UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 FORM
10-Q
  
 (Mark
One)
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended September 30, 2010
  or
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  Commission
File Number: 001-32661
  
 RASER
TECHNOLOGIES, INC.
 (Exact
name of registrant as specified in its charter)
  
  Delaware
                
                87-0638510(State
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      Employer
                  Identification
      No.)
 
 5152
      North Edgewood Drive, Suite 200, Provo, UT
                
                84604(Address
      of principal executive offices)
                
                (Zip
      Code)
  Registrant’s
telephone number, including area code: (801) 765-1200
  
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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   ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).    Yes   ̈    No   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large accelerated filer
                    
                     ̈
                    Accelerated
      filer
                    
                    xNon-accelerated
      filer
                    
                     ̈ (Do not
      check if a smaller reporting company)
                    Smaller reporting company
                    
                     ̈
  Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).    Yes   ̈    No  x
  The
number of shares outstanding of the registrant’s common stock as of
November 9, 2010 was 105,497,009 shares.
 
  
  Raser
Technologies, Inc.
 Form
10-Q for the Period Ended September 30, 2010
  Table
of Contents
  Page No.Part
      I. Financial Information
                  3Item 1.
      Financial Statements
                  3Condensed
      Consolidated Balance Sheets
                  3Condensed
      Consolidated Statements of Operations
                  4Condensed
      Consolidated Statements of Cash Flows
                  5Notes
      to Condensed Consolidated Financial Statements
                  6Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
                  20Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
                  35Item 4.
      Controls and Procedures
                  36Part
      II. Other Information
                  37Item 1.
      Legal Proceedings
                  37Item 1A.
      Risk Factors
                  37Item 5.
      Other Information
                  53Item 6.
      Exhibits
                  54SIGNATURES
                  55
  2
  PART
I. FINANCIAL INFORMATION
  Item 1.
              Financial
      Statements
  RASER
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Condensed
Consolidated Balance Sheets
 (Unaudited)
  September 30,
                                        2010
                                      
                                      
                                      December 31,
                                        2009AssetsCurrent
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      136,891
                                      
                                      
                                      $
                                      41,782Restricted
      cash
                                      
                                      
                                      2,198,653
                                      
                                      
                                      
                                      76,921Federal
      grant receivable
                                      
                                      
                                      —
                                      
                                      
                                      
                                      32,990,089Trade
      accounts and notes receivable, net
                                      
                                      
                                      620,622
                                      
                                      
                                      
                                      336,788Restricted
      short-term marketable securities (held to maturity)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      2,191,339Prepaid
      expenses and short-term deposits
                                      
                                      
                                      795,627
                                      
                                      
                                      
                                      1,050,590Total
      current assets
                                      
                                      
                                      3,751,793
                                      
                                      
                                      
                                      36,687,509Restricted
      cash
                                      
                                      
                                      75,337
                                      
                                      
                                      
                                      9,074,770Land
                                      
                                      
                                      1,811,063
                                      
                                      
                                      
                                      1,811,063Geothermal
      property, plant and equipment, net (held for sale)
                                      
                                      
                                      30,013,891
                                      
                                      
                                      
                                      80,433,597Power
      project leases and prepaid delay rentals
                                      
                                      
                                      6,807,459
                                      
                                      
                                      
                                      6,530,946Geothermal
      well field development-in-progress
                                      
                                      
                                      1,011,508
                                      
                                      
                                      
                                      885,586Power
      project construction-in-progress
                                      
                                      
                                      8,522,353
                                      
                                      
                                      
                                      8,278,500Equipment,
      net
                                      
                                      
                                      521,455
                                      
                                      
                                      
                                      606,421Intangible
      assets, net
                                      
                                      
                                      1,555,510
                                      
                                      
                                      
                                      1,552,425Deferred
      financing costs, net
                                      
                                      
                                      2,173,993
                                      
                                      
                                      
                                      6,928,593Other
      assets
                                      
                                      
                                      1,436,064
                                      
                                      
                                      
                                      1,402,752Total
      assets
                                      
                                      $
                                      57,680,426
                                      
                                      
                                      $
                                      154,192,162Liabilities
      and Stockholders’ Equity (Deficit)Current
      liabilities:Accounts
      payable and accrued liabilities
                                      
                                      $
                                      10,712,508
                                      
                                      
                                      $
                                      16,677,63215.00% senior
      secured note, net of discount of $— and $1,232,846,
      respectively
                                      
                                      
                                      20,750,000
                                      
                                      
                                      
                                      18,767,154Unsecured
      line of credit, net of discount of $— and $33,399,
      respectively
                                      
                                      
                                      5,225,416
                                      
                                      
                                      
                                      5,528,553Short-term
      portion of long-term notes
                                      
                                      
                                      2,197,726
                                      
                                      
                                      
                                      1,937,290Short-term
      7.00% senior secured note (non-recourse), net of discounts of $890,378 and
      $—, respectively
                                      
                                      
                                      9,037,714
                                      
                                      
                                      
                                      —Deferred
      revenue and credits
                                      
                                      
                                      297,524
                                      
                                      
                                      
                                      200,000Total
      current liabilities
                                      
                                      
                                      48,220,888
                                      
                                      
                                      
                                      43,110,629Asset
      retirement obligation
                                      
                                      
                                      3,012,449
                                      
                                      
                                      
                                      2,749,342Long-term
      7.00% senior secured note (non-recourse), net of discounts of $— and
      $4,469,481, respectively
                                      
                                      
                                      —
                                      
                                      
                                      
                                      24,772,966Long-term
      8.00% convertible senior notes
                                      
                                      
                                      55,000,000
                                      
                                      
                                      
                                      55,000,000Warrant
      liabilities
                                      
                                      
                                      1,031,368
                                      
                                      
                                      
                                      11,724,219Total
      liabilities
                                      
                                      
                                      107,264,705
                                      
                                      
                                      
                                      137,357,156Contingencies
      and commitments, (Notes A, B)Preferred
      stock, $.01 par value, 5,000,000 shares authorized;Series
      A-1 cumulative convertible preferred stock, 5,000 shares authorized,
      issued and outstanding; liquidation preference of
    $5,000,000
                                      
                                      
                                      5,000,000
                                      
                                      
                                      
                                      —Stockholders’
      equity (deficit):Common
      stock, $.01 par value, 250,000,000 shares authorized, 96,191,219 and
      79,266,927 shares issued and outstanding, respectively
                                      
                                      
                                      961,912
                                      
                                      
                                      
                                      792,669Additional
      paid in capital
                                      
                                      
                                      138,627,171
                                      
                                      
                                      
                                      125,757,611Accumulated
      deficit
                                      
                                      
                                      (194,173,362
                                      )
                                      
                                      
                                      (109,715,274
                                      )Total
      stockholders’ equity (deficit)
                                      
                                      
                                      (49,584,279
                                      )
                                      
                                      
                                      16,835,006Total
      liabilities and stockholders’ equity (deficit)
                                      
                                      $
                                      57,680,426
                                      
                                      
                                      $
                                      154,192,162
  See
accompanying notes to condensed consolidated financial
statements.
  3
 
 RASER
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Operations
 (Unaudited)
  Three months ended September 30,
                      
                      
                      Nine months ended September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Revenue
                      
                      $
                      1,030,350
                      
                      
                      $
                      845,265
                      
                      
                      $
                      3,059,272
                      
                      
                      $
                      1,252,506Cost
      of revenueDirect
      costs
                      
                      
                      1,333,763
                      
                      
                      
                      2,150,652
                      
                      
                      
                      4,013,460
                      
                      
                      
                      3,283,296Depreciation
      and amortization
                      
                      
                      26,203
                      
                      
                      
                      735,126
                      
                      
                      
                      1,251,084
                      
                      
                      
                      1,445,900Gross
      margin
                      
                      
                      (329,616
                      )
                      
                      
                      (2,040,513
                      )
                      
                      
                      (2,205,272
                      )
                      
                      
                      (3,476,690
                      )Operating
      expensesGeneral
      and administrative
                      
                      
                      1,662,096
                      
                      
                      
                      2,352,612
                      
                      
                      
                      6,253,402
                      
                      
                      
                      7,633,943Power
      project development
                      
                      
                      1,205,029
                      
                      
                      
                      1,245,849
                      
                      
                      
                      4,595,080
                      
                      
                      
                      6,509,230Research
      and development
                      
                      
                      895,800
                      
                      
                      
                      364,557
                      
                      
                      
                      1,500,037
                      
                      
                      
                      1,592,124Impairment
      of Thermo No. 1 plant
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      52,189,174
                      
                      
                      
                      —Total
      operating expenses
                      
                      
                      3,762,925
                      
                      
                      
                      3,963,018
                      
                      
                      
                      64,537,693
                      
                      
                      
                      15,735,297Operating
      loss
                      
                      
                      (4,092,541
                      )
                      
                      
                      (6,003,531
                      )
                      
                      
                      (66,742,965
                      )
                      
                      
                      (19,211,987
                      )Interest
      income
                      
                      
                      1,304
                      
                      
                      
                      33,538
                      
                      
                      
                      30,739
                      
                      
                      
                      122,342Interest
      expense
                      
                      
                      (9,827,917
                      )
                      
                      
                      (3,481,165
                      )
                      
                      
                      (15,299,481
                      )
                      
                      
                      (8,714,110
                      )Make-whole
      fee
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (7,031,703
                      )
                      
                      
                      —Gain
      on derivative instruments
                      
                      
                      2,739,517
                      
                      
                      
                      5,918,100
                      
                      
                      
                      8,472,298
                      
                      
                      
                      12,917,454Other
                      
                      
                      160,298
                      
                      
                      
                      —
                      
                      
                      
                      (84,233
                      )
                      
                      
                      (131,442
                      )Loss
      before income taxes
                      
                      
                      (11,019,339
                      )
                      
                      
                      (3,533,058
                      )
                      
                      
                      (80,655,345
                      )
                      
                      
                      (15,017,743
                      )Tax
      benefit (expense)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Net
      loss
                      
                      $
                      (11,019,339
                      )
                      
                      $
                      (3,533,058
                      )
                      
                      $
                      (80,655,345
                      )
                      
                      $
                      (15,017,743
                      )Preferred
      dividend
                      
                      
                      (107,852
                      )
                      
                      
                      —
                      
                      
                      
                      (277,952
                      )
                      
                      
                      —Deemed
      dividend – accretion of discount of Series A-1 cumulative convertible
      preferred stock
                      
                      
                      (563,966
                      )
                      
                      
                      —
                      
                      
                      
                      (3,524,790
                      )
                      
                      
                      —Non-controlling
      interest in the Thermo No. 1 subsidiary
                      
                      
                      —
                      
                      
                      
                      (248,513
                      )
                      
                      
                      —
                      
                      
                      
                      806,458Net
      loss applicable to common stockholders
                      
                      $
                      (11,691,157
                      )
                      
                      $
                      (3,781,571
                      )
                      
                      $
                      (84,458,087
                      )
                      
                      $
                      (14,211,285
                      )Loss
      per common share-basic and diluted
                      
                      $
                      (0.13
                      )
                      
                      $
                      (0.05
                      )
                      
                      $
                      (0.97
                      )
                      
                      $
                      (0.21
                      )Weighted
      average common shares-basic and diluted
                      
                      
                      92,858,000
                      
                      
                      
                      74,881,000
                      
                      
                      
                      86,977,000
                      
                      
                      
                      68,321,000
  See
accompanying notes to condensed consolidated financial
statements
  4
  RASER
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
 
 Nine Months Ended
                            September 30,2010
                          
                          
                          2009Cash
      flows from operating activities:Net
      loss
                          
                          $
                          (80,655,345
                          )
                          
                          $
                          (15,017,744
                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation,
      amortization and accretion expense
                          
                          
                          1,629,036
                          
                          
                          
                          1,849,449Deferred
      financing costs amortization
                          
                          
                          9,692,442
                          
                          
                          
                          4,933,692Preferred
      warrants issuance costs
                          
                          
                          607,300
                          
                          
                          
                          —Impairment
      of Thermo No. 1 plant
                          
                          
                          52,189,174
                          
                          
                          
                          —Gain
      on derivative instrument
                          
                          
                          (8,472,298
                          )
                          
                          
                          (12,917,454
                          )Common
      stock, stock options and warrants issued for services
                          
                          
                          1,727,432
                          
                          
                          
                          3,070,171Other
                          
                          
                          86,858
                          
                          
                          
                          219,241Increase
      in accounts receivable
                          
                          
                          (283,833
                          )
                          
                          
                          (274,871
                          )(Increase)
      decrease in other assets
                          
                          
                          56,428
                          
                          
                          
                          (313,487
                          )Increase
      (decrease) in accounts payable and accrued liabilities
                          
                          
                          1,250,957
                          
                          
                          
                          (543,730
                          )Increase
      in deferred revenue
                          
                          
                          33,657
                          
                          
                          
                          —Increase
      in restricted cash
                          
                          
                          (2,121,444
                          )
                          
                          
                          —Net
      cash used in operating activities
                          
                          
                          (24,259,636
                          )
                          
                          
                          (18,994,733
                          )Cash
      flows from investing activities:Proceeds
      from securities held to maturity
                          
                          
                          2,200,000
                          
                          
                          
                          2,200,000Proceeds
      from federal grant
                          
                          
                          32,990,089
                          
                          
                          
                          —Decrease
      in deposits
                          
                          
                          142,812
                          
                          
                          
                          1,136,073Decrease
      in restricted cash
                          
                          
                          8,999,145
                          
                          
                          
                          8,511,308Well
      field development costs
                          
                          
                          (3,406,580
                          )
                          
                          
                          (13,521,883
                          )Construction
      costs
                          
                          
                          (4,385,891
                          )
                          
                          
                          (17,165,368
                          )Power
      project lease acquisitions
                          
                          
                          (167,749
                          )
                          
                          
                          (82,000
                          )Power
      project equipment deposits
                          
                          
                          —
                          
                          
                          
                          7,056,375Other
      investing activities
                          
                          
                          (202,587
                          )
                          
                          
                          (433,863
                          )Net
      cash provided by (used in) investing activities
                          
                          
                          36,169,239
                          
                          
                          
                          (12,299,358
                          )Cash
      flows from financing activities:Proceeds
      from sale of Series A-1 cumulative convertible preferred stock and
      preferred warrants
                          
                          
                          4,619,437
                          
                          
                          
                          —Principal
      payments of 7.00% senior secured notes (non-recourse)
                          
                          
                          (20,295,529
                          )
                          
                          
                          (471,109
                          )Incurrence
      of deferred financing fees
                          
                          
                          (92,597
                          )
                          
                          
                          (320
                          )Proceeds
      from 10.0% line of credit
                          
                          
                          125,000
                          
                          
                          
                          13,373,000Principal
      payment of the 10.0% line of credit
                          
                          
                          (278,718
                          )
                          
                          
                          (2,900,000
                          )Proceeds
      from at-the-market transactions
                          
                          
                          1,526,223
                          
                          
                          
                          23,575,332Proceeds
      from registered direct offerings
                          
                          
                          2,581,690
                          
                          
                          
                          —Net
      cash provided by (used in) financing activities
                          
                          
                          (11,814,494
                          )
                          
                          
                          33,576,903Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          95,109
                          
                          
                          
                          2,282,812Cash
      and cash equivalents at beginning of period
                          
                          
                          41,782
                          
                          
                          
                          1,534,820Cash
      and cash equivalents at end of period
                          
                          $
                          136,891
                          
                          
                          $
                          3,817,632
  See
accompanying notes to condensed consolidated financial
statements.
  5




RASER
TECHNOLOGIES, INC. AND SUBSIDIARIES
  Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
  A.
Basis of Presentation




