fees
                    Earned or Paid in Cash
                  ($)
                  (b)
                Stock
                    Awards
                  ($)
                  (c)
                Option
                  Awards
                    ($)
                  (d)
                Non-Equity
                    Incentive Plan Compensation ($)
                  (e)
                Change
                    in Pension Value and Nonqualified Deferred Compensation
                    Earnings
                  (f)
                All
                    Other Compensation
                  ($)
                  (g)
                Total
                  ($)
                  (h)**Rodney
                    M. Boucher (1)**
                
                
                -
                --
                --
                -
                -**A
                    Mark Walter (2)**
                -
                -
                -
                --
                --
                -
                -**Gene
                    Ameduri (3)**
                -
                -
                -
                --
                --
                --
                -**William
                    C. McCormick (4)**
                -
                -
                1,179
                --
                --
                --
                1,179**Michael
                    W. Stansell (5)**
                -
                -
                1,002
                --
                --
                --
                1,002**Gary
                    D. Conley (6)**
                2,000
                -
                119,284
                --
                --
                --
                121,284
 87
 ***Index***
 (1).
        Mr.
        Boucher is our Chief Executive Officer and does not receive additional
        compensation for serving as our director.
 
 (2)
        Mr.
        Walter is our President and does not receive additional compensation for
        serving
        as our director.
 
 (3)
        Mr.
        Ameduri is our EnergyConnect President and does not receive additional
        compensation for serving as our director.
 
 (4)
        Under
        our 2004 Stock Incentive Plan, on November 21, 2006, Mr. McCormick was granted
        a
        stock option to purchase 100,000 shares of common stock, which option vests
        over
        48 months. The aggregate grant date fair value of this award is
        $56,600.
 
 (5)
        Under
        our 2004 Stock Incentive Plan, on November 21, 2006, Mr. Stansell was granted
        a
        stock option to purchase 85,000 shares of common stock, which option vests
        over
        48 months. The aggregate grant date fair value of this award is
        $48,110.
 
 (6)
        Under
        our 2004 Stock Incentive Plan, on February 22, 2006, Mr. Conley was granted
        a
        stock option to purchase 75,000 shares of common stock, which option vests
        over
        48 months. The aggregate grant date fair value of this award is
        $42,450.
 
 **Item
        12. Security Ownership of Certain Beneficial Owners and
        Management**
 
 **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 February 28, 2007 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.
  88
 ***Index***
  **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
              
              
              8,830,845
              
              
              10.6
              %(4)
              
              
              Robert
                  J. Jesenik
                5300
                  Meadows Rd., Suite 400
                Lake
                  Oswego, OR 97035
              
              
              8,309,406
              
              
              10.3
              %(5)
              
              
              CEAC
                5300
                  Meadows Rd., Suite 400
                Lake
                  Oswego, OR 97035
              
              
              6,328,017
              
              
              8.0
              %(6)
              
              
              Rodney
                  M. Boucher
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              14,952,504
              
              
              17.5
              %(7)
              
              
              Gene
                  Ameduri
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              9,510,355
              
              
              11.5
              %(8)
              
              
              William
                  C. McCormick
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              2,670,209
              
              
              3.3
              %(9)
              
              
              A.
                  Mark Walter
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              649,740
              
              
              *(10)
              
              
              Michael
                  Stansell
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              80,857
              
              
              *(11)
              
              
              Randall
                  R. Reed
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              51,823
              
              
              *(12)
              
              
              Gary
                  D. Conley
                111
                  SW Columbia, Suite 400
                Portland,
                  OR 97201
              
              
              57,813
              
              
              *(13)
              
              
              All
                  directors and executive officers as a group (7 persons)
              
              
              27,973,301
              
              
              30.3
              %
  
 *  Less
        than
        1%
 (1)
                Shares
                    to which the person or group has the right to acquire within
                    60 days after
                    February 28, 2007 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 79,128,512 shares of common stock
                    outstanding as of February 28, 2007.
 
 (3)
                Includes
                    4,060,914 warrants convertible into common stock within 60 days
                    after
                    February 28, 2007.
 
 (4)
                Includes
                    576,463 common equivalent preferred shares outstanding as of
                    February 28,
                    2007, and 955,654 warrants convertible into common stock within
                    60 days
                    after February 28, 2007.
 
 (5)
                Includes
                    125,636 common equivalent preferred shares outstanding as of
                    February 28,
                    2007.
 
 (6)
                Includes
                    263,318 common equivalent preferred shares outstanding as of
                    February 28,
                    2007, and 6,115,850 warrants and options convertible into common
                    stock
                    within 60 days after February 28,
                    2007.
 