The
interim consolidated financial statements include the accounts of Raser
Technologies, Inc. and its subsidiaries. Unless the context requires otherwise,
“Raser,” the “Company,” “we,” “our” or “us” refer to Raser Technologies, Inc.
and its subsidiaries.
  The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of
1934, as amended. Accordingly, they do not include all of the information and
notes required by GAAP for complete financial statements. The accompanying
condensed consolidated balance sheet as of December 31, 2009 has been
derived from audited financial statements at that date but does not include all
of the information and notes required by GAAP for complete financial statements.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with GAAP have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). These condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments) that,
in the opinion of our management, are necessary to present fairly the results of
our operations for the periods presented. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in our Form 10-K for the year ended
December 31, 2009. The results of operations for the nine months ended
September 30, 2010 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2010 or any other
period.
  Certain
reclassifications have been made in the prior year’s condensed consolidated
financial statements to conform to the current year presentation, which has no
impact on the net loss for any period presented.
  Overview
  We are an
environmental energy technology company focused on geothermal power development
and technology licensing. We operate two business segments: Power Systems and
Transportation & Industrial. Our Power Systems segment develops
geothermal electric power plants and is exploring opportunities to partner with
developers to take advantage of potential solar and wind resources at some of
our geothermal project sites. Our Transportation & Industrial segment
focuses on using our SymetronTM family of technologies to improve the efficiency
of electric motors, generators and power electronic drives used in electric and
hybrid electric vehicle propulsion systems. Through these two business segments,
we are employing a business strategy to produce a positive impact on the
environment and economically beneficial results for our
stockholders.
  Liquidity
  The
accompanying condensed consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. We
have incurred substantial losses since inception, and we are not operating at
cash breakeven. Our ability to secure liquidity in the form of additional
financing or otherwise remains crucial for the execution of our business plan
and our ability to continue as a going concern. Our current cash balance,
together with cash anticipated to be provided by operations, will not be
sufficient to satisfy our anticipated cash requirements for normal operations,
accounts payable, interest expense and capital expenditures for the foreseeable
future. Obligations that may exert further pressure on our liquidity situation
include (i) the obligation to repay the remaining amounts borrowed under
our Unsecured Line of Credit Agreement and Promissory Note (“Promissory Note”);
(ii) the obligation to pay interest on our outstanding convertible notes;
(iii) any amounts we may be obligated to pay Pratt & Whitney Power
Systems (“PWPS”) for the turbines installed at the Thermo No. 1 plant;
(iv) the obligation to pay Merrill Lynch a redemption amount of $20.0
million plus accrued interest on or before June 30, 2011; (v) the
obligation to pay up to $6.25 million to Prudential pursuant to a Forbearance
Agreement, as amended, which is described below; (vi) the obligation to pay any
outstanding amounts under the Evergreen Secured Promissory Note described below;
and (vii) the potential obligation to repay the remaining amounts borrowed under
the Lightning Dock Secured Promissory Note if it is not credited toward
Evergreen-FE’s equity investment in Lightning Dock. On October 13, 2010,
approximately $2.5 million of the amount outstanding on the Promissory Note was
exchanged for equity thereby reducing the total amount outstanding on the
Promissory Note to $2.8 million.  Additionally, the maturity of the
Promissory Note was extended from October 31, 2010 to June 30,
2011.
  The
amount and timing of our future capital needs will depend on many factors,
including the timing of our development efforts, opportunities for strategic
transactions, and the amount and timing of any cash flows we are able to
generate. We cannot be certain that funding will be available to us on
reasonable terms or at all. In addition, there can be no assurance that we will
be able to obtain additional financing, reduce expenses or successfully complete
other steps to continue as a going concern. If we are unable to obtain
sufficient funds to satisfy our future cash requirements, we may be forced to
curtail or cease operations, dispose of assets or seek extended payment terms
from our vendors. Such events would materially and adversely affect our
financial position and results of operations.
  6
  Significant
Accounting Policies
  Preferred
Stock
  On
February 3, 2010, we completed an offering of 5,000 shares of Series A-1
Cumulative Convertible Preferred Stock (the “Preferred Stock”). The initial
carrying amount of the Preferred Stock issued in February 2010 was at the fair
value on the date of issuance, net of closing costs and our issuance costs. As
part of the Preferred Stock offering, we issued warrants to purchase up to
14,000 additional shares of the Preferred Stock (the “Preferred Warrants”). The
Preferred Warrants have an exercise price of $1,000 per share. The consideration
for the February 2010 sale of the Preferred Stock included a forgiveness of
liquidated damages totaling $1.0 million associated with delays in registering
the resale of certain shares of common stock previously issued to the purchaser
of the Preferred Stock. The Preferred Stock cannot be converted, redeemed or
exercised into more than 9.90% of the beneficial ownership of the holder
immediately after such conversion, redemption or exercise (the “Maximum Number”)
unless the Preferred Stock holder provides us with written notice of its desire
to increase the Maximum Number. Upon receipt of the written notice, the Maximum
Number would be increased sixty-five days after we receive such notice. The
Preferred Stock is subject to conditional redemption features at the sole
discretion of the holder resulting in classification as temporary equity until
converted or redeemed. The portion of the issuance costs related to the
Preferred Stock was netted against the proceeds received. The fair value of the
Preferred Stock is accreted through retained earnings to the stated value over
the period from the date of issuance to the earliest redemption
date.
  The
Preferred Stock provides for the payment of a stock dividend on a quarterly
basis. The stock dividend is recorded as a decrease to retained earnings at fair
value of the stock issued at the time of the dividend with the corresponding
increase in additional paid in capital.
  USTDA
Grant
  One of
our geothermal interests consists of a geothermal concession in Indonesia. We
and Indonesia Power submitted a joint application for a U.S. Trade and
Development Agency (“USTDA”) grant for an exploration program on the land
subject to the concession, and on March 29, 2010, we received notice from
the USTDA that we had received a grant of up to $934,000. In April 2010, we
signed an agreement with Indonesia Power to be the sole source contractor for
the exploration program and began conducting exploration activities. Under the
grant, USTDA will reimburse us up to $934,000 which is 70% of the overall
estimated costs of $1,343,000 to be incurred for the exploration program.
Accordingly, 30%, or $409,000, of the overall costs required as part of the cost
matching provision will not be reimbursed. Any costs incurred in excess of
$1,343,000 will also not be reimbursed. Since the purpose of the USTDA grant is
to reimburse us for current exploration (research and development) related
expenditures, we will recognize the amount reimbursable to us as a reduction of
current or future related expenses, in the period when the related qualifying
expense is recognized. As of September 30, 2010, we had incurred approximately
$0.1 million of expenses in connection with the USTDA grant and received the
first payment of $0.2 million.
  Restricted
Cash
  In August
2008, we entered into certain financing arrangements for our Thermo No. 1 plant
(the “Thermo Financing Agreements”). In July 2010, The Thermo Financing
Agreements were amended by an Amendment, Consent and Forbearance Agreement (the
“Forbearance Agreement”) executed by The Prudential Insurance Company of America
and Zurich American Insurance Company (the “Thermo Lenders”), Deutsche Bank
Trust Company Americas, as Administrative Agent, and us.  Pursuant to the
Forbearance Agreement, the restrictive nature of the Thermo No. 1 restricted
cash accounts changed from being restricted for the purposes of drilling and
constructing the plant to being restricted for the purposes of paying for plant
operations.  In addition, $27.0 million out of the Thermo No. 1 escrow
account was paid to the holders of our 7.0% senior secured note.  The
amount includes a principal reduction of $20.0 million of our debt and a
make-whole fee for non-performance of $7.0 million.  Accordingly, our
restricted cash relating to the Thermo No. 1 plant operation is classified as a
short-term asset as of September 30, 2010.
  Concentration
of Credit Risk
  Our
current revenues consist entirely of payments from the City of Anaheim for power
generated by our Thermo No. 1 plant in accordance with our power purchase
agreement with the City of Anaheim. Due to the fact that we currently have a
single customer, our ability to realize accounts receivable from power sales are
dependent on the continued ability of the City of Anaheim to make timely
payments.
  7
  New
Accounting Pronouncements
  In
January 2010, the Financial Accounting Standards Board (“FASB”) issued updated
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and Level 2 of
the fair value hierarchy (including the reasons for these transfers) and the
reasons for any transfers in or out of Level 3. This update also requires a
reconciliation of recurring Level 3 measurements about purchases, sales,
issuances and settlements on a gross basis. In addition to these new disclosure
requirements, this update clarifies certain existing disclosure requirements.
For example, this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities rather than each major category of assets and liabilities. This
update also clarifies the requirement for entities to disclose information about
both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair
value measurements. This update will become effective with the interim and
annual reporting period beginning January 1, 2010, except for the
requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will become effective with the interim and
annual reporting period beginning January 1, 2011. We will not be required
to provide the amended disclosures for any previous periods presented for
comparative purposes. Although we will be required to provide additional
disclosures, adoption of this update will not have a material effect on our
consolidated financial statements.
  In
April 2010, the FASB issued updated guidance that sets forth the criteria
that should be met for determining whether the milestone method of revenue
recognition is appropriate for research and development arrangements.
Specifically, consideration that is contingent upon the completion of a
milestone may be recognized in its entirety as revenue in the period that
milestone has been achieved if the milestone, in its entirety, meets all of the
criteria to be considered substantive at the inception of an arrangement. This
guidance is effective prospectively for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010 and
applies to research or development deliverables under which the performance
obligation is satisfied over a period of time and a portion, or all, of the
consideration is contingent upon uncertain future events or circumstances. A
reporting entity’s decision to use the milestone method of revenue recognition
is a policy election. Since we do not currently have contracts that would
qualify for the election of the milestone method, the adoption of this guidance
will not have a material effect on our consolidated financial
statements.
  In August
2010, the FASB issued updated guidance that amends various SEC paragraphs
pursuant to the issuance of Release No.  33-9026; Technical Amendments
to Rules, Forms, Schedules and Codifications of Financial Reporting
Policies.  Management believes that the adoption of this guidance does not
have a material effect on our consolidated financial statements.
  B.
Contingencies and Commitments
  Guarantees
  We have a
variety of obligations under the financing arrangements for our Thermo No. 1
plant (the “Thermo Financing Agreements”). The Thermo Financing Agreements have
been amended a number of times. On July 9, 2010, the Thermo Financing Agreements
were amended by the Forbearance Agreement executed by the Thermo Lenders,
Deutsche Bank Trust Company Americas, as Administrative Agent, and us.. In
connection with the Forbearance Agreement, on July 9, 2010, we entered into a
Second Amendment to Account and Security Agreement with Deutsche Bank Trust
Company Americas (the “Second Amendment to the Security Agreement”), and
together with the Forbearance Agreement and the Second Amendment to the Security
Agreement, the “Amendments”).
  Pursuant
to the Amendments, the Thermo Lenders received an immediate payment of $27.0
million out of the Thermo No. 1 escrow account and waived compliance with
certain debt-related covenants and obligations for the next year. This amount
includes a principal reduction of $20.0 million of our debt and a make-whole fee
for non-performance of $7.0 million. The outstanding balance of our 7.0% senior
secured note (non-recourse) continues to be secured by essentially all of the
assets in our Thermo No. 1 subsidiary including our Thermo No. 1 plant.
 The total carrying value of the collateralized assets at September 30,
2010 was approximately $35 million.
  After
providing for this payment to the Thermo Lenders, approximately $3.0 million in
the Thermo No. 1 plant escrow account remained in escrow to be used for the
operation of the Thermo No. 1 plant and other related expenses. Pursuant to the
First Amendment to the Forbearance Agreement, $1.1 million of the Thermo No. 1
plant escrow funds were released to us.  The Thermo Lenders are entitled to
receive an additional payment of up to $6.25 million plus the expenses of the
administrative lender and agents (the “Additional Payment”) for full
satisfaction of all amounts owed to them on or before February 1,
2011.
  The
Amendments contemplate that we will satisfy the Additional Payment using
proceeds from the sale of all or part of our interest in the Thermo No. 1 plant,
but the Amendments permit us to satisfy the Additional Payment by using cash
from other sources, if available. If the sale includes all of our interests in
the Thermo No. 1 plant, the Thermo Lenders are entitled to receive 50% of the
proceeds of such a sale up to a maximum of $6.25 million plus the expenses of
the administrative lender and agents. If the sale includes only a portion of our
interests in Thermo No. 1, we are obligated to pay the Thermo Lenders $6.25
million plus the expenses of the administrative lender and
agents.
  8
  If the
Additional Payment is not paid prior to February 1, 2011, then the Thermo No. 1
project would be obligated for the full payment of the original principal amount
of $9.8 million, plus accrued interest at a rate of 7% per annum. Although this
deficiency would be an obligation of our Thermo No. 1 subsidiary, the Thermo
Lenders could potentially bring a claim under the Guaranty Agreement or EPC
Agreement against us as described below. As a result of the payments to the
Thermo Lenders in accordance with the Forbearance Agreement, the funds in the
project escrow accounts were insufficient to pay any amounts to Merrill Lynch.
Therefore, we became obligated to pay $20.0 million owed to Merrill Lynch to
settle the prior redemption of its interest in the Thermo No. 1 subsidiary on or
before June 30, 2011 and, we recorded the related liability accordingly. The
liability is currently classified as short-term debt on our September 30, 2010
balance sheets.
  The
Thermo Financing Agreements also include an engineering, procurement and
construction agreement (the “EPC Agreement”) with Thermo No. 1 BE-01, LLC
(“Thermo Subsidiary”). Pursuant to the EPC Agreement, we agreed to oversee the
engineering, procurement and construction of the Thermo No. 1 plant. In
addition, we guaranteed the completion of the plant construction and the payment
of all services performed by the subcontractors. All intercompany transactions
related to the EPC Agreement are eliminated in consolidation of the financial
statements. As part of the Forbearance Agreement and assuming an additional
Credit Agreement Default or Credit Agreement Event of Default (each as defined
in the Thermo Financing Agreements) does not occur or any party does not take
action against Thermo No. 1, we do not have any further liabilities as a result
of our failure to achieve Final Completion as long as we make the Additional
Payment to the Thermo Lenders on or before February 1, 2011. We have essentially
completed our construction phase at the Thermo No. 1 project. However, we may
continue to make improvements to the Thermo No. 1 plant in the future to improve
its output.
  The
Thermo Financing Agreements include a guaranty (the “Guaranty Agreement”). Under
the Guaranty Agreement, we guaranteed the full payment of any drilling costs in
excess of the original drilling account escrow of $5.7 million that may be
required to achieve Final Completion (as defined in the Thermo Financing
Agreements, as amended) by July 9, 2010.  Through September 30, 2010, we
had contributed an additional $16.4 million to the drilling account escrow for
completion of the well field. The drilling costs are accrued and capitalized in
the period in which they are incurred.
  In
addition to the Thermo Financing Agreements, we entered into an agreement with
PWPS relating to the generating units purchased and installed at the Thermo No.
1 plant (the “PWPS Agreement”). Pursuant to the PWPS Agreement, we retained
approximately $4.3 million of the purchase price of the generating units pending
the successful completion of the Thermo No. 1 plant. We are allowed to keep the
retained portion of the purchase price as a liquidated damages payment if
certain performance conditions related to the generating units are not met. As
of September 30, 2010, the Thermo No. 1 plant was generating below targeted
levels and had not achieved successful completion. As a result, we believe we
may be entitled to keep the retained portion of the purchase price as liquidated
damages. However, PWPS disputes our claim to the retained portion of the
purchase price. Our ability to keep any portion of the retained amount will
depend upon the resolution of the dispute with PWPS. The PWPS Agreement also
provides for the payment by us to PWPS of liquidated damages if the Thermo No. 1
plant is not successfully completed as a result of any reason not related to the
generating units. To secure this potential obligation, we provided a security
interest to PWPS in five patents relating to our Transportation and Industrial
segment. We believe that any action by PWPS would be without merit and would be
vigorously contested. Accordingly, we estimate the maximum potential obligation
and the related fair value of the obligation to be immaterial at this time.
Accordingly, we had not recorded a liability relating to this potential
obligation at September 30, 2010. We also entered into a service and maintenance
agreement with PWPS to provide maintenance services for the generating units at
the Thermo No. 1 plant.  As of September 30, 2010, the annual commitments
through 2013 when the agreement may be terminated by us without penalty are
approximately $0.2 million in 2010; $0.9 million in 2011; $1.0 million in 2012;
and $1.0 million in 2013.
  We,
through our subsidiaries, have entered into four wheeling transmission
agreements in Utah, New Mexico, and Nevada.  The terms of the agreements
are from between five to twenty years.  Under the agreements, the start
dates are deferrable annually for up to five years or until the later of the
service acceptance date or completion of required upgrades by us, if any.
 As of September 30, 2010, we were obligated to pay $0.1 million in 2010;
$1.0 million in 2011; $1.2 million in 2012; $1.2 million in 2013; $1.2 million
in 2014 and $10.9 million thereafter through 2030.  The wheeling costs are
generally reimbursable under power purchase agreements or can be sold to third
parties at negotiated prices.  Currently, our City of Anaheim and Salt
River Project power purchase agreements contain provisions that fully reimburse
the wheeling costs.  Of the wheeling transmission commitments above, the
amount of wheeling costs that will be reimbursed under our power purchase
agreements approximate $0.1 million in 2010; $0.7 million in 2011; $0.7 million
in 2012; $0.7 million in 2013; $0.7 million in 2014 and $3.7 million thereafter
through 2030.  To the extent we have transmission service rights in excess
of our current project needs, we intend to resell all or a portion of our
wheeling transmission capacity to third parties for the remaining commitments to
minimize the impact of the overall commitment. Since these wheeling agreements
are held in our special purpose subsidiaries and not guaranteed by the parent,
we believe that should we fail to pay the commitments, there would be no
recourse to the parent company.
  9
  We have
purchase options with certain landowners in New Mexico to exercise at our sole
discretion, the right to acquire approximately 968 acres of water rights
totaling $0.7 million. The water rights purchase options may be terminated by us
at any time without penalty and expire on December 31, 2010.
  On
October 1, 2010, we entered into a letter agreement (the "Evergreen-FELetter
Agreement") with Evergreen-FE Lightning Dock, LLC ("Evergreen-FE"), and our
wholly owned subsidiaries Los Lobos Renewable Power, LLC, Raser Power Systems
LLC and Lightning Dock Geothermal HI-01, LLC ("Lightning Dock"). In connection
with the Evergreen-FE Letter Agreement, Evergreen-FE committed to loan certain
funds to Lightning Dock pursuant to a secured promissory note, dated October 1,
2010, between Lightning Dock and Evergreen-FE (the "Lightning Dock Secured
Promissory Note"). Lightning Dock's obligations under the Lightning Dock Secured
Promissory Note are secured by certain collateral of Lightning Dock pursuant to
a security agreement, dated as of October 1, 2010, between Lightning Dock and
Evergreen-FE (the "Lightning Dock Security Agreement").
  It is
anticipated that Lightning Dock will receive short-term loans for up to an
aggregate of approximately $2.0 million from Evergreen-FE to allow Lightning
Dock to continue the initial development of the Lightning Dock geothermal power
project. While these resource development efforts continue, we, Lightning Dock
and Evergreen-FE intend to negotiate the substantive terms of a proposed equity
investment of approximately $15.3 million by Evergreen-FE in Lightning Dock (the
"Proposed Equity Investment"). The Proposed Equity Investment would represent an
initial 51% interest in Lightning Dock (converting into a 50% interest at
completion), and such funds would be used to finance a portion of the
development and operation of the Lightning Dock geothermal power
project.
  The terms
of the Lightning Dock Secured Promissory Note state that interest accrues at a
rate of 0.25% per month on any amounts that are loaned to Lightning Dock prior
to the Lightning Dock Secured Promissory Note's maturity date of November 30,
2010 (the "Maturity Date"). After the Maturity Date, interest accrues on any
amounts that remain outstanding at a rate of 0.83% per month.
  The terms
of the Evergreen-FE Letter Agreement state that if the parties are able to
negotiate and finalize definitive agreements relating to Evergreen-FE's proposed
equity investment in Lightning Dock, any amounts loaned to Lightning Dock by
Evergreen-FE would be credited toward the purchase price for the Proposed Equity
Investment. Although we intend to work closely with Evergreen-FE to finalize
definitive agreements, under the Evergreen-FE Letter Agreement, Evergreen-FE is
not be obligated to make the Proposed Equity Investment until the parties
execute definitive agreements. Furthermore, even if definitive agreements are
executed, Evergreen-FE's obligations to fund its investment may be subject to
the satisfaction of certain conditions, which could include commitments for debt
financing, additional due diligence or other conditions beyond our
control.
  C.
Property, Plant and Equipment
  We
periodically review our long-lived assets, including our well field drilling
costs, geothermal power plant and transmission line construction costs,
equipment and intangible assets for impairment when events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. We evaluate, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment.
  Although
we placed the Thermo No. 1 plant in service in the first quarter of 2009 for
accounting purposes, we were unable to operate the plant at designed capacity
due primarily to mechanical deficiencies of the power generating units, lower
than anticipated well field temperature and flow from certain wells and other
inefficiencies which occurred as a result of overall design of the plant.
Accordingly, we initiated several actions to improve the electrical output of
the plant and the resource. These efforts included reworking certain production
wells, the installation of bottom cycling operations and the replacement of
recirculation pumps on each of the generating units with more efficient pumps.
These efforts culminated in June 2010, at which time we evaluated the actual
impact of these initiatives and the resulting overall performance of the plant.
The results of this evaluation indicate that plant performance may improve from
the current output level of approximately 6.6 megawatts, but most likely will
not achieve originally designed electrical output levels. After evaluating the
performance of the plant, we determined an evaluation of possible impairment of
the Thermo No. 1 plant as of June 30, 2010 was warranted. Accordingly, we
recognized an impairment of the Thermo No. 1 plant and expensed $52.2 million of
capitalized costs during the second quarter of 2010 resulting in the new basis
of $30.1 million in the Thermo No. 1 plant.
  On July
9, 2010 in conjunction with the execution of the Forbearance Agreement our Board
of Directors authorized the solicitation of the sale of Thermo No. 1, or an
interest therein.  We have engaged an investment bank to assist in the sale
of Thermo No. 1 and the solicitation process is currently ongoing. Accordingly
we have reclassified the Thermo No. 1 plant to asset held for sale.  As a
result we have ceased recording depreciation expense of approximately $0.2
million per quarter until the plant is sold or reclassified as held for
operations.  Had we recorded the depreciation expense relating to the
Thermo No. 1 plant during the third quarter of 2010, the loss per common share
computation for the third quarter of 2010 would not have changed.  The
impact of not recording depreciation expense relating to the Thermo No. 1 plant
on future earnings would be estimated to potentially decrease the loss per
common share by up to $0.01 per share for the year ended December 31, 2010.
 We anticipate concluding this process in the first quarter of
2011.
  10
  The table
below sets forth the capitalized costs relating to our property, plant and
equipment, after reducing the costs for the impairment of the Thermo No. 1 plant
as of September 30, 2010 and reducing the costs for the amount of the
federal grant received as of December 31 2009, respectively:
  September 30,
                      2010
                    
                    
                    December 31,
                      2009Thermo
      No. 1 Plant:Power
      project lease acquisitions
                    
                    $
                    919,791
                    
                    
                    $
                    2,514,581Well
      field drilling costs
                    
                    
                    11,673,140
                    
                    
                    
                    31,813,747Power
      plant
                    
                    
                    16,773,036
                    
                    
                    
                    43,046,062Transmission
      equipment
                    
                    
                    1,933,512
                    
                    
                    
                    5,301,379Accumulated
      depreciation
                    
                    
                    (1,285,588
                    )
                    
                    
                    (2,242,172
                    )Geothermal
      property, plant and equipment, net
                    
                    $
                    30,013,891
                    
                    
                    $
                    80,433,597
  D.
Deferred Financing Fees
  On July
9, 2010, we entered into the Forbearance Agreement with the Thermo Lenders.
 Pursuant to the Forbearance Agreement, the Thermo Lenders received an
immediate payment of $27.0 million representing a principal reduction of $20.0
million or 67% of our outstanding principal balance. Accordingly, the
unamortized deferred finance fees associated with the issuance of the 7.00%
senior secured note on July 9, 2010 were expensed proportionately resulting in a
decrease in net deferred financing fees and the original loan discount totaling
$6.1 million.
  E.
Equity
  Third
Quarter 2010 Registered Direct Offerings
  In July
2010, we sold 1,670,378 shares of our common stock to War Chest Capital Partners
and Iroquois Master Fund, LTD. in a registered direct offering for $750,000. The
net offering proceeds to us from the sale of our common stock, after deducting
estimated offering expenses payable by us, were approximately
$740,000.
  In
September 2010, in a separate registered direct offering, we sold an additional
2,777,776 shares of our common stock to War Chest Capital Partners, Iroquois
Master Fund, LTD. and Capital Ventures International for $750,000. The net
offering proceeds to us from the sale of our common stock, after deducting
estimated offering expenses payable by us, were approximately
$740,000.
  Employee
and Director Option Grants, Share Grants and Deferred Stock Unit
Grants
  During
the three months ended September 30, 2010, no shares of our common stock or
options to purchase shares of our common stock were granted to our employees or
directors.  During the three months ended September 30, 2010,
employees forfeited options to purchase 209,044 shares of our common stock and
36,525 options to purchase shares of our common stock expired. During the three
months ended September 30, 2010, no shares of our common stock were issued
as a result of option or warrant exercises by our employees or
directors.
  F.
Net Loss per Common Share
  The
following table sets forth the number of shares that would be outstanding if the
outstanding securities convertible into common stock were converted into common
stock, whether the convertible securities were “in the money” or “out of the
money” based upon the closing market price on September 30,
2010:
   “In the Money”
                    
                    
                    “Out of the Money”Warrants
      granted
                    
                    
                    —
                    
                    
                    
                    9,384,877Vested
      employee options
                    
                    
                    —
                    
                    
                    
                    2,368,714Unvested
      employee options
                    
                    
                    —
                    
                    
                    
                    2,134,195Vested
      contractor options
                    
                    
                    —
                    
                    
                    
                    95,000Unvested
      contractor options
                    
                    
                    —
                    
                    
                    
                    85,000Convertible
      notes - maximum number of shares that can be converted
                    
                    
                    —
                    
                    
                    
                    5,960,121Convertible
      preferred shares - maximum number of shares that can be
      redeemed
                    
                    
                    —
                    
                    
                    
                    4,877,108Preferred
      warrants - maximum number of shares that can be converted
                    
                    
                    —
                    
                    
                    
                    2,800,000
  11
  The
following table sets forth the number of shares that would be outstanding if
outstanding securities convertible into common stock were converted into common
stock, whether the convertible securities were “in the money” or “out of the
money” based upon the closing market price on September 30,
2009:
  “In the Money”
                    
                    
                    “Out of the Money”Warrants
      granted
                    
                    
                    —
                    
                    
                    
                    16,955,696Vested
      employee options
                    
                    
                    —
                    
                    
                    
                    2,078,673Unvested
      employee options
                    
                    
                    —
                    
                    
                    
                    570,010Vested
      contractor options
                    
                    
                    —
                    
                    
                    
                    85,000Unvested
      contractor options
                    
                    
                    —
                    
                    
                    
                    95,000Convertible
      notes maximum number of shares that can be converted
                    
                    
                    —
                    
                    
                    
                    5,960,121
  The
first redemption date for the Preferred Stock was July 28, 2010.  Pursuant
to certain equity financings completed during the third quarter of 2010, the
redemption price was adjusted from $1.2277 per share to $1.0231 per share.
 Accordingly, the maximum number of shares of common stock that may be
redeemed by the holder at September 30, 2010 was also adjusted to 4,877,108.
 Unvested stock grants totaling 745,800 and 130,000 were outstanding on
September 30, 2010 and 2009, respectively. The warrants and options above
were not included in the calculation of diluted net loss per share because their
effect was anti-dilutive.  The Preferred Stock and the Preferred Warrants
contain provisions whereby the holders of the Preferred Stock and the Preferred
Warrants may participate in dividends that we pay to the holders of our common
stock. Accordingly, the Preferred Stock and the Preferred Warrants meet the
definition of participating securities. We determined that, under the two-class
method, the effect of the participating securities on the net loss per share
computation was also anti-dilutive.
  12
  G.
Fair Value Measurements
  The
Accounting Standards Codification provides guidance regarding fair value
measurements, establishes a common definition for fair value to be applied to
guidance requiring use of fair value, establishes a framework for measuring fair
value, and expands disclosure about such fair value measurements. The guidance
does not require any new fair value measurements, but rather applies to all
other accounting guidance that requires or permits fair value
measurements.
  The
guidance utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The
following is a brief description of those three levels:
  •
              Level
      1, defined as observable inputs such as quoted prices for identical
      instruments in active markets;
  •
              Level
      2, defined as inputs other than quoted prices in active markets that are
      either directly or indirectly observable such as quoted prices for similar
      instruments in active markets or quoted prices for identical or similar
      instruments in markets that are not active;
and
  •
              Level
      3, defined as unobservable inputs in which little or no market data
      exists, therefore requiring an entity to develop its own assumptions, such
      as valuations derived from valuation techniques in which one or more
      significant inputs or significant value drivers are
      unobservable.
  The
following table represents the fair value hierarchy for assets and liabilities
measured at fair value on a recurring basis at their entirety based upon their
lowest level of input that is significant to the fair value measurement at
September 30, 2010:
  Level
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3
                      
                      
                      TotalCash
      and cash equivalents
                      
                      $
                      136,891
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      136,891Restricted
      cash
                      
                      
                      2,196,782
                      
                      
                      
                      77,208
                      
                      
                      
                      —
                      
                      
                      
                      2,273,990Total
      assets
                      
                      $
                      2,333,673
                      
                      
                      $
                      77,208
                      
                      
                      $
                      —
                      
                      
                      $
                      2,410,881Merrill
      Lynch 2008 Contingent Warrants
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      44,368
                      
                      
                      $
                      44,368Preferred
      Warrants
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      987,000
                      
                      
                      
                      987,000Total
      liabilities
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      1,031,368
                      
                      
                      $
                      1,031,368
  Cash and
cash equivalents and restricted cash measured using Level 1 inputs consist
primarily of money market accounts that are traded on active exchange markets.
Valuations are obtained from readily available pricing sources for market
transactions involving identical instruments.
  Restricted
cash measured using Level 2 inputs consist of certificates of deposit.
Valuations are generally obtained from third party pricing services or
comparable instruments (and validated through back testing to trade data or
confirmation that the pricing service’s significant inputs are observable) or
determined through use of valuation methodologies using observable market inputs
such as market interest rates.
  Warrants
  Certain
of our warrants contain anti-dilution features that protect the holders from a
decline in the stock price (“down round” provisions). As a result, the following
warrants were not indexed to our common stock and are recorded as derivative
liabilities:
  •
              Contingent
      Warrants issued to Merrill Lynch, exercisable for 1,350,000 shares of our
      common stock, that expire January 16,
2015.
  •
              The
      Preferred Warrants that are exercisable from time to time in full or in
      part in two tranches of up to 7,000 shares of the Preferred Stock for each
      tranche. The first tranche of up to 7,000 shares of the Preferred are
      exercisable on or before February 3, 2011 (subject to extension under
      certain circumstances). The second tranche of up to $7.0 million are
      exercisable on or before February 3, 2011 (subject to extension under
      certain circumstances) so long as the Prevailing Market Price rises above
      $2.00 per share prior to February 3, 2011. Otherwise, the second
      tranche of up to 7,000 shares of Preferred Stock for up to $7.0 million
      are exercisable on or before February 4, 2013 (subject to extension
      under certain circumstances).
  We
measured the fair value of these warrants at quarter end and the fair value of
the warrants exercised by Fletcher International, Ltd. on April 1, 2010,
and recorded a net $2.7 million gain on derivatives for the quarter ended
September 30, 2010 and recorded the liabilities associated with these
warrants at their respective fair values as of September 30, 2010. We
determined the fair values of these securities using the Binomial Lattice
valuation model.
  13
  Asset
Retirement Obligations
  We
estimate asset retirement obligations in accordance with the Accounting
Standards Codification. We utilize an income valuation technique to determine
the fair value of the liability at the point of inception by applying a
credit-adjusted risk-free rate, which takes into account our credit risk, the
time value of money, and the current economic state, to the undiscounted
expected abandonment cash flows. Given the unobservable nature of the inputs,
the initial measurement of the asset retirement obligation liability is deemed
to use Level 3 inputs. There were no asset retirement obligations measured at
fair value within the accompanying condensed consolidated balance sheets at
September 30, 2010.
  Recurring
Level 3 Activity, Reconciliation and Basis for Valuation
  The table
below provides a reconciliation of the beginning and ending balances for the
major classes of assets and liabilities measured at fair value using significant
unobservable inputs (Level 3). The table reflects gains and losses for the
quarter for all financial assets and liabilities categorized as Level 3 as of
September 30, 2010.
  Fair
Value Measurements Using Significant Unobservable Inputs (Level 3) (in
thousands):
  TotalAssets:Balance
      as of January 1, 2010
                      
                      $
                      —Total
      realized and unrealized gains (losses)
                      
                      
                      —Balance
      as of September 30, 2010
                      
                      $
                      —Liabilities:Balance
      as of January 1, 2010
                      
                      $
                      11,724,219Fair
      value of the Preferred Warrants issued on February 3,
      2010
                      
                      
                      4,438,000Net
      decrease in fair value of derivative warrants (unrealized
      gain)
                      
                      
                      (8,472,297
                      )Fair
      value of 2008 Fletcher Warrants exercised on April 1,
      2010
                      
                      
                      (6,658,554
                      )Balance
      as of September 30, 2010
                      
                      $
                      1,031,368
  The
carrying value and estimated fair value of our debt instruments at
September 30, 2010 were as follows:
  September 30, 2010
                    
                    
                    December 31, 2009Estimated
                      Fair Value
                    
                    
                    Carrying Cost
                    
                    
                    Estimated
                      Fair Value
                    
                    
                    Carrying CostShort-term
      10.0% amended unsecured line of credit*
                    
                    $
                    5,172,000
                    
                    
                    $
                    5,225,416
                    
                    
                    $
                    5,560,000
                    
                    
                    $
                    5,561,952Long-term
      15.0% promissory note **
                    
                    
                    21,100,000
                    
                    
                    
                    20,750,000
                    
                    
                    
                    18,767,154
                    
                    
                    
                    20,000,000Long-term
      9.5% senior secured note***
                    
                    
                    6,300,000
                    
                    
                    
                    9,928,092
                    
                    
                    
                    26,030,000
                    
                    
                    
                    30,072,969Long-term
      8.0% convertible senior notes
                    
                    
                    20,900,000
                    
                    
                    
                    57,197,726
                    
                    
                    
                    24,750,000
                    
                    
                    
                    56,106,767Total
      Liabilities
                    
                    $
                    53,472,000
                    
                    
                    $
                    93,101,234
                    
                    
                    $
                    75,107,154
                    
                    
                    $
                    111,741,688
 
 *
              Represents
      face value of debt without consideration of the deferred financing costs
      of $— and $33,399 at September 30, 2010 and December 31, 2009,
      respectively.
 **
              Represents
      the face value of the debt without consideration of the imputed interest
      rate of 15% from December 11, 2009 to June 30, 2010 resulting in a
      discount of $— and $1,232,846 at September 30, 2010 and
      December 31, 2009,
respectively.
 ***
              Represents
      face value of debt without consideration of the original issue discount of
      $890,378 and $4,469,481 at September 30, 2010 and December 31,
      2009, respectively. Due to the original issue discount, cash proceeds of
      debt are less than the face value of the debt. Therefore, the effective
      interest rate of 9.5% is greater than the 7.0% stated
  rate.
  14
  The
estimated value of our short-term 10% amended unsecured line of credit, long
term 15% promissory note, and long-term 9.5% senior secured note was determined
by management who based its judgment relating to fair value on discounted cash
flow analysis that were developed with the assistance of a third-party valuation
consultant. Our cash flow model utilized the projected cash outflows and a
discount rate, which was derived from market and non-market inputs. Our estimate
of the value of our short-term 10% amended unsecured line of credit, long term
15% promissory note, and long-term 9.5% senior secured note depends on judgments
relating to the projected cash flows and discount rate. If these judgments prove
to be incorrect, it could have a material effect on our results of operations
and financial position.
  To
estimate the fair value of our long-term 8.00% convertible senior note, we used
a third party pricing service that estimated the fair value based upon
theoretical values based on assumptions that market participants would use to
price the convertible notes.
  In
accordance with the current accounting guidance, we have not applied the fair
value measurement provisions to nonfinancial assets and nonfinancial liabilities
included in consolidated condensed balance sheets above.
  H.
Business Segments
  The basis
for presenting segment information results generally is consistent with our
overall operating practices. We report operating segment information in
accordance with the Accounting Standards Codification which establishes
reporting standards for disclosure of operating segments. All consolidating
items and corporate administrative costs are included in Corporate and
Other.
  Accordingly,
the presentation below comprises financial information relating to our segments
for the three and nine months ended September 30, 2010 and 2009,
respectively:
  As of and for
      the Three Months Ended
                            September 30,
      2010
                          
                          Transportation  &
                            Industrial
                          
                          
                          Power Systems
                          
                          
                          Corporate and
                            Other
                          
                          
                          TotalRevenues
                          
                          $
                          —
                          
                          
                          $
                          1,030,350
                          
                          
                          $
                          —
                          
                          
                          $
                          1,030,350Inter-segment
      Fees
                          
                          
                          —
                          
                          
                          
                          (150,000
                          )
                          
                          
                          150,000
                          
                          
                          
                          —Segment
      Operating Loss
                          
                          
                          (904,609
                          )
                          
                          
                          (1,534,644
                          )
                          
                          
                          (1,653,287
                          )
                          
                          
                          (4,092,540
                          )Depreciation,
      Amortization and Accretion
                          
                          
                          30,537
                          
                          
                          
                          102,186
                          
                          
                          
                          19,115
                          
                          
                          
                          151,838Impairment
      of Thermo No. 1 Plant
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Interest
      Expense
                          
                          
                          —
                          
                          
                          
                          8,642,535
                          
                          
                          
                          1,185,382
                          
                          
                          
                          9,827,917Make-Whole
      Fee
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Fixed
      Asset Purchases
                          
                          
                          —
                          
                          
                          
                          66,795
                          
                          
                          
                          —
                          
                          
                          
                          66,795Geothermal
      Well Field Drilling Purchases
                          
                          
                          —
                          
                          
                          
                          8,055
                          
                          
                          
                          —
                          
                          
                          
                          8,055Power
      Project Construction-in-Progress Purchases
                          
                          
                          —
                          
                          
                          
                          58,674
                          
                          
                          
                          —
                          
                          
                          
                          58,674Total
      Assets
                          
                          $
                          514,240
                          
                          
                          $
                          55,040,928
                          
                          
                          $
                          2,125,257
                          
                          
                          $
                          57,680,425As of and for
      the Three Months Ended
                            September 30,
      2009
                          
                          Transportation  &
                            Industrial
                          
                          
                          Power Systems
                          
                          
                          Corporate and
                            Other
                          
                          
                          TotalRevenues
                          
                          $
                          —
                          
                          
                          $
                          845,265
                          
                          
                          $
                          —
                          
                          
                          $
                          845,265Segment
      Operating Loss
                          
                          
                          (399,774
                          )
                          
                          
                          (3,286,362
                          )
                          
                          
                          (2,317,395
                          )
                          
                          
                          (6,003,531
                          )Depreciation,
      Amortization and Accretion
                          
                          
                          39,906
                          
                          
                          
                          801,822
                          
                          
                          
                          22,386
                          
                          
                          
                          864,114Interest
      Expense
                          
                          
                          —
                          
                          
                          
                          759,060
                          
                          
                          
                          2,722,105
                          
                          
                          
                          3,481,165Fixed
      Asset Purchases
                          
                          
                          —
                          
                          
                          
                          21,565
                          
                          
                          
                          —
                          
                          
                          
                          21,565Geothermal
      Well Field Drilling Purchases
                          
                          
                          —
                          
                          
                          
                          4,119,709
                          
                          
                          
                          —
                          
                          
                          
                          4,119,709Power
      Project Construction-in-Progress Purchases
                          
                          
                          —
                          
                          
                          
                          4,127,302
                          
                          
                          
                          —
                          
                          
                          
                          4,127,302Total
      Assets
                          
                          $
                          497,397
                          
                          
                          $
                          147,098,519
                          
                          
                          $
                          10,562,731
                          
                          
                          $
                          158,158,647As of and for the Nine Months
      Ended
                            September 30,
      2010
                          
                          Transportation  &
                            Industrial
                          
                          
                          Power Systems
                          
                          
                          Corporate and
                            Other
                          
                          
                          TotalRevenues
                          
                          $
                          —
                          
                          
                          $
                          3,059,272
                          
                          
                          $
                          —
                          
                          
                          $
                          3,059,272Inter-segment
      Fees
                          
                          
                          —
                          
                          
                          
                          (150,000
                          )
                          
                          
                          150,000
                          
                          
                          
                          —Segment
      Operating Loss
                          
                          
                          (1,594,010
                          )
                          
                          
                          (58,989,527
                          )
                          
                          
                          (6,159,429
                          )
                          
                          
                          (66,742,966
                          )Depreciation,
      Amortization and Accretion
                          
                          
                          104,585
                          
                          
                          
                          1,466,346
                          
                          
                          
                          58,105
                          
                          
                          
                          1,629,036Impairment
      of Thermo No. 1 Plant
                          
                          
                          —
                          
                          
                          
                          52,189,174
                          
                          
                          
                          —
                          
                          
                          
                          52,189,174Interest
      Expense
                          
                          
                          —
                          
                          
                          
                          11,313,334
                          
                          
                          
                          3,986,147
                          
                          
                          
                          15,299,481Make-Whole
      Fee
                          
                          
                          —
                          
                          
                          
                          7,013,703
                          
                          
                          
                          —
                          
                          
                          
                          7,013,703Fixed
      Asset Purchases
                          
                          
                          1,499
                          
                          
                          
                          103,226
                          
                          
                          
                          20,307
                          
                          
                          
                          125,032
  15
  As
      of and for the Three Months Ended
                          September
      30, 2010
                        
                        Transportation  &
                          Industrial
                        
                        
                        Power Systems
                        
                        
                        Corporate and
                          Other
                        
                        
                        TotalGeothermal
      Well Field Drilling Purchases
                        
                        
                        —
                        
                        
                        
                        251,214
                        
                        
                        
                        —
                        
                        
                        
                        251,214Power
      Project Construction-in-Progress Purchases
                        
                        
                        —
                        
                        
                        
                        3,123,059
                        
                        
                        
                        —
                        
                        
                        
                        3,123,059Total
      Assets
                        
                        $
                        514,240
                        
                        
                        $
                        55,040,928
                        
                        
                        $
                        2,125,257
                        
                        
                        $
                        57,680,425As of and for the Nine Months
      Ended
                          September 30,
      2009
                        
                        Transportation  &
                          Industrial
                        
                        
                        Power Systems
                        
                        
                        Corporate and
                          Other
                        
                        
                        TotalRevenues
                        
                        $
                        —
                        
                        
                        $
                        1,252,506
                        
                        
                        $
                        —
                        
                        
                        $
                        1,252,506Segment
      Operating Loss
                        
                        
                        (1,711,832
                        )
                        
                        
                        (9,985,920
                        )
                        
                        
                        (7,514,235
                        )
                        
                        
                        (19,211,987
                        )Depreciation,
      Amortization and Accretion
                        
                        
                        144,872
                        
                        
                        
                        1,635,841
                        
                        
                        
                        68,736
                        
                        
                        
                        1,849,449Interest
      Expense
                        
                        
                        —
                        
                        
                        
                        1,925,406
                        
                        
                        
                        6,788,704
                        
                        
                        
                        8,714,110Fixed
      Asset Purchases
                        
                        
                        —
                        
                        
                        
                        262,118
                        
                        
                        
                        73,686
                        
                        
                        
                        335,804Geothermal
      Well Field Drilling Purchases
                        
                        
                        —
                        
                        
                        
                        11,887,887
                        
                        
                        
                        —
                        
                        
                        
                        11,887,887Power
      Project Construction-in-Progress Purchases
                        
                        
                        —
                        
                        
                        
                        11,984,002
                        
                        
                        
                        —
                        
                        
                        