 (7)
                Includes
                    3,868,024 warrants and options convertible into common stock
                    within 60
                    days after February 28, 2007.
  89
 ***Index***
  (8)
                Includes
                    263,158 common equivalent preferred shares outstanding as of
                    February 28,
                    2007, and 1,851,008 options convertible into common stock within
                    60 days
                    after February 28, 2007.
 
 (9)
                Includes
                    649,740 options convertible into common stock within 60 days
                    after
                    February 28, 2007.
 
 (10)
                Includes
                    58,854 options convertible into common stock within 60 days after
                    February
                    28, 2007.
 
 (11)
                Includes
                    51,823 options convertible into common stock within 60 days after
                    February
                    28, 2007.
 
 (12)
                Includes
                    57,813 options convertible into common stock within 60 days after
                    February
                    28, 2007.
 
 (13)
                Includes
                    526,316 common equivalent preferred shares outstanding as of
                    February 28,
                    2007, and 12,653,111 warrants and options convertible into common
                    stock
                    within 60 days after February 28,
                    2007.
  **Item
        13. CertainRelationships and Related
        Transactions**
 
 The
        Company has 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 December 30, 2006 by related party.
 
 Related
                  Party
              Type
                  of Obligation
              Maturity
                  Date
              Amount
                  of Obligation
              Monthly
                  PaymentChristenson
                  Leasing LLC(a)
              T.
                  I. lease
              December
                  2007
              110,620
              7,940Christenson
                  Leasing LLC(a)
              Vehicle
                  leases
              various
              51,385
              variousChristenson
                  Leasing LLC(a)
              Equipment
                  lease
              December
                  2007
              -
              (d)60,000Rod
                  Boucher
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Mark
                  Walter
              Bond
                  guarantee fees
              Open
                  obligation
              -
              (b)4,000Destination
                  Microfield, LLC
              Vehicle
                  lease
              December
                  2007
              -
              (c)46,350William
                  C. McCormick
              Indemnity
                  fees
              Open
                  obligation
              -
              (e)14,913John
                  B. Conroy
              Note
                  receivable
              September
                  2005
              66,250
              -
 
 (a)
              Robert
                  J. Jesenik, a significant shareholder of Microfield and 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)
              These
                  payments vary over the term of the loan. This amount represents
                  the
                  monthly payment in effect on September 30,
                  2006.
 (d)
              This
                  payment was reduced to $60,000 per month by terms of the reissued
                  note,
                  starting November 1, 2005.
 (e)
              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.
 
 *Note
        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. Robert Jesenik, a significant shareholder of Microfield and
        a
        former director, is a principal indirect shareholder of Destination. Under
        the
        terms of the agreement, we paid 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 IssuedAugust
                  1, 2004
              
              $
              300,000
              
              
              37,500September
                  1, 2004
              
              $
              750,000
              
              
              93,750October
                  1, 2004
              
              $
              1,200,000
              
              
              150,000November
                  1, 2004
              
              $
              1,200,000
              
              
              150,000December
                  1, 2004
              
              $
              1,200,000
              
              
              150,000January
                  1, 2005
              
              $
              1,200,000
              
              
              150,000February
                  1, 2005
              
              $
              1,200,000
              
              
              150,000March
                  1, 2005
              
              $
              1,200,000
              
              
              150,000April
                  1, 2005
              
              $
              1,200,000
              
              
              150,000May
                  1, 2005
              
              $
              1,200,000
              
              
              150,000June
                  1, 2005
              
              $
              1,200,000
              
              
              150,000July
                  1, 2005
              
              $
              1,158,334
              
              
              144,792Total
                  warrants issued as of December 30, 2006
              
              
              
              
              
              1,626,042
 90
 ***Index***
  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). Robert Jesenik, a significant shareholder of Microfield
        and a
        former director, is a principal shareholder of JMW. The three notes contained
        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
        Christenson Velagio, Inc. Also, as a result of the renegotiation of these
        notes,
        the warrant obligation, contained in the business loan agreement was eliminated.
        The remaining note payable was paid in full in July 2006.
 
 *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 $317,207, with monthly payments
        of
        $11,309, including interest at prime plus 10%, due on the 13 th of each
        month through September 13, 2008. On May 8, 2006, Mr. Boucher advanced an
        additional $100,000 to the Company. This amount was added to the principal
        amount of the note. This loan and the accrued interest were paid in full
        in
        August 2006.
  *Note
        Payable to William McCormick*
 
 On
        January 28, 2005, the Company 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, were due on the
        28 th day of
        each month starting on February 28, 2005. The note was to be paid in full
        on
        July 28, 2005. This note and the accrued interest were repaid in full in
        July
        2006.
 