                        11,984,002Total
      Assets
                        
                        $
                        497,397
                        
                        
                        $
                        147,098,519
                        
                        
                        $
                        10,562,731
                        
                        
                        $
                        158,158,647
  In accordance with our
July 9, 2010 Forbearance Agreement, our Thermo No. 1 subsidiary began paying
management fees to the parent company totaling $50,000 per month to help cover
certain corporate overhead costs incurred in the operations of Thermo No. 1.
 These fees are eliminated in consolidation.
  I.
Supplemental Cash Information
  For the
nine months ended September 30, 2010:
  •
              We
      paid $3,929,357 for interest and $0 for income taxes. We also paid $7.0
      million as a make-whole fee in connection with our 7.0% senior secured
      note.
  •
              We
      recorded four non-cash payments totaling $308,600 for 561,167 unrestricted
      shares of our common stock to settle outstanding invoices from various
      service providers for the construction of our Thermo No. 1 geothermal
      power plant and development of our Indonesia project. The non-cash
      payments approximated the fair market value of the shares on the date the
      shares were granted.
  •
              We
      recorded in accounts payable and accrued liabilities certain capitalized
      well field development and construction costs that were not paid as of
      September 30, 2010. These accrued capitalized costs were omitted from
      the statement of cash flows as non-cash items totaling $4.6
      million.
  •
              We
      recorded three non-cash quarterly dividend payments for the Preferred
      Stock totaling $277,952 for which we issued 659,074 shares of our common
      stock to the holder of the Preferred Stock. The non-cash payments
      approximated the fair value of the shares on the date the shares were
      issued.
  For the
nine months ended September 30, 2009
  •
              We
      paid $3,807,734 for interest and $400 for income
  taxes.
  •
              We
      recorded five non-cash payments totaling $40,000 for 11,035 shares of our
      common stock issued to settle outstanding invoices from two service
      providers for consulting relating to our PHEV project. The non-cash
      payments were equal to the fair market value of the shares on the date the
      shares were granted.
  •
              We
      recorded a $150,000 non-cash payment for 34,483 shares of our common stock
      issued to settle an outstanding invoice from a service provider for
      construction of our Thermo No. 1 geothermal power plant. The non-cash
      payment was equal to the fair market value of the shares on the date the
      shares were granted.
  •
              We
      recorded a $2,000,000 non-cash payment for 574,713 shares of our common
      stock issued to settle an outstanding invoice from a service provider for
      construction of our Thermo No. 1 geothermal power plant. The non-cash
      payment approximated the fair market value of the shares on the date the
      shares were granted.
  •
              We
      recorded a $950,000 non-cash payment for 263,108 shares of our common
      stock issued to settle a promissory note with a former merger candidate
      that was settled on January 27, 2009. The non-cash payment resulted
      in a gain on extinguishment of debt totaling
  $68,588.
  •
              We
      recorded five non-cash payments totaling $3,500,000 for 70,197 restricted
      shares of our common stock, 1,004,094 unrestricted shares of our common
      stock, and 122,603 warrants to acquire shares of our common stock issued
      to settle an outstanding invoice from a service provider for construction
      of our Thermo No. 1 geothermal power plant. The non-cash payment
      approximated the fair market value of the shares on the date the shares
      were granted.
  16
  •
              We
      recorded two non-cash payments totaling $96,900 for 20,000 restricted
      shares of our common stock and 31,246 unrestricted shares of our common
      stock issued to settle outstanding invoices from two service providers for
      consulting relating to our investor relations and expansion of our
      geothermal operations. The non-cash payment approximated the fair market
      value of the shares on the date the shares were
  granted.
  •
              We
      recorded eighteen non-cash payments totaling $2,930,200 for 1,425,894
      shares of our common stock to settle outstanding invoices from the service
      providers for construction of our Thermo No. 1 geothermal power plant. The
      non-cash payments approximated the fair market value of the shares on the
      date the shares were granted.
  J.
Subsequent Events
  On July
9, 2010, we entered into the Forbearance Agreement with the Thermo Subsidiary,
the Thermo Lenders and Deutsche Bank Trust Company Americas. The Forbearance
Agreement provided for the repayment of a substantial portion of the debt
financing for the Thermo No. 1 geothermal power plant, as well as a waiver of
certain debt-related covenants and obligations. The Forbearance Agreement also
provided for the Additional Payment to be made to the lenders of the debt
financing. On October 26, 2010, we entered into an amendment to the Forbearance
Agreement. Pursuant to the amendment, we received an immediate release of
$1,100,000 from the Thermo No. 1 escrow funds. The amendment also shortened the
forbearance period during which debt-related covenants and obligations are
waived to February 1, 2011, increased the amount of the Additional Payment from
$6,000,000 to $6,250,000, and established a due date of February 1, 2011 for the
Additional Payment.
  Our
agreements with the lenders contemplate that we will satisfy the Additional
Payment using proceeds from the sale of all or part of our interest in the
Thermo No. 1 plant if we are unable to make the payment from other sources. As a
result, our board of directors has authorized the Company to explore
opportunities to sell our interests in the Thermo No. 1 plant. We have engaged
an investment bank to assist us in this process and solicit potential
purchasers. If we are able to identify a buyer and negotiate acceptable terms,
we hope to complete a sale of the Thermo No. 1 plant during the first quarter of
2011.
  On
October 1, 2010, we entered into the Evergreen-FE Letter Agreement with
Evergreen-FE, Los Lobos Renewable Power, LLC, Raser Power Systems LLC and
Lightning Dock. In connection with the Evergreen-FE Letter Agreement,
Evergreen-FE committed to loan certain funds to Lightning Dock pursuant to the
Lightning Dock Secured Promissory Note.  Lightning Dock’s obligations under
the Secured Promissory Note are secured by a portion of our power plant
equipment to be used in the construction of the Lightning Dock power plant
pursuant to the Lightning Dock Security Agreement between Lightning Dock and
Evergreen-FE.  The terms of the Lightning Dock Secured Promissory Note
state that interest accrues at a rate of 0.25% per month on any amounts that are
loaned to Lightning Dock prior to the Secured Promissory Note's maturity date of
November 30, 2010 (the "Maturity Date"). After the Maturity Date, interest
accrues on any amounts that remain outstanding at a rate of 0.83% per month.
 The carrying value of the equipment secured under this Security Agreement
at September 30, 2010 totaled $3.6 million.  As of November 9, 2010, we
have borrowed approximately $0.5 million under the Letter
Agreement.
  It is
anticipated that Lightning Dock will receive short-term loans under the
Lightning Dock Secured Promissory Note for up to an aggregate of approximately
$2.0 million from Evergreen-FE to allow Lightning Dock to continue the initial
development of the Lightning Dock geothermal power project. While these resource
development efforts continue, the Company, Lightning Dock and Evergreen-FE
intend to negotiate the substantive terms of the Proposed Equity Investment of
approximately $15.3 million by Evergreen-FE in Lightning Dock. The Proposed
Equity Investment would represent an initial 51% interest in Lightning Dock
(converting to a 50% interest at completion), and such funds would be used to
finance a portion of the development and operation of the Lightning Dock
geothermal power project.
  The terms
of the Evergreen-FE Letter Agreement state that if the parties are able to
negotiate and finalize definitive agreements relating to the Proposed Equity
Investment in Lightning Dock, any amounts loaned to Lightning Dock by
Evergreen-FE would be credited toward the purchase price for the Proposed Equity
Investment. Although we intend to work closely with Evergreen-FE to finalize
definitive agreements, Evergreen-FE will not be obligated to make the Proposed
Equity Investment until the parties execute definitive agreements. In addition,
even if definitive agreements are executed, Evergreen-FE's obligations to fund
its investment will likely be subject to the satisfaction of certain conditions,
which could include commitments for debt financing, additional due diligence or
other conditions beyond our control.
  17
  On
October 13, 2010, we sold 9,305,790 shares of our common stock, par value $0.01
per share, and warrants to purchase up to 4,652,895 shares of our common stock
to Evergreen Clean Energy, LLC and Bombay Investments  (the “LOC
Lenders”), each of whom held a promissory note from us pursuant to an Unsecured
Line of Credit Agreement and Promissory Note dated as of January 27,
2009  (the “Line of Credit”).  As consideration for the sale of
these shares, we received a promissory note in the aggregate principal balance
of $2.5 million.  The common stock and warrants were  sold in
units (the “Units”), with each Unit consisting of one share of our common stock,
par value $0.01 per share and one warrant to purchase 0.50 shares of common
stock (each, a “Warrant” and collectively, the “Warrants”) at an initial
exercise price of $0.25 per share.  Each Unit was sold at a negotiated
price of $0.27 per Unit.  On October 27, 2010, we entered into agreements
with the LOC Lenders to cancel the $2.5 million promissory notes as an offset to
settle the equivalent amount owed to the LOC Lenders for their respective
portions of the outstanding Line of Credit balance on that date, thereby
resulting in a reduction of the outstanding balance on the Line of Credit to
approximately $2.8 million.
  On
November 3, 2010, our common stock commenced to be quoted on the Over-the
Counter Bulletin Board under the ticker symbol RZTI. Our common stock was
suspended from trading by the New York Stock Exchange (the “NYSE”) on November
3, 2010. The NYSE also notified us that it intends to file an application with
the Securities and Exchange Commission to delist our common stock from the NYSE
for failure to meet certain listing standards criteria. We expect our common
stock will be formally delisted by the NYSE upon completion of applicable NYSE
procedures.
  On
October 26, 2010 we entered into the First Amendment to Amendment, Consent and
Forbearance Agreement (the “Amendment”) with Thermo No. 1 BE-01, LLC (“Thermo”),
The Prudential Insurance Company of America, Zurich American Insurance Company
and Deutsche Bank Trust Company Americas amending the Amendment, Consent and
Forbearance Agreement entered between the parties on July 9, 2010 relating to
the repayment of a substantial portion of the debt financing for the Thermo No.
1 plant.
  On
October 27, 2010, we entered into a Letter Agreement among the Company,
Evergreen Clean Energy, LLC (“Evergreen”), and Raser Power Systems, LLC (“Raser
Power”) (the “Evergreen Letter Agreement”). Pursuant to the Evergreen Letter
Agreement, Evergreen agreed to advance us certain funds from time to time,
including an initial advance of $1,150,000 on October 28, 2010. As additional
consideration for the Evergreen Letter Agreement, the Company and Raser Power
agreed not to solicit new potential purchasers for the purchase of any interests
in the Thermo No. 1 plant on or before November 30, 2010, and agreed to pay a
break-up fee in certain circumstances.  Our obligation to repay the initial
advance of $1,150,000 was made pursuant to a Secured Promissory Note, dated
October 28, 2010, issued by us to Evergreen (the “Evergreen Secured Promissory
Note” and, together with the Evergreen Letter Agreement, the “Evergreen Loan
Agreements”).  The terms of the Evergreen Loan Agreements allow for us to
receive advances from Evergreen in one or more loans for up to $2,500,000.
 Principal and accrued interest on all loans is payable to Evergreen on the
earlier of June 30, 2011 or the date on which we close a transaction for the
sale of Thermo No. 1 (the “Maturity Date”).  The loans bear interest at the
rate of twelve percent (12%) per annum or, with respect to any amounts not paid
to Evergreen by the Maturity Date, at the rate of eighteen percent (18%) per
annum. Our obligations under the Evergreen Loan Agreements are secured by a
first priority security interest in, and lien on all of our right, title, and
interest in our Alvord prospect (formerly the Borax Lake prospect) located in
Harney County, Oregon and certain transformer equipment, pursuant to the Deed of
Trust and Security Agreement, dated October 28, 2010, executed by Raser Power
for the benefit of Evergreen (the “Deed of Trust”) and the Security Agreement,
dated as of October 28, 2010, between Raser Power and Evergreen.  The
carrying value of the geothermal leases and equipment secured under this
Security Agreement at September 30, 2010 totaled $0.5 million.
  We used
the $1,100,000 we received from the Thermo No. 1 plant escrow funds and the
$1,150,000 loan we received pursuant to the Evergreen Loan Agreements to satisfy
our semi-annual interest payment obligation of $2,200,000 to the holders of our
8.00% Convertible Senior Notes due 2013.  This interest payment was due on
October 1, 2009 and was required to be paid by November 1, 2010 in order to
avoid a payment default on the Convertible Notes.
  On November 2, 2010, we entered into an
Investor Letter (“Letter of Intent” or “LOI”) with a private investor,
(“Investor Group”) for the purpose of forming and capitalizing a new and
independent electric vehicle company Via Automotive, Inc., a Delaware
corporation (“Via Automotive”) whereby Via Automotive will purchase certain of
our Transportation and Industrial Business segment assets pursuant to an Asset
Purchase Agreement (the “Purchase Agreement”) for $2.5 million in cash ($1.5
million to be paid at closing and $1.0 million to be paid on or before December
20, 2010) and the issuance to us of 39% of the common shares of Via Automotive.
 Pursuant to the LOI, the Investor Group will capitalize Via Automotive
with an additional $2.0 million and  assume certain identified
liabilities.
  In addition to the foregoing $4.5
million aggregate investment by the Investor Group, for which the Investor Group
shall be issued 61% of the common shares of Via Automotive. Via Automotive will
require additional equity investment of not less than $10 million (the
“Additional Initial Capital”). Equity or equity-linked securities of Via
Automotive issued to investors funding the Additional Initial Capital, shall
dilute only the 61% of the common equity initially issued to the Investor Group
and shall not dilute the 39% of the common equity initially issued to us in
connection with the acquisition by Via Automotive of certain of our
Transportation and Industrial Business segment assets (see
below).
  18
  In addition to the Asset Purchase
Agreement, the parties will enter into a shareholders’ agreement (“Shareholders’
Agreement”), or provide in the bylaws for Via Automotive, that a supermajority
vote of the directors will be required under certain
circumstances.
  The LOI
provides that the final transaction is subject to approval by our board of
directors, including receipt of a satisfactory fairness opinion for the sale of
certain of the Transportation and Industrial segment assets to Via Automotive.
 The LOI provides for closing to occur on or before November 22, 2010, with
a breakup fee of $5 million to be paid subject to certain
circumstances.
  19
  Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
  SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Certain
information set forth in this report contains “forward-looking statements”
within the meaning of the federal securities laws. Forward-looking statements
include statements concerning our plans, objectives, goals, strategies, future
events, future revenues or performance, capital expenditures, financing needs,
plans or intentions relating to acquisitions or dispositions and other
information that is not historical information. In some cases, forward-looking
statements can be identified by terminology such as “believes,” “expects,”
“may,” “will,” “should,” “anticipates” or “intends” or the negative of such
terms or other comparable terminology, or by discussions of strategy. We may
also make additional forward-looking statements from time to time. All such
subsequent forward-looking statements, whether written or oral, by us or on our
behalf, are also expressly qualified by these cautionary
statements.
  All
forward-looking statements, including without limitation management’s
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections
are expressed in good faith and we believe there is a reasonable basis for them,
but there can be no assurance that management’s expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply
only as of the date made. We undertake no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.
  There are
a number of risks and uncertainties that could cause our actual results to
differ materially from the forward-looking statements contained in or
contemplated by this report. Any forward-looking statements should be considered
in light of the risks set forth in Part II “Item 1A. Risk Factors” and elsewhere
in this report.
  Unless
the context requires otherwise, all references in this quarterly report to
“Raser,” “the Company,” “we,” “us,” “our company,” “Raser Technologies” or “our”
refer to Raser Technologies, Inc. and its consolidated
subsidiaries.
  Overview
  We are an
environmental energy technology company focused on geothermal power development
and technology licensing. We operate two business segments: Power Systems and
Transportation & Industrial. Our Power Systems segment develops
geothermal electric power plants and is exploring opportunities to partner with
developers to take advantage of potential solar and wind resources at some of
our geothermal project sites. Our Transportation & Industrial segment
focuses on using our SymetronTM family of technologies to improve the efficiency
of electric motors, generators and power electronic drives used in electric and
hybrid electric vehicle propulsion systems. Through these two business segments,
we are employing a business strategy to produce a positive impact on the
environment and economically beneficial results for our
stockholders.
  We have
initiated the development of eight geothermal power plant projects in our Power
Systems segment to date. We have placed one power plant in service to date,
which we refer to as our Thermo No. 1 plant, and we are currently selling
electricity generated by the Thermo No. 1 plant. Although we placed the Thermo
No. 1 plant in service in the first quarter of 2009 for accounting purposes, we
were unable to operate the plant at designed capacity due primarily to
mechanical deficiencies of the power generating units, lower than anticipated
well field temperature and flow from certain wells and other inefficiencies that
occurred as a result of overall design of the plant. After taking additional
actions to improve the electrical output of the plant and the resource, we
determined that the performance of the plant would most likely not achieve
originally designed electrical output levels.  After evaluating the
performance of the plant, we determined an evaluation of possible impairment of
the Thermo No. 1 plant as of June 30, 2010 was warranted. As a result of
our evaluation, we recognized an impairment of the Thermo No. 1 plant and
expensed $52.2 million of capitalized costs during the second quarter of
2010.
  Due to
the economic downturn, a difficult financing environment, difficulties
experienced at the Thermo No. 1 plant and other factors, we have had to adjust
our development plans. We had anticipated being in a position to move forward
with the simultaneous development of the other seven sites we have initiated. In
light of current conditions, we believe in the near term that we need to focus
most of our time and resources on completing the sale of our Thermo No. 1 plant,
as described below, and continued development of the one or two projects we
believe are best positioned for development. Thus, in the near term we intend to
focus on continued well field development at our Lightning Dock project and
continued resource development efforts at our Thermo No. 2 and No. 3 projects.
We will continue to undertake permitting and exploration at the other sites we
have initiated. In connection with the development of our geothermal power
projects, we intend to explore opportunities to partner with developers to take
advantage of potential solar and wind resources at some of our geothermal
project sites. We believe certain geothermal sites we intend to develop may be
suitable for solar or wind generation. If so, we may be able to improve the
overall utilization of transmission lines and other infrastructure investments
associated with these projects. Until we conduct further analysis, however, we
cannot predict whether any of our sites will be suitable for complementary solar
or wind generating facilities.
  20
  Our
ability to develop our power projects is dependent on our ability to obtain
adequate financing to fund those projects as well as our ongoing operations and
existing obligations. We are soliciting potential purchasers to purchase our
Thermo No. 1 plant or an interest therein and exploring the potential sale of
one or more of our other projects or interests therein to fund a portion of our
planned expenditures. We also intend to evaluate a variety of alternatives to
finance the development of our projects. These alternatives could include
government funding from grants, loan guarantees or private activity bonds, joint
ventures, pre-paid power purchase agreements with utilities or municipalities, a
merger and/or other transaction, a consequence of which could include the sale
or issuance of stock to third parties. We cannot be certain that funding from
any of these sources will be available. If we are unable to secure adequate
funds on a timely basis on terms acceptable to us, we may need to modify our
current plans for plant construction, well field development and other
development activities, extend the time frame over which these activities will
take place, or cease operations.
  Our
ability to secure liquidity in the form of additional financing or otherwise
remains crucial for the execution of our business plans and our ability to
continue as a going concern. Our current cash balance, together with cash
anticipated to be provided by operations, will not be sufficient to satisfy our
anticipated cash requirements for normal operations, accounts payable, interest
expense and capital expenditures for the foreseeable future. Obligations that
may exert further pressure on our liquidity situation include (i) the
obligation to repay the remaining amounts borrowed under our Unsecured Line of
Credit Agreement and Promissory Note; (ii) the obligation to pay interest
on our outstanding convertible notes; (iii) any amounts we may be obligated
to pay Pratt & Whitney Power Systems (“PWPS”) for the turbines
installed at the Thermo No. 1 plant; (iv) the obligation to
pay Merrill Lynch a redemption amount of $20.0 million plus accrued
interest on or before June 30, 2011; (v) the obligation to pay up to
$6.25 million to Prudential pursuant to the  Forbearance Agreement, as
amended, which is described below; (vi) the obligation to pay any outstanding
amounts under the Evergreen Secured Promissory Note as described below; and
(vii) the potential obligation To repay the remaining amounts borrowed under the
Lightning Dock Secured Promissory Note if it is not credited toward
Evergreen-FE’s equity investment in Lightning Dock.
  The
amount and timing of our future capital needs will depend on many factors,
including the timing of our development efforts, opportunities for strategic
transactions, and the amount and timing of any cash flows we are able to
generate. We cannot be certain that funding will be available to us on
reasonable terms or at all.
  Recent
Developments
  On July
9, 2010, we entered into an Amendment, Consent and Forbearance Agreement (the
“Forbearance Agreement”) with our subsidiary, Thermo No. 1 BE-01, LLC (the
“Thermo Subsidiary”), The Prudential Insurance Company of America, Zurich
American Insurance Company and Deutsche Bank Trust Company Americas (“Deutsche
Bank”). The Forbearance Agreement provided for the repayment of a substantial
portion of the debt financing for the Thermo No. 1 geothermal power plant, as
well as a waiver of certain debt-related covenants and obligations.  The
Forbearance Agreement also provided for a future additional payment (the
“Additional Payment”) to be made to the lenders of the debt financing. On
October 26, 2010, we entered into an amendment to the Forbearance Agreement.
Pursuant to the amendment, we received an immediate release of $1,100,000 from
the Thermo No. 1 escrow funds. The amendment also shortened the forbearance
period during which debt-related covenants and obligations are waived to
February 1, 2011, increased the amount of the Additional Payment from $6,000,000
to $6,250,000, and established a due date of February 1, 2011 for the Additional
Payment.
  Our
agreements with the lenders contemplate that we will satisfy the Additional
Payment using proceeds from the sale of all or part of our interest in the
Thermo No. 1 plant if we are unable to make the payment from other sources. As a
result, our board of directors has authorized the Company to explore
opportunities to sell our interests in the Thermo No. 1 plant. We have engaged
an investment bank to assist us in this process and solicit potential
purchasers. If we are able to identify a buyer and negotiate acceptable terms,
we hope to complete a sale of the Thermo No. 1 plant during the first quarter of
2011.
  On
October 1, 2010, we entered into a letter agreement (the "Evergreen-FE Letter
Agreement") with Evergreen-FE Lightning Dock, LLC ("Evergreen-FE"), Los Lobos
Renewable Power, LLC, Raser Power Systems LLC and Lightning Dock Geothermal
HI-01, LLC ("Lightning Dock"). In connection with the Evergreen-FE Letter
Agreement, Evergreen-FE committed to loan certain funds to Lightning Dock
pursuant to a secured promissory note, dated October 1, 2010, between Lightning
Dock and Evergreen-FE (the "Lightning Dock Secured Promissory Note"). Lightning
Dock's obligations under the Lightning Dock Secured Promissory Note are secured
by a portion of our power plant equipment to be used in the construction of the
Lightning Dock power plant pursuant to a security agreement between Lightning
Dock and Evergreen-FE.  The terms of the Lightning Dock Secured Promissory
Note state that interest accrues at a rate of 0.25% per month on any amounts
that are loaned to Lightning Dock prior to the Secured Promissory Note's
maturity date of November 30, 2010 (the "Maturity Date"). After the Maturity
Date, interest accrues on any amounts that remain outstanding at a rate of 0.83%
per month.
  21
  It is
anticipated that Lightning Dock will receive short-term loans under the
Lightning Dock Secured Promissory Note for up to an aggregate of approximately
$2.0 million from Evergreen-FE to allow Lightning Dock to continue the initial
development of the Lightning Dock geothermal power project. While these resource
development efforts continue, the Company, Lightning Dock and Evergreen-FE
intend to negotiate the substantive terms of a proposed equity investment of
approximately $15.3 million by Evergreen-FE in Lightning Dock (the "Proposed
Equity Investment"). The Proposed Equity Investment would represent an initial
51% interest in Lightning Dock (converting to a 50% interest at completion), and
such funds would be used to finance a portion of the development and operation
of the Lightning Dock geothermal power project.
  The terms
of the Evergreen-FE Letter Agreement state that if the parties are able to
negotiate and finalize definitive agreements relating to the Proposed Equity
Investment in Lightning Dock, any amounts loaned to Lightning Dock by
Evergreen-FE would be credited toward the purchase price for the Proposed Equity
Investment. Although we intend to work closely with Evergreen-FE to finalize
definitive agreements, Evergreen-FE will not be obligated to make the Proposed
Equity Investment until the parties execute definitive agreements. In addition,
even if definitive agreements are executed, Evergreen-FE's obligations to fund
its investment will likely be subject to the satisfaction of certain conditions,
which could include commitments for debt financing, additional due diligence or
other conditions beyond our control.
  On
October 13, 2010, we sold 9,305,790 shares of our common stock, par value $0.01
per share, and warrants to purchase up to 4,652,895 shares of our common stock
to Evergreen Clean Energy, LLC and Bombay Investments (the “LOC Lenders”), each
of whom held a promissory note from us pursuant to an Unsecured Line of Credit
Agreement and Promissory Note dated as of January 27, 2009, (the “Line of
Credit”).  As consideration for the sale of these shares, we received
promissory notes in an aggregate principal amount of $2.5 million.  The
common stock and warrants were  sold in units (the “Units”), with each
Unit consisting of one share of our common stock, par value $0.01 per share, and
one warrant to purchase 0.50 shares of common stock (each, a “Warrant” and
collectively, the “Warrants”) at an initial exercise price of $0.25 per share.
 Each Unit was sold at a negotiated price of $0.27 per Unit.  On
October 27, 2010, we entered into agreements with the LOC Lenders to cancel the
$2.5 million promissory notes as an offset to settle the equivalent amount owed
to the LOC Lenders for their respective portions of the outstanding Line of
Credit balance on that date, thereby resulting in a reduction of the outstanding
balance on the Line of Credit to approximately $2.8 million at October 27,
2010.
  On
November 3, 2010, our common stock commenced to be quoted on the Over-the
Counter Bulletin Board (“OTCBB”) under the ticker symbol RZTI. Our common stock
was suspended from trading by the New York Stock Exchange (the “NYSE”) on
November 3, 2010. The NYSE also notified us that it intends to file an
application with the Securities and Exchange Commission to delist our common
stock from the NYSE for failure to meet certain listing standards criteria. We
expect our common stock will be formally delisted by the NYSE upon completion of
applicable NYSE procedures.
  On
October 27, 2010, we entered into a Letter Agreement among the Company,
Evergreen Clean Energy, LLC (“Evergreen”), and Raser Power Systems, LLC (“Raser
Power”) (the “Evergreen Letter Agreement”). Pursuant to the Evergreen Letter
Agreement, Evergreen agreed to advance us certain funds from time to time,
including an initial advance of $1,150,000 on October 28, 2010. As additional
consideration for the Evergreen Letter Agreement, the Company agreed not to
solicit new potential purchasers for the purchase of any interests in the Thermo
No. 1 plant on or before November 30, 2010, and agreed to pay a break-up fee in
certain circumstances.  Our obligation to repay the initial advance of
$1,150,000 was made pursuant to a Secured Promissory Note, dated October 28,
2010, issued by us to Evergreen (the “Evergreen Secured Promissory Note” and,
together with the Evergreen Letter Agreement, the “Evergreen Loan Agreements”).
 The terms of the Evergreen Loan Agreements allow for us to receive
advances from Evergreen in one or more loans for up to $2,500,000.
 Principal and accrued interest on all loans is payable to Evergreen on the
earlier of June 30, 2011 or the date on which we close a transaction for the
sale of Thermo No. 1 (the “Maturity Date”).  The loans bear interest at the
rate of twelve percent (12%) per annum or, with respect to any amounts not paid
to Evergreen by the Maturity Date, at the rate of eighteen percent (18%) per
annum. Our obligations under the Evergreen Loan Agreements are secured by a
first priority security interest in, and lien on all of our right, title, and
interest in our Alvord prospect (formerly the Borax Lake prospect) located in
Harney County, Oregon and certain transformer equipment, pursuant to the Deed of
Trust and Security Agreement, dated October 28, 2010, executed by Raser Power
for the benefit of Evergreen (the “Deed of Trust”) and the Security Agreement,
dated as of October 28, 2010, between Raser Power and Evergreen (the “Evergreen
Security Agreement”).
  22
  We used
the $1,100,000 we received from the Thermo No. 1 plant escrow funds and the
$1,150,000 loan we received pursuant to the Evergreen Loan Agreements to satisfy
our semi-annual interest payment obligation of $2,200,000 to the holders of our
8.00% Convertible Senior Notes due 2013. The interest payment was due on October
1, 2009 and was required to be paid by November 1, 2010 in order to avoid a
payment default on the Convertible Notes.
  On
November 2, 2010, we entered into an Investor Letter (“Letter of Intent” or
“LOI”) with a private investor, (“Investor Group”) for the purpose of forming
and capitalizing a new and independent electric vehicle company Via Automotive,
Inc., a Delaware corporation (“Via Automotive”) whereby Via Automotive will
purchase certain of our Transportation and Industrial Business segment assets
pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) for $2.5
million in cash ($1.5 million to be paid at closing and $1.0 million to be paid
on or before December 20, 2010) and the issuance to us of 39% of the common
shares of Via Automotive.  Pursuant to the LOI, the Investor Group will
capitalize Via Automotive with an additional $2.0 million and  assume
certain identified liabilities.
  In addition to the foregoing $4.5
million aggregate investment by the Investor Group, for which the Investor Group
shall be issued 61% of the common shares of Via Automotive. Via Automotive will
require additional equity investment of not less than $10 million (the
“Additional Initial Capital”). Equity or equity-linked securities of Via
Automotive issued to investors funding the Additional Initial Capital, shall
dilute only the 61% of the common equity initially issued to the Investor Group
and shall not dilute the 39% of the common equity initially issued to us in
connection with the acquisition by Via Automotive of certain of our
Transportation and Industrial Business segment assets (see below).
  In addition to the Asset Purchase
Agreement, the parties will enter into a shareholders’ agreement (“Shareholders’
Agreement”), or provide in the bylaws for Via Automotive, that a supermajority
vote of the directors will be required under certain circumstances.
  The LOI
provides that the final transaction is subject to approval by our board of
directors, including receipt of a satisfactory fairness opinion for the sale of
certain of the Transportation and Industrial segment assets to Via Automotive.
 The LOI provides for closing to occur on or before November 22, 2010, with
a breakup fee of $5 million to be paid subject to certain
circumstances.
  Current
Geothermal Power Projects
  Our
development activities during the third quarter of 2010 consisted primarily of
efforts to increase the power output of the Thermo No. 1 plant and commence the
process of solicitation for the sale of our Thermo No. plant. The original
financing agreements for the Thermo No. 1 project (the “Thermo Financing
Agreements”) contained a conditional redemption provision whereby the Thermo No.
1 geothermal power plant was required to achieve “Final Completion” as defined
in the Thermo Financing Agreements by a specific date. The Final Completion date
was extended to June 30, 2010 pursuant to the amendments to the Thermo
Financing Agreements that we entered into in December 2009. The Final Completion
date was further extended to July 9, 2010 pursuant to amendments to the
Thermo Financing Agreements that we entered into in June 2010.
  In
February of 2010, we received $33.0 million in grant proceeds from the U.S.
Treasury under the Recovery Act (the “Grant”). Approximately $3.8 million of the
grant funds were released to us, as owner of the project. The remainder of the
grant funds was placed in escrow to be released to the other parties that
provided the debt and equity financing for the project based on the electrical
output, operational costs of the plant and certain other factors. On
July 9, 2010, we entered into the Forbearance Agreement, which was
subsequently amended on October 26, 2010 pursuant to which the Thermo Lenders
received a payment of $27.0 million out of the escrow and waived compliance with
certain debt-related covenants and obligations until February 1, 2011.  The
Thermo Lenders are entitled to receive an additional payment of up to $6.25
million plus the expenses of the administrative lender and agents no later than
February 1, 2011.  The Forbearance Agreement contemplates that we will
satisfy this additional payment by using proceeds from the sale of all or part
of our interest in Thermo No. 1. After providing for the $27.0 million payment
to the Thermo Lenders approximately $3.0 million remained in the Thermo No. 1
escrow account to be used for the operation of Thermo No. 1 and other related
expenses.  Pursuant to the amendment to the Forbearance Agreement, $1.1
million of the Thermo No. 1 escrow account were released to us.  Because
the amount contained in the Thermo No. 1 escrow account was insufficient to
fully satisfy the Thermo Lenders, to the extent we are obligated to pay PWPS any
additional amounts for the turbines in production at the Thermo No. 1 plant,
such payments shall be made out of our general corporate funds. In addition, we
are obligated to pay Merrill Lynch its redemption amount of $20.0 million
plus accrued interest pursuant to the terms of a promissory note on or before
June 30, 2011.
  23
  On July
9, 2010 in conjunction with the execution of the Forbearance Agreement our Board
of Directors authorized the solicitation of the sale of Thermo No. 1, or an
interest therein.  Accordingly we have reclassified the Thermo No. 1 plant
to asset held for sale.  We have engaged an investment bank to assist in
the sale of Thermo No. 1 and the solicitation process is currently ongoing.
 We anticipate concluding this process in the first quarter of
2011.
  During
the third quarter of 2010, we also continued development and financing
activities with respect to our Lightning Dock project. We re-entered a well (TFD
55-7) at Lightning Dock that was drilled in 1984 and was later abandoned.
 Initial test results from the well are encouraging and indicate geothermal
water temperatures greater than 300 degrees Fahrenheit with favorable chemical
properties.On October 1, 2010, our Lightning Dock subsidiary, Lightning Dock
Geothermal HI-01, LLC (“Lightning Dock”) entered into the Letter Agreement
with Evergreen-FE with respect to financing for the development of the Lightning
Dock project. The Letter Agreement contemplates that Evergreen-FE will invest
$15.3 million in Lighting Dock to finance the development of the Lightning Dock
Geothermal Project in exchange for an initial 51% interest in Lighting Dock
(converting to a 50% interest at completion) and that we will develop and manage
the project, subject to the negotiation and execution of definitive agreements
satisfactory to the parties.  To facilitate the continuing resource
development of the Lightning Dock geothermal project while definitive documents
are being completed, the agreement provides for an initial investment in the
form of loans of up to approximately $2.0 million to Lighting Dock to fund the
continued resource development of the project.  The loans are secured by a
first priority lien on certain Lighting Dock equipment.  Upon, and subject
to, execution of definitive documents governing Evergreen-FE's equity investment
in Lighting Dock, the loan balance will be credited towards the purchase price
payable by Evergreen-FE for its interest in Lighting Dock.
  Additionally,
in October 2010, Lightning Dock signed a term sheet with Ormat Nevada, Inc., a
subsidiary of Ormat Technologies, Inc., (“Ormat”) to provide the engineering,
procurement and construction (“EPC”) of the Lightning Dock project. The term
sheet names Ormat the provider of equipment for the project.  The broad
scope of work includes the installation of two large Ormat binary turbo
generators and all associated above-ground plant equipment including, but not
limited to, well field pumps, pipelines, cooling towers, electric
interconnection equipment and transmission equipment.
  We also
advanced discussions with equipment manufacturers to provide binary cycle
generators for the Lightning Dock project and anticipate negotiating a turnkey,
fixed price agreement for the EPC for the project. It is contemplated that the
EPC contractor will provide construction financing for the project’s generating
facility.
  Ultimately,
we believe the Lightning Dock project could support a power plant that could
generate up to 15 megawatts (“MW”).   During the third quarter of 2010
we conducted a magnetotlluric survey of our greater Thermo area along with
incremental permitting work.  We did not conduct any development activities
during the third quarter of 2010 at the other projects we have initiated for
development. Including the eight projects we have initiated for development, we
have identified 18 projects for potential development. However, we do not expect
to increase our development efforts for these projects until we have made
further progress at the Lightning Dock project and have sufficient resources to
devote to other projects.  The timing for construction and completion of
each of our projects will depend on a number of factors, including the receipt
of necessary permits, timely granting of interconnection and transmission
access, and the ability to obtain adequate financing for both the well-field
development phase and the plant construction phase of each project.
Uncertainties associated with these factors could result in unexpected
delays.
  Current
Transportation and Industrial Projects
  On
November 2, 2010, we entered into a LOI with the Investor Group for the purpose
of forming and capitalizing a new and independent electric vehicle company Via
Automotive whereby Via Automotive will purchase certain of our Transportation
and Industrial segment assets pursuant to the Purchase Agreement for $2.5
million in cash ($1.5 million to be paid at closing and $1.0 million to be paid
on or before December 20, 2010) and the issuance to us of 39% of the common
shares of Via Automotive.  Pursuant to the LOI, the Investor Group will
capitalize Via Automotive with an additional $2.0 million and assume certain
identified liabilities.
  In
addition to the foregoing $4.5 million aggregate investment by the Investor
Group, for which the Investor Group shall be issued 61% of the common shares of
Via Automotive. Via Automotive will require the Additional Initial Capital.
Equity or equity-linked securities of Via Automotive issued to investors funding
the Additional Initial Capital, shall dilute only the 61% of the common equity
initially issued to the Investor Group and shall not dilute the 39% of the
common equity initially issued to us in connection with the acquisition by Via
Automotive of certain of our Transportation and Industrial Business segment
assets (see below).
  In addition to the Asset Purchase
Agreement, the parties will enter into the Shareholders’ Agreement, or provide
in the bylaws for Via Automotive, that a supermajority vote of the directors
will be required under certain circumstances.
  24
  The LOI
provides that the final transaction is subject to approval by our board of
directors, including receipt of a satisfactory fairness opinion for the sale of
certain of the Transportation and Industrial segment assets to Via Automotive.
 The LOI provides for closing to occur on or before November 22, 2010, with
a breakup fee of $5 million to be paid subject to certain
circumstances.
  Results
of Operations
 
 Three months ended September 30,
                  
                  
                  Nine months ended September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  $
                  1,030,350
                  
                  
                  $
                  845,265
                  
                  
                  $
                  3,059,272
                  
                  
                  $
                  1,252,506Cost
      of revenueDirect
      costs
                  
                  
                  1,333,763
                  
                  
                  
                  2,150,652
                  
                  
                  
                  4,013,460
                  
                  
                  
                  3,283,296Depreciation
      and amortization
                  
                  
                  26,203
                  
                  
                  
                  735,126
                  
                  
                  
                  1,251,084
                  
                  
                  
                  1,445,900Gross
      margin
                  
                  
                  (329,616
                  )
                  
                  
                  (2,040,513
                  )
                  
                  
                  (2,205,272
                  )
                  
                  
                  (3,476,690
                  )Operating
      expensesGeneral
      and administrative
                  
                  
                  1,662,096
                  
                  
                  
                  2,352,612
                  
                  
                  
                  6,253,402
                  
                  
                  
                  7,633,943Power
      project development
                  
                  
                  1,205,029
                  
                  
                  
                  1,245,849
                  
                  
                  
                  4,595,080
                  
                  
                  
                  6,509,230Research
      and development
                  
                  
                  895,800
                  
                  
                  
                  364,557
                  
                  
                  
                  1,500,037
                  
                  
                  
                  1,592,124Impairment
      of Thermo No. 1 plant
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  52,189,174
                  
                  
                  
                  —Total
      operating expenses
                  
                  
                  3,762,925
                  
                  
                  
                  3,963,018
                  
                  
                  
                  64,537,693
                  
                  
                  
                  15,735,297Operating
      loss
                  
                  
                  (4,092,541
                  )
                  
                  
                  (6,003,531
                  )
                  
                  
                  (66,742,965
                  )
                  
                  
                  (19,211,987
                  )Interest
      income
                  
                  
                  1,304
                  
                  
                  
                  33,538
                  
                  
                  
                  30,739
                  
                  
                  
                  122,342Interest
      expense
                  
                  
                  (9,827,917
                  )
                  
                  
                  (3,481,165
                  )
                  
                  
                  (15,299,481
                  )
                  
                  
                  (8,714,110
                  )Make-whole
      fee
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (7,031,703
                  )
                  
                  
                  —Gain
      on derivative instruments
                  
                  
                  2,739,517
                  
                  
                  
                  5,918,100
                  
                  
                  
                  8,472,298
                  
                  
                  
                  12,917,454Other
                  
                  
                  160,298
                  
                  
                  
                  —
                  
                  
                  
                  (84,233
                  )
                  
                  
                  (131,442
                  )Loss
      before income taxes
                  
                  
                  (11,019,339
                  )
                  
                  
                  (3,533,058
                  )
                  
                  
                  (80,655,345
                  )
                  
                  
                  (15,017,743
                  )Tax
      benefit (expense)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      loss
                  
                  $
                  (11,019,339
                  )
                  
                  $
                  (3,533,058
                  )
                  
                  $
                  (80,655,345
                  )
                  
                  $
                  (15,017,743
                  )Preferred
      dividend
                  
                  
                  (104,795
                  )
                  
                  
                  —
                  
                  
                  
                  (277,952
                  )
                  
                  
                  —Deemed
      dividend – accretion of discount of Series A-1 cumulative convertible
      preferred stock
                  
                  
                  (1,832,891
                  )
                  
                  
                  —
                  
                  
                  
                  (3,524,790
                  )
                  
                  
                  —Non-controlling
      interest in the Thermo No. 1 subsidiary
                  
                  
                  —
                  
                  
                  
                  (248,513
                  )
                  
                  
                  —
                  
                  
                  
                  806,458Net
      loss applicable to common stockholders
                  
                  $
                  (12,957,025
                  )
                  
                  $
                  (3,781,571
                  )
                  
                  $
                  (84,458,087
                  )
                  
                  $
                  (14,211,285
                  )Loss
      per common share-basic and diluted
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.97
                  )
                  
                  $
                  (0.21
                  )Weighted
      average common shares-basic and diluted
                  
                  
                  92,858,000
                  
                  
                  
                  74,881,000
                  
                  
                  
                  86,977,000
                  
                  
                  