 *Bond
        Guarantee Fees*
 
 Mark
        Walter/Rod Boucher
 A
        certain
        number of CEI construction projects require us to maintain a surety bond.
        The
        bond surety company requires an additional guarantee for issuance of the
        bond.
        We have agreements with Mr. Walter, our President and Mr. Boucher, our CEO,
        under which at quarter end pays Mr. Walter and Mr. Boucher between $1,000
        and
        $4,000 each per month for their personal guarantees of this bond liability.
        The
        guarantee fee is computed as 10% of the open liability under bonds issued
        for
        CEI.
  91
 ***Index***
  William
        McCormick
 Certain
        construction projects within CEI 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.
 
 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
        required a secondary indemnity, should funds be drawn against this letter
        of
        credit, the substantial majority of which was provided by Aequitas Capital
        Management, a related party. Robert Jesenik, a significant shareholder of
        Microfield and a former director, is a principal shareholder and CEO of
        Aequitas. Aequitas charged an additional fee of 15% of the letter of credit
        amount. Aequitas was also indemnified by Christenson Electric should it have
        had
        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. Robert Jesenik, a
        significant shareholder of Microfield and a former director, is a principal
        shareholder of Christenson Leasing. 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. Robert Jesenik,
        a
        significant shareholder of Microfield and a former director, is a principal
        shareholder of Aequitas. Prior to 2006, 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 was 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
        September 30, 2006, this note was paid in full.
 
 *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. Mr. Robert Jesenik, a significant shareholder of Microfield and a
        former
        director is a significant shareholder in Christenson Leasing. The agreement
        called for payments of $97,255 starting on January 2, 2003 through December
        2007. On September 1, 2003, Christenson’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 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.
  92
 ***Index***
  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*
 
 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 September 30, 2006 is $36,350. This
        adjustment is made on an annual basis.
 
 We,
        through our subsidiary CEI, are a party to an agreement with CLC under which
        CEI
        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, then
        a
        separate, unrelated entity, 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.
        The monthly sublease payments totaled $54,464 through November 30, 2004.
        On
        November 30, 2004, Christenson Velagio terminated its 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. The Company moved from this space in
        April
        2006 and is pursuing potential sublease options.
 
 We
        are
        lessees to a facility which we subleased to a third party through February
        2006.
        Under this lease, we pay $32,352 per month to our lessor, and received $25,000
        per month from our subleasee. This agreement terminated in February, 2006.
        Our
        obligation under the master lease for this facility ends in September 2008.
        On
        April 17, 2006, the Company moved to this facility, and is 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
          December 30, 2006 our total real property lease payments totaled $88,491,
          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
        December 30, 2006, accrued interest receivable under this note totaled $27,644.
        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.
  93
 ***Index***
  **Item
        14. PrincipalAccountant Fees and
        Services**
 
 The
        following is a summary of the fees billed to Microfield Group, Inc. by Russell,
        Bedford, Stefanou Mirchandani LLP and PricewaterhouseCoopers LLP for
        professional services rendered in connection with the fiscal years ended,
        December 31, 2005 and January 1, 2005, respectively.
 
 December
                  30, 2006
              
              December
                  31, 2005
              
              January
                  1, 2005Fee
                  TypeAudit
                  fees
              
              $
              143,125
              
              $
              134,824
              
              $
              222,095Audit
                  related fees
              
              
              54,974
              
              
              41,350
              
              
              -Registration
                  statement fees
              
              
              68,987Tax
                  fees
              
              
              825
              
              
              -
              
              
              -All
                  other fees
              
              
              8,100
              
              
              -
              
              
              -Total
                  fees
              
              $
              276,011
              
              $
              176,174
              
              $
              222,095
 
 Audit
        fees consist of billings for professional services rendered for the audit
        of the
        Company’s consolidated financial statements and review of the interim
        consolidated financial statements included in quarterly reports that are
        normally provided by independent accounting firms in connection with regulatory
        filings, including audit services performed related to mergers and
        acquisitions.
 
 Audit-related
        fees consists of fees billed for assurance and related services that are
        reasonably related to the performance of the audit or review of the Company's
        consolidated financial statements, which are not reported under "Audit
        Fees."
 
 Registration
        statement fees consist of fees billed to review the Form SB-2, Form S-1 and
        Form
        S-8 registration statements filed by the Company during 2006. The Company
        filed
        its Form SB-2 on February 13, 2006, its Form S-1’s on May 2, 2006, June 1, 2006,
        June 7, 2006, July 21, 2006 and September 26, 2006, and its S-8 on December
        26,
        2006.
 