                  68,321,000
  25
  Comparison
of Three Months Ended September 30, 2010 and 2009
  Revenue
  During
the three months ended September 30, 2010, we recognized revenue totaling
$1.0 million compared to $0.8 million of revenue during the same period in 2009.
During the second quarter of 2009, we began selling electricity generated by our
Thermo No. 1 geothermal power plant to the City of Anaheim. During the third
quarter of 2010, we generated and sold approximately 11,686 MW hours of
electricity compared to 9,819 MW hours of electricity during the same period in
2009.
  Cost of revenue. Cost of
revenue for the three months ended September 30, 2010 totaled $1.4 million
compared to $2.9 million for the same period in 2009. The decrease in cost of
revenue for 2010 was primarily due to the decrease in depreciation expense of
$0.7 million due to a reduction of the basis in the Thermo No. l plant by 30%
due to receipt of the federal grant in 2009 and an impairment in the fair value
of the Thermo No. 1 plant that occurred during the second quarter of 2010 that
also reduced the amount of depreciation expense over the estimated useful life
of the plant.  Also beginning in the third quarter of 2010, we changed our
classification of the Thermo No. 1 plant to “held for sale” which ceases
depreciation expense until the asset is either sold or reclassified as an
operating asset.  Cost of revenue for the three months ended
September 30, 2010 includes decreases in, parasitic load costs of $0.1
million, professional services relating to making the generating units more
efficient totaling $0.2 million, and the current year property taxes totaling
$0.8 million.  These decreases were partially offset by increases in
maintenance costs for the Thermo No. 1 plant generating units totaling $0.1
million and payroll costs due to reassigning responsibilities for certain
employees resulting in a change in classification from power project development
costs to cost of revenue totaling $0.1 million.
  Operating
Expenses
  General and Administrative.General and administrative expenses decreased by approximately $0.7
million to $1.7 million for the three months ended September 30, 2010 as
compared to the three months ended September 30, 2009. Non-cash employee
compensation associated with general and administrative employees decreased $0.4
million from $0.7 million for the three months ended September 30, 2009 to
$0.3 million for the quarter ended September 30, 2010. The decrease was
primarily due to general staff reductions and accounting adjustments for
forfeitures of non-cash compensation awards. Employment and office related
expenses also decreased by approximately $0.2 million due to the costs
associated with obtaining a credit rating during the prior year that was not
required during the current year and general administrative staff reductions and
reductions in related employment costs.  Professional services remained
relatively flat at $0.4 million during the third quarter of 2010 compared to the
third quarter of 2009.
  Power Project Developments.Power project development expenses during the three months ended
September 30, 2010 remained relatively flat at $1.2 million compared to the
three months ended September 30, 2009. During the third quarter of 2010,
employment related costs decreased approximately $0.2 million due primarily to
reassigning responsibilities for certain employees resulting in a change in
classification from power project development costs to cost of revenues and
general staff reductions at the beginning of the third quarter of 2010. Equity
based non-cash employee compensation associated with power project development
employees and other operating costs for the three months ended
September 30, 2010 decreased by approximately $0.1 million as compared to
the third quarter of 2009. Other operating costs for the three months ended
September 30, 2010 increased by approximately $0.1 million as compared to
the three months ended September 30, 2009. The increase was due primarily
to exploratory costs for re-drilling and testing well #55-7 at our Lightning
Dock project to confirm our understanding of the Lightning Dock resource. The
costs associated with this well are expensed as incurred until the production
level is verified and we begin the well field development stage of this project.
 Professional services also increased by approximately $0.2 million during
the three months ended September 30, 2010 as compared to the three months ended
September 30, 2009.  The increase is primarily due to environmental
consulting relating to our desire to construct future transmission lines and
professional drilling and testing consultants at our Lightning Dock project that
did not occur in the prior year.
  Research and Development.
Research and Development expense increased from $0.4 million in the three months
ended September 30, 2009 to $0.9 million for the three months ended
September 30, 2010. Equity based non-cash employee compensation associated
with research and development employees decreased by $0.1 million during the
three months ended September 30, 2010 compared to the same period in 2009.
This was due primarily to decreased headcount as a result of our decision to
reduce the cash requirements associated with the research and development
activities at our design center in 2009 and accounting adjustments for
forfeitures of non-cash compensation awards. Professional services increased
during the three months ended September 30, 2010 by approximately $0.4
million as compared to the three months ended September 30, 2009. This
increase was primarily due to the professional services performed during the
initial stages of our development of a Plug-in Hybrid Electric Vehicle (“PHEV”)
mid-sized truck demonstration vehicle totaling $0.6 million.  During the
third quarter of 2010, we completed the documentation surrounding the
development and testing of our PHEV Hummer demonstration vehicle which resulted
in our collaborative partner agreeing to reimburse us certain costs in
accordance with the project agreement resulting in a reduction of professional
services totaling $0.3 million. Employment and office related expenses also
increased by approximately $0.3 million due primarily to hiring additional
employees with experience in the automotive industry to assist with development
of a PHEV mid-sized truck demonstration vehicle for fleet sales. The portion of
engineering expenses relating to testing of materials remained relatively flat
during the three months ended September 30, 2010 over the comparable 2009
period.
  26
  Interest
and Other Income.
  Interest
income for the three months ended September 30, 2010 remained relatively
flat at less than $0.1 million as compared to the same period in 2009 reflecting
relatively level average monthly cash balances and interest rates. Interest
expense during the three months ended September 30, 2010 increased $6.3
million over the three months ended September 30, 2009.  This increase
is primarily due to our required buy-down and make-whole payment that resulted
from being unable to operate the Thermo No. 1 plant at designed capacity by July
9, 2010.  As a result, on July 9, 2010, we paid $27.0 million to the debt
holder of the 7.00% senior secured note  to reduce the outstanding
principal and interest balance of the note by approximately $20.0 million.
  Accordingly, the unamortized deferred finance fees associated with
the issuance of the 7.00% senior secured note were also expensed proportionately
to the decrease in principal balance of the related note.  These increases
are partially offset by a decrease in the gain on derivative totaling $3.2
million during the three months ended September 30, 2010 compared to the
third quarter of 2009.  During the quarter ended September 30, 2010, we
settled outstanding invoices with a vendor that had given us a promissory note
for the approximate amount of the invoice.  Due to the fact that we had
previously determined that the promissory note was uncollectible and recorded a
bad debt expense for the entire amount of the note, upon settlement of the
outstanding invoices, we recorded a gain on extinguishment of debt totaling $0.2
million.
  Non-controlling
Interest.
  Non-controlling
interest decreased by $0.2 million during the three months ended
September 30, 2010 compared to the three months ended September 30,
2009. The decrease resulted from the withdrawal of Merrill Lynch as a
Class A Member from the Thermo Subsidiary and the redemption of its
interest in the Thermo Subsidiary in connection with amendments to the Thermo
No. 1 financing arrangements in December 2009. As a result, we own 100% of the
Thermo Subsidiary thereby eliminating the non-controlling interest.
  Preferred
Stock Dividends.
  During
the first quarter of 2010, we sold 5,000 shares of our Series A-1 Cumulative
Convertible Preferred Stock (the “Preferred Stock”) and paid a dividend to the
holder of the Preferred Stock in shares of our common stock on
September 30, 2010 totaling $0.1 million. We also recorded a deemed
dividend relating to the accretion of the discount of the Preferred Stock
totaling $0.6 million. No Preferred Stock dividends or deemed dividends were
recorded for the three months ended September 30, 2009.
  Comparison of Nine Months Ended
September 30, 2010 and 2009
  Revenue
  During
the nine months ended September 30, 2010, we recognized revenue totaling
$3.1 million compared to revenue of $1.3 million during the same period in 2009.
During the second quarter of 2009, we began selling electricity generated by our
Thermo No. 1 geothermal power plant to the City of Anaheim. During the nine
months ended September 30, 2010, we generated and sold approximately 34,690
MW hours of electricity compared to 14,695 MW hours of electricity during the
same period in 2009.
  Cost of revenue. Cost of
revenue for the nine months ended September 30, 2010 totaled $5.2 million
compared to $4.7 million for the same period in 2009. The increase in cost of
revenue for 2010 was due to the increase sales of electricity from the Thermo
No. 1 plant during the nine months ended September 30, 2010 as compared to
the same prior year period. Cost of revenue for the nine months ended
September 30, 2010 includes increases in parasitic load costs of $0.4
million, equipment rental and chemical costs of $0.2 million, maintenance costs
for the well field and generating units of $0.3 million and payroll costs due to
reassigning responsibilities for certain employees resulting in a change in
classification from power project development costs to cost of revenue.totaling
$0.3 million.  These increases were partially offset by decreases in
depreciation of $0.2 million due to a reduction of the basis in the Thermo No. l
plant by 30% due to receipt of the federal grant in 2009 and an impairment in
the fair value of the Thermo No. 1 plant that occurred during the second quarter
of 2010 that also reduced the amount of depreciation expense over the estimated
useful life of the plant.  Also beginning in the third quarter of 2010, we
changed our classification of the Thermo No. 1 plant to “held for sale” which
ceases depreciation expense until the asset is either sold or reclassified as an
operating asset.  The cost of revenue also decreased as a result of a
decrease in our property tax assessment of approximately $0.6 million from the
prior year.
  27
  Operating
Expenses
  General and Administrative.General and administrative expenses decreased by approximately $1.3
million from $7.6 million for the nine months ended September 30, 2009 as
compared to $6.3 million for the nine months ended September 30, 2010.
Non-cash employee compensation associated with general and administrative
employees decreased $0.8 million from $1.8 million for the nine months ended
September 30, 2009 to $1.0 million for the nine months ended
September 30, 2010. The decrease was primarily due to general staff
reductions and accounting adjustments for forfeitures of non-cash compensation
awards. Employment and office related expenses also decreased by approximately
$0.3 million due to timing of our payment of the Delaware franchise tax and
recognition of the entire prior year annual expense in the first half of 2009,
the costs associated with obtaining a credit rating during the prior year that
was not required during the current year and general administrative staff
reductions and reductions in related employment costs. Professional services
also decreased by $0.2 million during the nine months ended September 30,
2010 compared to the same period in 2009, primarily reflecting a decrease in
printing charges for the distribution of our 2010 Annual Report due to requiring
electronic notice and access for the voting at the 2010 Annual Meeting of
Stockholders. We also incurred increased executive search fees for our new CEO
and CFO totaling $0.2 million during the nine months ended September 30, 2010
which were partially offset by decreased fees paid to some of our Board of
Directors for special projects performed in the prior year and totaling $0.1
million.
  Power Project Developments.Power project development expenses during the nine months ended
September 30, 2010 totaled $4.6 million compared to $6.5 million for the
nine months ended September 30, 2009. During the third quarter of 2010,
professional services decreased by approximately $0.2 million and employment
related costs also decreased approximately $0.9 million due primarily to a
difference in the classification of employment and direct consulting costs from
power project development costs to cost of revenues beginning in the second
quarter of 2009. The change in classification resulted from the Thermo No.1
plant beginning operations in the second quarter of 2009. Equity based non-cash
employee compensation associated with power project development employees
decreased by approximately $0.3 million primarily due to accounting adjustments
for forfeitures of non-cash compensation awards during the nine months ended
September 30, 2010 as compared to the same prior year period. Operating
costs increase during the nine months ended September 30, 2010 as compared to
the same prior year period primarily due to exploratory costs for re-drilling
and testing well #55-7 at our Lightning Dock project totaling $1.2 million.
 Other operating costs for the nine months ended September 30, 2010
decreased by approximately $1.5 million as compared to the nine months ended
September 30, 2009. The decrease was due primarily to a cancellation fee
related to a deposit refund from PWPS in 2009.
  Research and Development.
Research and Development expense decreased from $1.6 million in the nine months
ended September 30, 2009 to $1.5 million for the nine months ended
September 30, 2010. Equity based non-cash employee compensation associated
with research and development employees decreased by $0.4 million during the
nine months ended September 30, 2010 compared to the same period in 2009.
This was due primarily to decreased headcount in 2009 as a result of our
decision to reduce the cash requirements associated with the research and
development activities at our design center and accounting adjustments for
forfeitures of non-cash compensation awards.  Although we reduced
employment levels at the design center in 2009, we hired additional employees in
2010 with experience in the automotive industry to assist with development of a
PHEV mid-sized truck demonstration vehicle for fleet sales.  Accordingly,
cash based employee compensation associated with research and development
employees remained relatively flat at $0.7 million during the nine months ended
September 30, 2010 compared to the third quarter of 2009. Professional
services increased by $0.5 million during the nine months ended
September 30, 2010 compared to the same period in 2009 due primarily to the
professional services performed during the initial stages of our development of
a PHEV mid-sized truck demonstration vehicle totaling $0.6 million which was
partially offset by the completion of the documentation surrounding the
development and testing of our PHEV Hummer demonstration vehicle which resulted
in our collaborative partner agreeing to reimburse us certain costs in
accordance with the project agreement totaling $0.3 million. The portion of
engineering expenses relating to testing of materials decreased by $0.1 million
during the nine months ended September 30, 2010 compared to the same period
in 2009 due primarily to a reduction in parts used for testing on the PHEV
Hummer demonstration vehicle.
  Interest
and Other Income.
  Interest
income for the nine months ended September 30, 2010 decreased slightly by
$0.1 million as compared to the same period in 2009 reflecting relatively lower
average monthly cash balances and interest rates. Interest expense during the
nine months ended September 30, 2010 increased $6.6 million over the nine
months ended September 30, 2009.  This increase is primarily due to
our required buy-down and make-whole payment that resulted from being unable to
operate the Thermo No. 1 plant at designed capacity by July 9, 2010.  As a
result, on July 9, 2010, we paid $27.0 million to the debt holder of the 7.00%
senior secured note (non-recourse) to reduce the outstanding principal and
interest balance of the note by approximately $20.0 million and to settle the
agreed upon make-whole amount of approximately $7.0 million.
  Accordingly, the unamortized deferred finance fees associated with
the issuance of the 7.00% senior secured note were also expensed proportionately
to the decrease in principal balance of the related note.  Gain on
derivative decreased $4.4 million during the nine months ended
September 30, 2010 compared to the nine months ended September 30,
2009 due primarily to Fletcher International, Ltd. (“Fletcher”) exercising the
remaining 6.8 million shares of the warrant that we issued to Fletcher in
2008 on April 1, 2010. Accordingly, the fair value of those warrants are no
longer included in our quarter fair value estimates and are no longer classified
as liabilities. Other expenses remained relatively flat at $0.1 million during
the nine months ended September 30, 2010 compared to the same period in
2009.  However, we recognized a previously disputed penalty arising from
liquidated damages we owed to Fletcher as a result of our failure to comply with
certain registration requirements relating to a prior financing transaction
totaling $0.1 million. This expense was offset by a settlement of our
outstanding invoices with a vendor that had previously given us a promissory
note for the approximate amount of invoices.  Since we had previously
determined that the promissory note was uncollectible and recorded a bad debt
expense for the entire amount of the note, upon settlement of the outstanding
invoices, we recorded a gain on extinguishment of debt totaling $0.2
million.
  28
  Non-controlling
Interest.
  Non-controlling
interest decreased by $0.8 million during the nine months ended
September 30, 2010 compared to the nine months ended September 30,
2009. The decrease resulted from the withdrawal of Merrill Lynch as Class A
Member from the Thermo Subsidiary and the redemption of its interest in the
Thermo Subsidiary in connection with amendments to the Thermo No. 1 financing
arrangements in December 2009. As a result, we own 100% of the Thermo Subsidiary
thereby eliminating the non-controlling interest.
  Preferred
Stock Dividends.
  During
the nine months ended September 30, 2010, we sold 5,000 shares of our
Preferred Stock and paid three dividends to the holder of the Preferred Stock in
shares of our common stock on March 31, 2010, June 30, 2010 and
September 30, 2010 totaling $0.3 million. We also recorded a deemed
dividend relating to the accretion of the discount of the Preferred Stock
totaling $3.5 million. No Preferred Stock dividends or deemed dividends were
recorded for the nine months ended September 30, 2009.
  Liquidity
and Capital Resources
   Cash and Cash Equivalents
                    
                    September 30,
                      2010
                    
                    
                    December 31,
                      2009Cash
                    
                    $
                    130,236
                    
                    
                    $
                    30,135Money
      Market Account
                    
                    
                    6,655
                    
                    
                    
                    11,647Total
                    
                    $
                    136,891
                    
                    
                    $
                    41,782Restricted
      Cash
                    
                    
                    2,273,990
                    
                    
                    
                    9,151,691Restricted
      Marketable Securities
                    
                    
                    —
                    
                    
                    
                    2,191,339Total
                    
                    $
                    2,410,881
                    
                    
                    $
                    11,384,812
  Liquidity
and Certain Commitments
  At
September 30, 2010, we had approximately $0.1 million in cash and cash
equivalents. Our operating activities used approximately $24.3 million and $19.0
million of cash during the nine months ended September 30, 2010 and 2009,
respectively. We have incurred substantial losses since inception, and we are
not operating at cash breakeven.
  Of our
restricted cash balance of  $2.3 million at September 30, 2010,
approximately $1.1 million was used to pay the October 1, 2010 semi-annual
interest on our 8.0% convertible senior notes due 2013 and approximately $1.0
million is expected be used for the operations of the Thermo No. 1 plant and
related expenses. $0.1 million has been invested in a certificate of deposit for
the sole purpose of covering the credit limit of our corporate credit card to
minimize the credit risk to our bank. Another $0.1 million has been invested
into a restricted money market account for the purpose of securing the cost of
drilling bonds required by our Lightning Dock project in New
Mexico.
  At
September 30, 2010, we had approximately $10.7 million in accounts payable
and accrued expenses, which reflects a decrease in accounts payable and accrued
expenses of approximately $6.0 million from December 31, 2009. The decrease
in accounts payable and accrued expenses during the nine month period was due
primarily to the normal payments of outstanding vendor payables totaling $5.6
million, the forgiveness of liquidated damages of $0.1 million by Fletcher, as
described above, and the issuance of common stock to three vendors to settle
outstanding payables totaling $0.3 million.
  Approximately
$4.3 million of the $10.7 million of accounts payable and accrued expenses
represents the disputed remaining balance potentially owed to PWPS for power
generating units purchased for our Thermo No. 1 plant. The amount potentially
owed to PWPS is required to be paid upon successful completion of tests to be
performed on the units. The remaining balance of the accounts payable and
accrued expenses consists of amounts owed for well field development, other
equipment and construction costs for the Thermo No. 1 plant and for general and
administrative costs.
  During
the third quarter of 2010, we amended our Unsecured Line of Credit Agreement and
Promissory Note by entering into Amendment No. 2 to Unsecured Line of Credit
Agreement and Promissory Note (the “Amendment No. 2”) with the LOC Lenders. On
June 30, 2010, the principal and accrued interest payable under the
Unsecured Line of Credit Agreement and Promissory Note was $5.2 million.
Amendment No. 2 extended the maturity date from July 31, 2010 to
October 31, 2010 in consideration for a two percent (2%) increase to
the principal amount owing under the Unsecured Line of Credit Agreement and
Promissory Note, which increased the amount that we owed to the LOC Lenders to
$5.3 million. On October 13, 2010, approximately $2.5 million of the amount
outstanding on the Unsecured Line of Credit Agreement and Promissory Note was
exchanged for equity thereby reducing the total amount outstanding on the
Promissory Note to $2.8 million.  Additionally, the maturity of the
Unsecured Line of Credit and Promissory Note was extended from October 31, 2010
to June 30, 2011.
  29
  On October 26, 2010 we entered into the
amendment to the Forbearance Agreement with The Prudential Insurance Company of
America, Zurich American Insurance Company and Deutsche Bank Trust Company
Americas and the Thermo Subsidiary.  Pursuant to the amendment to the
Forbearance Agreement, we received an immediate release of $1.1 million from the
Thermo No. 1 plant escrow funds, the end of the forbearance period was changed
from June 29, 2011 to February 1, 2011 and our repayment obligation to the
Thermo Lenders, which is now due on or before February 1, 2011, was increased
from $6.0 million to $6.25 million.
  In
addition, pursuant to the Evergreen Letter Agreement, Evergreen agreed to
advance us certain funds from time to time, including an initial advance of
$1,150,000 on October 28, 2010. As additional consideration for the Evergreen
Letter Agreement, we and Raser Power agreed not to solicit new potential
purchasers for the purchase of any interests in the Thermo No. 1 plant on or
before November 30, 2010, and agreed to pay a break-up fee in certain
circumstances.    Our obligation to repay the initial advance of
$1,150,000 was made pursuant to the Evergreen Secured Promissory Note.  The
terms of the Evergreen Secured Promissory Note allow for us to receive advances
from Evergreen in one or more loans for up to $2,500,000.  Principal and
accrued interest on all loans shall be payable to Evergreen on the Maturity
Date, which is the earlier of June 30, 2011 or the date on which we close a
transaction for the sale of our Thermo No. 1 plant.  The loans bear
interest at the rate of twelve percent (12%) per annum or, with respect to any
amounts not paid to Evergreen by the Maturity Date, at the rate of eighteen
percent (18%) per annum.
  We used
the $1,100,000 we received from the Thermo No. 1 plant escrow funds and the
$1,150,000 loan we received from Evergreen to satisfy our semi-annual interest
payment obligation of approximately $2,200,000 to the holders of our 8.00%
Convertible Senior Notes due 2013, which was required to be paid by November 1,
2010 in order to avoid a payment default on our convertible notes.
  Our
ability to secure liquidity in the form of additional financing or otherwise
remains crucial for the execution of our plans and our ability to continue as a
going concern. Our current cash balance, together with cash anticipated to be
provided by operations, will not be sufficient to satisfy our anticipated cash
requirements for normal operations, accounts payable, interest expense and
capital expenditures for the foreseeable future. Obligations that may exert
further pressure on our short-term liquidity situation include (i) the
obligation to repay the remaining amounts borrowed under our Unsecured Line of
Credit Agreement and Promissory Note; (ii) the obligation to pay interest
on our outstanding convertible notes; (iii) any amounts we are obligated to
pay PWPS for the turbines in production at the Thermo No. 1 plant; (iv) the
obligation to pay Merrill Lynch its redemption amount of $20.0 million plus
accrued interest on or before June 30, 2011;  (v) the
obligation to pay up to $6.25 million to Prudential pursuant to the Forbearance
Agreement, as amended; (vi) the obligation to pay any outstanding amounts under
the Evergreen Secured Promissory Note; and (vii) the potential obligation To
repay the remaining amounts borrowed under the Lightning Dock Secured Promissory
Note if it is not credited toward Evergreen-FE’s equity investment in Lightning
Dock..
  We no
longer have restricted marketable securities set aside to fund the interest
payments due on the convertible notes. As a result, we will need to fund
interest payments on the convertible notes from other sources. The convertible
notes bear interest at the rate of 8.0% per annum, payable semiannually on
April 1 and October 1 of each year. The convertible notes mature on
April 1, 2013.
  Our
independent registered public accounting firm’s report on our financial
statements as of December 31, 2009 expressed doubt about our ability to
continue as a going concern. The report includes an explanatory paragraph
stating that there is substantial doubt about our ability to continue as a going
concern due to our incurring significant losses, the use of significant cash in
operations, and the lack of sufficient capital, as of the date the report was
issued, to support our business plan through the end of 2010 or
later.
  We are
not currently generating significant revenues, and our cash and cash equivalents
will continue to be depleted by our ongoing development efforts, as well as our
general and administrative expenses. Until we are in a position to generate
significant revenues, we will need to continue to raise additional funds to
continue operating as a going concern. We are soliciting the sale of Thermo No.
1, or an interest therein and exploring the potential sale of one or more of our
other projects or interests therein. We may also seek additional funding through
the issuance of debt, preferred stock, equity or a combination of these
instruments. We may also seek to obtain financing through government funding
from grants, loan guarantees and private activity bonds, joint ventures, the
sale of one or more of our projects or interests therein, entry into pre-paid
power purchase agreements with utilities or municipalities, a merger and/or
other transaction, a consequence of which could include the sale or issuance of
stock to third parties. We cannot be certain that funding from any of these
sources will be available on reasonable terms or at all. If we are unable to
secure adequate funds on a timely basis on terms acceptable to us, we may need
to curtail or cease operations, modify our current plans for plant construction,
well field development and other development activities, or further extend the
time frame over which these activities will take
place.
  30