 Tax
        fees
        consist of billings for professional services for tax compliance and tax
        planning regarding federal and state tax filings.
 
 All
        other
        fees consist of fees for products and services other than the services reported
        above.
 
 Prior
        to
        the Company's engagement of its independent auditor, such engagement is approved
        by the Company's audit committee. The services provided under this engagement
        may include audit services, audit-related services, tax services and other
        services. Pre-approval is generally provided for up to one year and any
        pre-approval is detailed as to the particular service or category of services
        and is generally subject to a specific budget. Pursuant to the Company's
        Audit
        Committee Charter, the independent auditors and management are required to
        report to the Company's audit committee at least quarterly regarding the
        extent
        of services provided by the independent auditors in accordance with this
        pre-approval, and the fees for the services performed to date. The audit
        committee may also pre-approve particular services on a case-by-case basis.
        All
        audit-related fees, tax fees and other fees incurred by the Company for the
        year
        ended December 30, 2006, were approved by the Company's audit
        committee.
 
 **Item
          15. Exhibits and Financial Statement Schedules**
 
 1.
          Financial Statements (included in Item 8 of this report on Form 10-K and
          appearing on pages 42 through 79):
  ·
                Report
                    of Independent Registered Public Accounting
                    Firm
 ·
                Consolidated
                    Balance Sheets as of December 30, 2006 and December 31,
                    2005
 ·
                Consolidated
                    Statements of Operations for the years ended December 30, 2006,
                    December 31, 2005 and January 1,
                    2005
 ·
                Consolidated Statements of Shareholders’ Equity for the years ended
                    December 30, 2006, December 31, 2005 and January 1,
                    2005
 ·
                Consolidated
                    Statements of Cash Flows for the years ended December 30, 2006,
                    December 31, 2005 and January 1,
                    2005
 ·
                Notes
                    to Consolidated Financial
                    Statements
 
 2.
          Financial Statement Schedules
 Financial
          statement schedules are omitted as they are either not required or the
          information is otherwise included.
 
 3.
          Exhibits
 
 Exhibit
          No.
 
 *3.1
          Articles of Incorporation, as amended
 *3.2
            Bylaws, as amended
  94
 ***Index***
  *4.1
        See
        Article III of Exhibit 3.1 and Articles I and VI of Exhibit 3.2 (1)
 *10.1
        1986 Stock Option Plan, as amended
 *10.3
        Form of Incentive Stock Option Agreement
 *10.7
        Form of Representative Warrants
 **10.11
        Restated 1995 Stock Incentive Plan dated May 11, 1998.
 ***10.14
        Form of $400,000 Subordinated Promissory Note issued to JMW Capital Partners,
        Inc., dated June 30, 2000.
 ***10.15
        Form of Stock Purchase Warrants to Purchase Shares of Common Stock of Microfield
        Group, Inc. issued to JMW Capital Partners, Inc., dated June 30, 2000.
 ***10.16
        Form of Registration Rights Agreement between the Company and JMW Capital
        Partners, Inc. (now known as Aequitas Capital Management), dated June 30,
        2000.
 ***10.17
        Form of Note and Warrant Purchase Agreement between the Company and JMW Capital
        Partners, Inc. (now known as Aequitas Capital Management), dated June 30,
        2000.
 ****10.18
        Form of Asset Purchase Agreement between Greensteel, Inc., and Microfield
        Group,
        Inc., dated September 7, 2000, incorporated by reference to the Company s
        Proxy
        Statement dated October 3, 2000.
 *****10.19
        Form of Agreement and Plan of Merger between Microfield Group, Inc., and
        Innovative Safety Technologies, LLC. dated September 16, 2002 incorporated
        by
        reference to the Registrants Form 8-K dated September 17, 2002.
 ******10.20
        Form of Agreement and Plan of Merger between Microfield Group, Inc., Velagio,
        Inc., and Christenson Technology Services, Inc., dated September 16, 2003
        incorporated by reference to the Registrants Form 8-K dated October 1, 2003.
 ##10.21
        Form of Loan Agreement and Promissory Note dated August 24, 2004, incorporated
        by reference to the Registrant’s Form 8-K dated August 30, 2004.
 10.22
        Microfield Group, Inc. 2004 Stock Incentive Plan, incorporated by reference
        to
        the Registrant’s Registration Statement on Form SB-2 dated February 13,
        2006.
 ##10.23
        Amended Articles of Incorporation expanding the authorized common shares,
        incorporated by reference to the Registrant’s Form 8-K dated September 14,
        2004.
 10.24
        Settlement Agreement between the Company, Kurt A. Underwood and various other
        parties, incorporated by reference to the Registrant’s Registration Statement on
        Form SB-2 dated February 13, 2006.
 10.25  Form
        of
        Stock Purchase Warrants to purchase Common Stock of Microfield Group, Inc.
        issued to ECI stockholders (Incorporated by reference to Exhibit 99.2 to
        the
        Registrant’s Current Report on Form 8-K filed October 19, 2005).
 20.01
        Form of Agreement and Plan of Merger between Microfield Group, Inc. and
        Christenson Electric, Inc. dated July 20, 2005 incorporated by reference
        to the
        Registrant’s Form 8-K dated July 26, 2005.
 20.01
        Form of Agreement and Plan of Merger between Microfield Group, Inc. and
        EnergyConnect, Inc. dated October 13, 2005 incorporated by reference to the
        Registrant’s Form 8-K dated October 17, 2005.
 