Our
common stock was recently suspended from trading on the NYSE.  On
November 3, 2010, our common stock commenced to be quoted on the OTCBB under the
ticker symbol RZTI. We may encounter difficulties in raising additional funds
due to the fact that our common stock is no longer listed on a national
securities exchange.




Recent
Financing Activities




We
completed the sale of our common stock pursuant to two separate registered
direct offerings.  In July 2010, we completed the sale of $750,000 of
our common stock to War Chest Capital Partners and Iroquois Master Fund,
LTD.  The proceeds from this transaction were approximately $740,000,
after deducting fees and expenses. In September 2010, we completed the sale of
$750,000 of our common stock to War Chest Capital Partners, Iroquois Master
Fund, LTD. and Capital Ventures International. The proceeds from this
transaction were approximately $740,000, after deducting fees and expenses.
Subsequent to the end of the third quarter, we also entered into the
transactions with Evergreen-FE and the LOC Lenders, each of which is described
above.




Although
we were able to obtain limited financing through the sources described above,
these sources of funding alone will be insufficient for us to properly execute
our current business plan. We have substantial short-term and long-term
obligations, and need to obtain additional financing to meet these obligations.
However, the current economic environment makes it challenging for us to obtain
the financing that we need, on terms acceptable to us. If we are unable to
secure adequate funds on a timely basis on terms acceptable to us, we will be
unable to satisfy our existing obligations or execute our plans. In such case,
we would be required to curtail or cease operations, liquidate or sell assets,
modify our current plans for plant construction, well field development and
other development activities, or further extend the time frame over which these
activities will take place, or pursue other actions that could adversely affect
future operations.




Consolidated
Statements of Cash Flows




Operating Activities. Cash
consumed by operating activities for the nine months ended September 30,
2010 consisted primarily of a net loss of approximately $80.7 million, adjusted
for non-cash expenses of, approximately $1.7 million of stock-based compensation
and stock issued for services, accelerated deferred financing amortization
resulting from the buy-down payment of $20.0 million for the 7.0% senior secured
notes resulting in a proportionate amount of amortization of related deferred
financing fees totaling $9.7 million, an unrealized gain on derivatives totaling
$8.5 million due to decreases in the fair value of our warrants that have been
classified as liabilities due to price reset features contained in the warrants
and depreciation, amortization and accretion expenses totaling $1.6 million. We
also adjusted our net loss by for additional non-cash expenses of approximately
$0.6 million due primarily to the issuance costs relating to the issuance in
February 2010 of the preferred warrants we issued as part of the Preferred Stock
offering, which allow for the purchase of up 14,000 additional shares of the
Preferred Stock (the “Preferred Warrants”). Accounts receivable and deferred
credits also increased by approximately $0.2 million due primarily to invoicing
the United States Trade Development Association for initial milestones completed
relating to our exploration program in Indonesia. After evaluating the
performance of the plant, we determined an evaluation of possible impairment of
the Thermo No. 1 plant as of June 30, 2010 was warranted. Based upon
the impairment analysis, we determined that the Thermo No. 1 plant was
impaired as of June 30, 2010 and recorded a non-cash impairment expense of
$52.2 million.  We expensed the cost of certain patents that we
decided to abandon totaling $0.1 million. Pursuant to the Forbearance Agreement,
the restrictive nature of the Thermo No. 1 restricted cash accounts changed from
being restricted for the purposes of drilling wells and constructing the plant
to being restricted for the purposes of paying for plant
operations.  Accordingly, the restricted cash relating to operations
increased approximately $2.1 million.




Accounts
payable and accrued liabilities decreased $6.0 million from December 31,
2009 to $10.7 million at September 30, 2010. The decrease in accounts
payable and accrued expenses during the nine month period was due primarily to
the normal payments of outstanding vendor payables totaling $5.6 million, the
forgiveness of liquidated damages of $0.1 million by Fletcher, as described
above, and the issuance of common stock to three vendors to settle outstanding
payables totaling $0.3 million. Other assets increased by $0.1 primarily due to
an increase in the payment of certain legal retainers during the third
quarter.




Cash
consumed by operating activities for the nine months ended September 30,
2009 consisted primarily of a net loss of approximately $15.0 million, adjusted
for approximately $3.0 million of stock-based compensation and stock issued for
services, deferred financing amortization relating to raising capital through
debt issuances totaling $4.9 million and depreciation, amortization and
accretion expenses totaling $1.8 million. Accounts payable and accrued
liabilities decreased $0.5 million to $15.5 million at September 30, 2009,
which included a $26.4 million reduction in accounts payable as a result of the
PWPS Agreement, as described above. Accounts receivable from the City of Anaheim
increased by $0.3 million relating to the generation of electricity by our
Thermo No. 1 plant. Other assets decreased by approximately $0.3 million
due to the refund of a deposit relating to completion of the Thermo No. 1
transmission lines. We also adjusted our net loss for an unrealized gain on
derivatives totaling $12.9 million due to decreases in the fair value of our
warrants that have been classified as liabilities due to price reset features
contained in the warrants.


31




Investing Activities. We
purchase investments in marketable debt securities as a means of temporarily
investing the proceeds from financings until the funds are needed for operating
purposes. Due to the nature of these investments, we consider it reasonable to
expect that their fair market values will not be significantly impacted by a
change in interest rates, and that they can be liquidated for cash on short
notice. Our investments are intended to establish a high-quality portfolio that
preserves principal, meets liquidity needs, avoids inappropriate concentrations
and delivers an appropriate yield in relationship to our investment guidelines
and market conditions. Concentration of credit risk is normally managed by
diversifying investments among a variety of high credit-quality issuers. As of
September 30, 2010, over 88% of our cash, cash equivalents and restricted
cash of $2.4 million, is deposited in money market accounts invested with JP
Morgan Funds earning 0.1 percent interest. Cash from our checking account is
swept nightly into a variable rate interest bearing account earning 0.5 percent
per annum. Our checking account balance totaled $0.1 million at
September 30, 2010.




Investing
activities provided approximately $36.2 million of cash in the nine months ended
September 30, 2010. During the nine months ended September 30, 2010,
we received proceeds from the federal grant totaling $33.0 million and certain
deposits were applied to construction well field drilling costs totaling $0.2
million. On June 30, 2010, we received proceeds from the maturity of our
marketable securities held to maturity totaling $2.2 million that were used to
pay the April 1, 2010 interest payment on the 8.0% convertible senior notes
due 2013. Our net restricted cash decreased approximately $9.0 million during
the nine months ended September 30, 2010. Pursuant to the July 9, 2010
Forbearance Agreement, the restrictive nature of the Thermo No. 1 restricted
cash accounts changed from being restricted for the purposes of drilling and
constructing the plant to being restricted for the purposes of paying for plant
operations.  We paid $4.4 million for construction costs relating to
the Thermo No. 1 plant and $3.4 million relating to drilling the Thermo
No. 1 well field. We also purchased approximately 40,000 acres of leased
property in Utah through a BLM auction totaling $0.2 million. We also purchased
certain water rights and easements in New Mexico related to our Lightning Dock
project totaling $0.1 million.




Investing
activities used $12.3 million of cash in the nine months ended
September 30, 2009, primarily as a result of entering into the PWPS
Agreement described above. Pursuant to the PWPS Agreement, we received $7.1
million as a net refund of deposits previously paid to UTCP, the predecessor of
PWPS. In addition, our marketable equity securities matured totaling $2.2
million that were used to pay the April 1, 2009 interest payment of the
convertible notes. We received certain refunded deposits that were applied to
our well field drilling totaling $1.1 million. We have also purchased two new
power project leases totaling $0.1 million in Oregon and Utah. During the nine
months ended September 30, 2009, we also paid $13.5 million for construction
costs relating to the Thermo No. 1 geothermal power plant and $17.2 million
relating to drilling the Thermo No. 1 well field. As a result, these
construction and well field expenses were primarily paid through our Thermo
No. 1 restricted cash account which decreased totaling $8.5
million.




Financing Activities.
Financing activities used approximately $11.8 million and provided $33.6 million
of cash in the nine months ended September 30, 2010 and 2009,
respectively.




During
the nine months ended September 30, 2010, we completed an offering of 5,000
shares of the Preferred Stock and issued the Preferred Warrants to purchase an
additional 14,000 shares of Preferred Stock for a total purchase price of
$5,000,000. The net proceeds, after deducting the underwriter fees and other
estimated offering expenses payable by us were approximately $4.6 million. We
also received proceeds from our Unsecured Line of Credit Agreement and
Promissory Note totaling $0.1 million as a bridge financing for certain
administrative expenses. During the nine months ended September 30, 2010,
we made principal payments against the outstanding Unsecured Line of Credit
Agreement and Promissory Note totaling $0.3 million and against the 7.0% senior
secured note (non-recourse) totaling $20.3 million. In April 2010, we announced
that we initiated an “at-the-market” program which we could sell shares of
common stock having an aggregate offering price of up to $25.0 million. Under
the “at-the-market” program, we sold shares of our common stock and we received
proceeds, net of commissions, totaling approximately $1.5 million. On
May 10, 2010, we ceased selling shares of our common stock pursuant to the
controlled equity offering. During the nine months ended September 30,
2010, we completed the sale of $3.0 million of our common stock to War Chest
Capital Partners. Our proceeds from the sale of our common stock, after
deducting fees and expenses totaled $2.6 million.




During
the nine months ended September 30, 2009, we obtained the Unsecured Line of
Credit Agreement and Promissory Note to provide working capital for general
corporate purposes. As of September 30, 2009, we had borrowed a total of
$13.4 million under the Unsecured Line of Credit Agreement and Promissory Note.
We also completed a registered direct offering in July of 2009 of 8,550,339
units (“Registered Direct Units”) primarily to institutional investors. Each
Registered Direct Unit consisted of one share of our common stock, and one
warrant to purchase 0.5 shares of our common stock. The investors agreed to
purchase the Registered Direct Units for a negotiated price of $2.98 per
Registered Direct Unit, resulting in net proceeds, after deducting placement
agents’ fees and estimated offering expenses, totaling $23.6 million. During the
nine months ended September 30, 2009, we made principal payments of $2.9
million on the Unsecured Line of Credit Agreement and Promissory Note balance
and our Thermo Subsidiary also made principal payments of $0.5 million on the
7.00% senior secured note (non-recourse).


32




Dividends.We are required to
pay a quarterly dividend to the holders of our Preferred Stock, payable in cash
or shares of common stock equal to an annual rate of the London Interbank Rate
(“LIBOR”) plus 8%, but in no event higher than 14%, subject to adjustment. We
are limited in dividend payments that we can make to our common stockholders
unless such dividend payment is made equally to the holders of the Preferred
Stock as if such holders had converted or redeemed (whichever is greater) their
Preferred Stock for shares of our common stock immediately prior to the payment
of such dividend. We have never declared or paid any cash dividends with respect
to our common stock. We currently anticipate that we will retain all future
earnings for the operation and expansion of our business and do not intend to
declare dividends with respect to our common stock in the foreseeable future.
During the nine months ended September 30, 2010, we paid three dividends to
the holder of the Preferred Stock in shares of our common stock on
March 31, 2010, June 30, 2010 and September 30, 2010 totaling $0.3
million which we settled with the issuance of 659,074 shares of our common
stock. No Preferred Stock dividends or deemed dividends were recorded for the
nine months ended September 30, 2009. We also recorded a deemed dividend
for the nine months ending September 30, 2010 relating to the accretion of the
discount of the Preferred Stock totaling $3.5 million.




During
the nine months ended September 30, 2010, there were no dividend payments
to our common stockholders.




Off-Balance
Sheet Arrangements




As of
September 30, 2010, we had the following off-balance sheet arrangements as
defined by Item 303(a)(4)(ii) of SEC Regulation S-K.




In
addition to the Thermo Financing Agreements, we entered into an agreement with
PWPS relating to the generating units purchased and installed at the Thermo
No. 1 plant. Pursuant to the agreement, we retained approximately $4.3
million of the purchase price of the generating units pending the successful
completion of the Thermo No. 1 plant. We are allowed to keep the retained
portion of the purchase price as a liquidated damages payment if certain
performance conditions related to the generating units are not met. As of
September 30, 2010, the Thermo No. 1 plant was generating below
targeted levels and had not achieved successful completion. As a result, we
believe we may be entitled to keep the retained portion of the purchase price as
liquidated damages. However, PWPS disputes our claim to the retained portion of
the purchase price. Our ability to keep any portion of the retained amount will
depend upon the resolution of the dispute with PWPS.




Our
agreement with PWPS also provides for the payment by us to PWPS of liquidated
damages if the Thermo No. 1 plant is not successfully completed as a result
of any reason not related to the generating units. To secure this potential
obligation, we provided a security interest to PWPS in five patents relating to
our Transportation and Industrial segment. We believe the likelihood that we
will be obligated to pay liquidated damages to PWPS is “remote”. Accordingly, we
estimate the maximum potential obligation and the related fair value of the
obligation to be immaterial at this time. Accordingly, we had not recorded a
liability relating to this potential obligation at September 30,
2010.




Contractual
Obligations and Commitments




We lease
our corporate office located at 5152 North Edgewood Drive, Suite 200, Provo,
Utah. Our corporate office lease expires on December 31, 2011. We also
lease our SymetronTM testing facility in Utah County, Utah. Our testing facility
lease is a rolling two month lease which originally expired on May 31, 2010
and has been extended on a month to month basis. The corporate offices and
facilities are well maintained and in good condition.





On
June 25, 2010, we entered into a sublease for offices in West Bloomfield,
Michigan which expired on September 25, 2010. Effective September 25, 2010, we
amended the terms of our Michigan office space to rent on a month-to-month basis
through December 31, 2010.  Pursuant to the amended terms of our
sublease, the monthly rental increased from $1,800 per month to $2,000 per
month.  Upon expiration of the sublease in Michigan on December 31,
2010, we have an option to extend the lease for an additional three
months.




During
2008, we entered into an agreement with a private land owner adjacent to our
geothermal leased property in Hidalgo County, New Mexico. Under the agreement,
we are permitted to store our power generating units, cooling tower equipment,
pumps and other equipment that have been delivered to New Mexico for
construction of our Lightning Dock geothermal power plant. All equipment is
stored outside and the agreement continues on a month-to-month basis until all
equipment is removed from the property. Total rent expense for all of our office
space, testing facilities and outdoor storage site leases for the nine months
ended September 30, 2010 and 2009 was approximately $367,600 and $343,600,
respectively.


33




The table
below summarizes our operating lease obligations pursuant to our non-cancelable
leases, our long-term debt, our executed purchase obligations and our asset
retirement obligations as of September 30, 2010:




Payments due by periodTotal
                    
                    
                    Less than
                      1 year
                    
                    
                    1 to 3
                      years
                    
                    
                    3 to 5
                      years
                    
                    
                    More than
                      5 yearsOperating
      Lease Obligations
                    
                    $
                    537,592
                    
                    
                    $
                    429,591
                    
                    
                    $
                    108,001
                    
                    
                    $
                    —
                    
                    
                    $
                    —Long
      Term Debt (principal and interest)
                    
                    
                    106,975,951
                    
                    
                    
                    43,175,951
                    
                    
                    
                    63,800,000
                    
                    
                    
                    —
                    
                    
                    
                    —Purchase
      Obligations
                    
                    
                    25,035,666
                    
                    
                    
                    6,678,794
                    
                    
                    
                    4,769,347
                    
                    
                    
                    2,974,713
                    
                    
                    
                    10,612,812Asset
      Retirement Obligations
                    
                    
                    3,012,449
                    
                    
                    
                    225,285
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    2,787,164Total
                    
                    $
                    135,561,658
                    
                    
                    $
                    50,509,621
                    
                    
                    $
                    68,677,348
                    
                    
                    $
                    2,974,713
                    
                    
                    $
                    13,399,976




The
purchase obligations set forth above are not recorded as liabilities in our
consolidated financial statements except for our obligation with PWPS relating
to the generating units purchased and installed at the Thermo No. 1 plant.
Pursuant to the agreement, we retained approximately $4.3 million of the
purchase price of the generating units pending the successful completion of the
Thermo No. 1 plant. We are allowed to keep the retained portion of the purchase
price as a liquidated damages payment if certain performance conditions related
to the generating units are not met. As of September 30, 2010, the Thermo No. 1
plant was generating below targeted levels and had not achieved successful
completion. As a result, we believe we may be entitled to keep the retained
portion of the purchase price as liquidated damages. However, PWPS disputes our
claim to the retained portion of the purchase price. Our ability to keep any
portion of the retained amount will depend upon the resolution of the dispute
with PWPS. Accordingly, we have recorded the $4.3 million in our accrued
liabilities until the dispute is settled.  Our equipment purchase
obligations are recorded as liabilities when the equipment is received by us or
the risk of loss has been legally transferred to us. Amounts payable pursuant to
our operating leases are expensed during the reporting period in which the
amounts are due and payable. The operating lease obligations include operating
leases for our corporate headquarters, Michigan offices and our testing
facility.