 23.1  
Consent
        of Russell Bedford Stefanou
        Mirchandani LLP , Independent Registered Certified Public Accounting Firm,
        filed
        herewith
 31.1   Certification
        of Chief Executive
        Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.
 31.2  
Certification
        of Chief Financial Officer
        pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.
 32.1  Certification
        of Chief Executive
        Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2   Certification
        of Chief Financial
        Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 -------------------
 
 * Incorporated
        by reference to Exhibits 3.1, 3.2, 4.1, 10.1, 10.3, 10.7, as applicable,
        to
        Registrant’s Registration Statement on Form SB-2 (Registration No.
        33-918900).
 
 ** Incorporated
        by reference to Exhibit 10.11 to Registrants Quarterly Report on Form 10-QSB
        for
        the three month period ended July 3, 1999.
 
 *** Incorporated
        by reference to Exhibits 10.14, 10.15, 10.16, 10.17, as applicable, to
        Registrants Quarterly Report on Form 10-QSB for the three month period ended
        July 1, 2000.
  95
 ***Index***
 **** Incorporated
        by reference to Exhibit 10.18 to Registrants Quarterly Report on Form 10-QSB
        for
        the three month period ended September 30, 2000.
 
 ***** Incorporated
        by reference to Exhibit 10.19 to Registrants Quarterly Report on Form 10-QSB
        for
        the three month period ended September 28, 2002.
 
 ****** Incorporated
        by reference to Exhibit 10.20 to Registrants Quarterly Report on Form 10-QSB
        for
        the three month period ended September 27, 2003.
 
 ##
        Incorporated by reference to Exhibits 10.21 and 10.22, as applicable, to
        Registrants Quarterly Report on Form 10-QSB for the three month period ended
        October 2, 2004.
  (1)  This
        exhibit constitutes a management contract, or compensatory plan or arrangement.
  96
 ***Index***
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
        March 15, 2007
 
 MICROFIELD
                  GROUP, INC.By:Rodney
                  M. BoucherChief
                  Executive Officer
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the Registrant and in
        the
        capacities and on the dates indicated:
 
 Signature
              
              TitleChief
                  Executive Officer and DirectorRodney
                  M. Boucher
              
              Date:Chief
                  Financial OfficerRandall
                  R. Reed
              
              Date:President
                  and DirectorA.
                  Mark Walter
              
              Date:DirectorMichael
                  W. Stansell
              
              Date:DirectorGene
                  Ameduri
              
              Date:DirectorWilliam
                  C. McCormick
              
              Date:DirectorGary
                  D. Conley
              
              Date:
 97
 ***Index***
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
        March 15, 2007
 
 MICROFIELD
                  GROUP, INC.By:Rodney
                  M. BoucherChief
                  Executive Officer
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the Registrant and in
        the
        capacities and on the dates indicated:
 
 Signature
              
              Title/s/Rodney
                  M. Boucher
              
              Chief
                  Executive Officer and DirectorRodney
                  M. Boucher
              
              Date:/s/Randall
                  R. Reed
              
              Chief
                  Financial OfficerRandall
                  R. Reed
              
              Date:/s/A.
                  Mark Walter
              
              President
                  and DirectorA.
                  Mark Walter
              
              Date:/s/Michael
                  W. Stansell
              
              DirectorMichael
                  W. Stansell
              
              Date:/s/Gene
                  Ameduri
              
              DirectorGene
                  Ameduri
              
              Date:/s/William
                  C. McCormick
              
              DirectorWilliam
                  C. McCormick
              
              Date:/s/Gary
                  D. Conley
              
              DirectorGary
                  D. Conley
   98