The
purchase obligations set forth in the table above include our amended agreements
with PWPS for the purchase of power generating units and the related 10-year
maintenance agreement.  As of September 30, 2010, we are obligated to
pay PWPS under the amended agreements and maintenance agreement $4.7 million in
2010; $0.9 million in 2011; $1.0 million in 2012; and $1.0 million in
2013.  In 2014, the PWPS maintenance fees increase due to the
amortization of additional upgrade maintenance which is scheduled each five
years.  However, under the amended agreements with PWPS, we may elect,
at our sole option, to enter into negotiations with PWPS to determine a mutually
acceptable adjustment (either upwards or downwards) to the annual payment after
2013. If either party does not agree on a mutually acceptable adjustment, then
either party may terminate the agreement without
penalty.  Accordingly, the amounts presented as purchase obligations
exclude amounts payable to PWPS that may be terminated by us at that time
without penalty in years six through ten totaling an aggregate of $8.6
million




The
purchase obligations set forth in the table above also include our geothermal
lease agreements and wheeling transmission agreements.  Since our
geothermal lease agreements are not considered to be operating leases the
purchase obligations also include delay rental payments that we have agreed to
make in order to maintain our granted rights to the leased
properties.  Our geothermal lease agreements range from 5 to 50
years.  As of September 30, 2010, we were unconditionally
obligated to pay the landowners approximately $25,000 in 2010; $0.2 million in
2011; $0.2 million in 2012; $0.2 million in 2013; $0.2 million in 2014; and $0.8
million thereafter.





The
amounts presented exclude amounts payable to landowners under geothermal lease
obligations that may be terminated by us at any time without penalty. The annual
aggregate payment obligation under all such lease obligations in effect on the
date of this report is approximately $0.3 million.  The amounts
presented also exclude amounts payable to landowners in New Mexico with whom we
have options to purchase approximately 968 acres of water rights that may be
terminated by us at any time without penalty totaling $0.7 million. The water
rights options expire on December 31, 2010.





We,
through our subsidiaries, have entered into four wheeling transmission
agreements in Utah, New Mexico, and Nevada.  The terms of the
agreements are from between five to twenty years.  Under the
agreements, the start dates are deferrable annually for up to five years or
until the later of the service acceptance date or completion of required
upgrades by us, if any.  As of September 30, 2010, we were obligated
to pay $0.1 million in 2010; $1.0 million in 2011; $1.2 million in 2012; $1.2
million in 2013; $1.2 million in 2014 and $10.9 million
thereafter.  The wheeling costs are generally reimbursable under power
purchase agreements or can be sold to third parties at negotiated
prices.  Currently, our City of Anaheim and Salt River Project power
purchase agreements contain provisions that fully reimburse the wheeling
costs.  Of the wheeling transmission commitments above, the amount of
wheeling costs that will be reimbursed under our power purchase agreements
approximate $0.1 million in 2010; $0.7 million in 2011; $0.7 million in 2012;
$0.7 million in 2013; $0.7 million in 2014 and $3.7 million
thereafter.  We intend to resell all or a portion of our wheeling
transmission capacity to third parties for the remaining commitments to minimize
the impact of the overall commitment. Since these wheeling agreements are held
in our special purpose subsidiaries, we believe that should we fail to pay the
commitments, there would be no recourse to the parent company.


34




The
long-term obligations set forth in the table above includes the payment schedule
of principal and interest for our $55.0 million 8.0% convertible senior note due
2013; 7.0% senior secured note; 15.0% senior secured note; and 10% unsecured
line of credit. The maturity dates for the 7.0% senior secured note and 15.0%
senior secured note have been accelerated and now mature in less than
one year.




The asset
retirement obligations set forth in the table above include our future
obligation to dismantle the geothermal power plant, plug and abandon our
production-sized wells that we have drilled and restore the property to its
original state at the end of the power plant’s useful life which is estimated at
35 years. We have also incurred an obligation to plug and abandon certain wells
at our Lightning Dock project and our Thermo No. 1 plant within one year.
Therefore, we have estimated the present value of the asset retirement
liabilities for the Thermo No. 1 plant and for each of the respective
wells. In connection with our asset retirement obligation, we have posted
drilling bonds with the Nevada Department of Minerals totaling $50,000, the Utah
Division of Water Rights totaling $50,000, the State of New Mexico Oil
Conservation Division totaling $65,000 and the Oregon Department of
Geology & Mineral Industries totaling $25,000 to ensure that we comply
with the local plug and abandonment requirements associated with drilling
wells.




We have
employment commitments with our chief executive officer and our chief financial
officer. However, amounts due under these employment contracts are not reflected
in the table above.




Recently
Issued Accounting Pronouncements





In August
2010, the FASB issued updated guidance that amends various SEC paragraphs
pursuant to the issuance of Release No.  33-9026; Technical
Amendments to Rules, Forms, Schedules and Codifications of Financial
Reporting Policies.  Management believes that the adoption of this
guidance does not have a material effect on our consolidated financial
statements.




Item 
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk




Disclosures
About Market Risk




We are
exposed to various market risks. Market risk is the potential loss arising from
adverse changes in market prices and rates. We do not enter into derivative or
other financial instruments for trading or speculative purposes. However, we
have issued certain warrants and preferred warrants that are classified as
derivative liabilities which are recorded at the fair market value at the end of
each period.  Increases and decreases in the price per share of our
common stock increase or decrease the fair market value of our derivative
liabilities accordingly.  Unrealized gains or losses during each
period are recorded as a gain or loss.  Therefore, increases in the
price per share of our common stock would result in an increase in the fair
market value of the warrant liabilities and a loss on derivative for the change
in fair market value during each period.  Conversely, a decrease in
the price per share of our common stock would result in a decrease in the fair
market value of the warrant liabilities and a gain on derivative for the change
in fair market value.




Interest Rate
Risks




Changes
in interest rates may also affect our ability to obtain tax equity and other
financing for the development of power projects. In general, as interest rates
rise, the tax equity investor’s hurdle rate for their investments increases. As
the hurdle rate increases, the amount of tax credit equity that can be raised
for a project decreases.




At
September 30, 2010, we held investments of $2.4 million in money market and
other interest bearing accounts. These are highly liquid investments that are
subject to risks associated with changes in interest rates. The money market
funds are invested in governmental obligations with minimal fluctuations in
interest rates and fixed terms.




Our
quarterly preferred stock dividends are computed based upon the 3-month LIBOR
rate plus 8% measured at the beginning of each quarter plus up to a maximum of
14%.  Increases in the 3-month LIBOR market rates increase the amount
of quarterly dividends payable.




Commodity Price
Risk




We are
exposed to risks surrounding the volatility of energy prices. These risks are
impacted by various circumstances surrounding the energy production from natural
gas, nuclear, hydro, solar, coal and oil. We have been able to mitigate, to a
certain extent, this risk by entering into a power purchase agreement for a 20
year period for our Thermo No. 1 plant.  We also have entered into
additional power plant agreements for our next two power plants that we intend
to develop. This type of arrangement will be the model for power purchase
contracts planned for future power plants.


35




We are
exposed to losses in the event of nonperformance by the counterparties on the
instruments described above.




Item 
      4.
            Controls
      and Procedures




Evaluation
of Disclosure Controls and Procedures




Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 as of the end of the period covered by this Quarterly Report on Form 10-Q.
In designing and evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that
management is required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their costs. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.




Based on
that evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were not effective as of
September 30, 2010, due to a material weakness in our internal control over
financial reporting discussed immediately below.




Identified
Material Weakness




A
material weakness is a control deficiency, or combination of deficiencies, that
results in more than a remote likelihood that a material misstatement of our
financial statements would not be prevented or detected on a timely basis by our
employees in the normal course of performing their assigned functions.
Management identified a material weakness during our assessment of our internal
control over financial reporting as of September 30,
2010.  Accordingly, during the three month period ended September 30,
2010, it was determined that our Company's procedures relating to the footnote
disclosure of certain transmission contract commitments entered into in previous
periods were not adequate.




Changes
in Internal Control Over Financial Reporting




In an
effort to remediate our material weakness in our internal control over financial
reporting, our Company is in the process of establishing enhanced review
procedures to ensure that the appropriate accounting personnel review all future
material contracts to ensure proper financial reporting. Except as discussed
above, there have not been any changes in our internal control over financial
reporting that occurred during our quarter ended September 30, 2010 that have
materially affected, or are likely to materially affect, our internal control
over financial reporting.


36




PART
II. OTHER INFORMATION




Item 
      1.
            Legal
      Proceedings




On
August 17, 2009, Kay Mendenhall (“Mendenhall”), an individual, and
Spindyne, Inc. (“Spindyne”), a Utah corporation, filed a complaint in Fourth
Judicial District Court, Utah County, Utah against Jack H. Kerlin, an
individual, Kraig Higginson, an individual, and Raser Technologies, Inc.
Mendenhall and Spindyne allege that, around the time that Raser was formed,
Kerlin, on behalf of Spindyne, assigned to Raser the rights to use certain
proprietary technology that was owned by Spindyne. Mendenhall and Spindyne
allege that they were not properly compensated for that technology. In general,
the complaint alleges, among other claims, breach of contract, breach of implied
covenant of good faith and fair dealing, and intentional interference with
contract and prospective economic relations. The complaint seeks damages in an
amount to be determined at trial for the value of the alleged technology.
Neither Spindyne nor Mendenhall have any relationship with us or
Mr. Higginson, our Chairman. The alleged technology at issue in the
complaint is not currently in use and has never been used by us or, to the
knowledge of the Company, Mr. Higginson. We, along with Messers Higginson
and Kerlin, filed a motion to dismiss the complaint, which was granted by the
Fourth Judicial District Court on May 5, 2010. The plaintiffs filed a
notice of appeal on June 3, 2010. In July 2010, the Court of Appeals sua
sponte initiated a motion to remand the case back to the District Court to
address certain procedural issues before the merits of the appeal can be heard.
The plaintiffs have not taken any action in the case since that
time.




Raser is
not subject to any other material legal proceedings, and we are unaware of any
proceedings presently contemplated against Raser by any federal, state or local
government agency.




Item 1A.
            Risk
      Factors.




The
following risk factors, among others, could cause our financial performance to
differ significantly from the goals, plans, objectives, intentions, beliefs and
expectations expressed in this report. If any of the following risks and
uncertainties or other risks and uncertainties not currently known to us or not
currently considered to be material actually occur, our business, financial
condition or operating results could be harmed substantially.




We
will need to secure additional financing and if we are unable to secure adequate
funds on terms acceptable to us, we will be unable to support our business
requirements, build our business or continue as a going concern.




At
September 30, 2010, we had approximately $0.1 million in cash and cash
equivalents and $2.3 million in restricted cash. As such, our cash balances are
not sufficient to satisfy our anticipated cash requirements for normal
operations and capital expenditures for the foreseeable future. Our operating
activities used approximately $19.0 million of cash for the year ended
December 31, 2009 and approximately $24.3 million of cash during the nine
months ended September 30, 2010. We have incurred substantial losses since
inception and we are not operating at cash breakeven. Obligations that may exert
further pressure on our liquidity situation include (i) the obligation to
repay the remaining amounts borrowed under our Unsecured Line of Credit
Agreement and Promissory Note; (ii) the obligation to pay principal and
interest on our outstanding convertible notes; (iii) any amounts we may be
obligated to pay PWPS for the turbines installed at the Thermo No. 1 plant;
(iv) the obligation to pay Merrill Lynch a redemption amount of $20.0
million plus accrued interest on or before June 30, 2011; and (v) the
obligation to pay up to $6.25 million to Prudential pursuant to the Forbearance
Agreement, as amended; and (vi) the obligation to pay any outstanding amounts
under the Evergreen Secured Promissory Note; and (vii) the potential obligation
To repay the remaining amounts borrowed under the Lightning Dock Secured
Promissory Note if it is not credited toward Evergreen-FE’s equity investment in
Lightning Dock.




Most
recently, we completed the sale of our common stock pursuant to two separate
registered direct offerings.  In July 2010, we completed the sale of
$750,000 of our common stock to War Chest Capital Partners and Iroquois Master
Fund, LTD. Our proceeds from the sale of our common stock were approximately
$740,000, after deducting fees and expenses. In September 2010, we completed the
sale of $750,000 of our common stock to War Chest Capital Partners, Iroquois
Master Fund, LTD. and Capital Ventures International. Our proceeds from the sale
of our common stock were approximately $740,000, after deducting fees and
expenses.




Our
continuation as a going concern is dependent on efforts to secure additional
funding, increase revenues, reduce expenses, and ultimately achieve profitable
operations. The current economic environment will make it challenging for us to
access the funds that we need, on terms acceptable to us, to successfully pursue
our development plans and operations. The cost of raising capital in the debt
and equity capital markets has increased substantially while the availability of
funds from those markets generally has diminished significantly. If we are
unable to raise sufficient, additional capital on reasonable terms, we may be
unable to satisfy our existing obligations, or to execute our plans. In such
case, we would be required to curtail or cease operations, liquidate or sell
assets, modify our current plans for plant construction, well field development
or other development activities, or pursue other actions that would adversely
affect future operations. Further, reduction of expenditures could have a
negative impact on our business. A reduction of expenditures would make it more
difficult for us to execute our plans to develop geothermal power plants in
accordance with our expectations. It would also make it more difficult for us to
conduct adequate research and development and other activities necessary to
commercialize our SymetronTMtechnologies.


37




In order
to execute our business strategy and continue our business operations, we will
need to secure additional funding from other sources through the issuance of
debt, preferred stock, equity or a combination of these instruments. We may also
seek to obtain financing through a joint venture, the sale of one or more of our
projects or interests therein, entry into pre-paid power purchase agreements
with utilities or municipalities, a merger and/or other transaction, a
consequence of which could include the sale or issuance of stock to third
parties. We cannot be certain that funding that we seek from any of these
sources will be available on reasonable terms or at all.




If we
raise additional capital through the issuance of equity or securities
convertible into equity, our stockholders may experience dilution. Any new
securities we issue may have rights, preferences or privileges senior to those
of the holders of our common stock, such as dividend rights or anti-dilution
protections. We have previously issued warrants to acquire our common stock in
connection with certain transactions. Some of these warrants continue to be
outstanding and contain anti-dilution provisions. Pursuant to these
anti-dilution provisions, the exercise price of the applicable warrants will be
adjusted if we issue equity securities or securities convertible into equity
securities at a price lower than the exercise price of the applicable
warrants.




We may
also seek to secure additional financing by incurring indebtedness. However, as
a result of concerns about the stability of financial markets generally, and the
solvency of counterparties specifically, the cost of obtaining money from the
credit markets generally has increased as many lenders and institutional
investors have increased interest rates, enacted tighter lending standards,
refused to refinance existing debt at maturity on terms that are similar to
existing debt, and reduced, or in some cases ceased, to provide funding to
borrowers. In addition, any indebtedness we incur could constrict our liquidity,
result in substantial cash outflows, and adversely affect our financial health
and ability to obtain financing in the future. Any such debt would likely
contain restrictive covenants that may impair our ability to obtain future
additional financing for working capital, capital expenditures, acquisitions,
general corporate or other purposes, and a substantial portion of cash flows, if
any, from our operations may be dedicated to interest payments and debt
repayment, thereby reducing the funds available to us for other purposes. Any
failure by us to satisfy our obligations with respect to these potential debt
obligations would likely constitute a default under such credit
facilities.




Financing
needed to develop geothermal power projects may be unavailable.




A
substantial capital investment will be necessary to develop each geothermal
power project our Power Systems segment seeks to develop. Our continued access
to capital through project financing or other arrangements is necessary for us
to complete the geothermal power projects we plan to develop. We have had
difficulty raising the capital we need in the current economic environment, and
our future attempts to secure capital on acceptable terms may not be
successful.




Market
conditions and other factors may not permit us to obtain financing for
geothermal projects on terms favorable to us. Our ability to arrange for
financing on a substantially non-recourse or limited recourse basis, and the
costs of such financing, are dependent on numerous factors, including general
economic and capital market conditions, credit availability from banks, investor
confidence, the success of our projects, the credit quality of the projects
being financed, the political situation in the state in which the project is
located and the continued existence of tax and securities laws which are
conducive to raising capital. If we are not able to obtain financing for our
projects on a substantially non-recourse or limited recourse basis, or if we are
unable to secure capital through partnership or other arrangements, we may have
to finance the projects using recourse capital such as direct equity
investments, which would have a dilutive effect on our common stock. Also, in
the absence of favorable financing or other capital options, we may decide not
to pursue certain projects. Any of these alternatives could have a material
adverse effect on our growth prospects and financial condition.




In
addition, the tax benefits originating from geothermal power projects are
anticipated to provide a significant portion of the funding of the geothermal
projects. This tax equity has traditionally been driven by the tax liability of
the major financial industry companies. Many of these companies are currently
experiencing significantly reduced income or incurring substantial losses. As a
result, they are seeking fewer tax-advantaged investments and this may reduce
the amount of readily available tax credit equity available for our geothermal
projects or reduce the amount of tax equity that can be obtained as these
investors seek higher rates of return for the tax equity they
invest.


38




In 2009,
the United States Congress passed the Recovery Act that was subsequently signed
into law by President Obama. The Recovery Act provides certain economic
incentives, such as clean energy grants, that are designed to provide developers
of geothermal and other clean energy projects with cash to help fund the
projects. These incentives are designed, in part, to address some of the current
problems in the tax equity markets and provide an alternative funding mechanism.
Accordingly, part of our short-term strategy to obtain additional funding
includes applications for loan guarantees and government grants.




In
February of 2010, we received the Grant from the U.S. Treasury under the
Recovery Act totaling $33.0 million. Approximately $3.8 million of the grant
funds were released to us, as owner of the project. The remainder of the grant
funds was placed in escrow to be released to the other parties that provided the
debt and equity financing for the project based on the electrical output,
operational costs of the plant and certain other factors. On July 9, 2010,
we entered into the Forbearance Agreement, as amended on October 26, 2010,
pursuant to which the lenders of the debt financing for the Thermo No. 1
plant received a payment of $27.0 million out of the escrow and waived
compliance with certain debt-related covenants and obligations until February 1,
2011. The lenders are entitled to receive an additional payment of up to $6.25
million plus the expenses of the administrative lender and agents no later than
February 1, 2011. The Forbearance Agreement contemplates that we will satisfy
this additional payment by using proceeds from the sale of all or part of our
interest in the Thermo No. 1 plant. After providing for the $27.0 million
payment to the lenders, approximately $3.0 million in the Thermo No. 1
plant escrow account remained in escrow to be used for the operation of the
Thermo No. 1 plant and other related expenses. Because the amount contained
in the Thermo No. 1 plant escrow account was insufficient to fully satisfy
the lenders, to the extent we are obligated to pay PWPS any additional amounts
for the turbines in production at the Thermo No. 1 plant, such payments
shall be made out of our general corporate funds. In addition, we are obligated
to pay Merrill Lynch its redemption amount of $20.0 million pursuant to the
terms of a promissory note on or before June 30, 2011.




One of
our applications for loan guarantees was denied and we were not awarded small
grants for three projects that we applied for in connection with certain
exploration activities. We cannot predict whether we will be able to
successfully obtain additional grants or loan guarantees under these new
government programs.




Although
we are seeking loan guarantees and grants from the government, we will still
need to obtain financing from other sources for the development of our projects.
Many of our projects will require funding for early-stage development
activities, such as drilling, as well as more traditional project financing for
the construction of the power plant.




In
December 2009, we terminated our Commitment Letter with Merrill Lynch to finance
up to 155 MW of future projects. The Commitment Letter was terminated as part of
an overall restructuring of the project finance and tax equity agreements for
the Thermo No. 1 plant. We are currently seeking other financing
arrangements to fund the development of additional projects.




Early-stage
development activities, such as drilling at potential project sites, preliminary
engineering, permitting, legal fees and other expenses can be difficult to
finance. Project financing is not typically available for these preliminary
activities. As a result, we have generally had to fund these activities out of
funds available for general corporate purposes.




On
October 1, 2010, the Company entered into the Evergreen-FE Letter Agreement
with, among others, Evergreen-FE , which is a collaboration between Evergreen
and FE Clean Energy Group. In connection with the Evergreen-FE Letter Agreement,
Evergreen-FE committed to loan certain funds to Lightning Dock pursuant to the
Evergreen-FE Secured Promissory Note. Lightning Dock's obligations under the
Evergreen-FE Secured Promissory Note are secured by by a certain portion of our
power plant equipment to be used in the construction of the Lightning Dock power
plant pursuant to the security agreement with Evergreen-FE.




It is
anticipated that Lightning Dock will receive short-term loans for up to an
aggregate of approximately $2 million from Evergreen-FE to allow Lightning Dock
to continue the initial development of the Lightning Dock geothermal power
project. While these resource development efforts continue, we, Lightning Dock
and Evergreen-FE intend to negotiate the substantive terms of the Proposed
Equity Investment of approximately $15.3 million by Evergreen-FE in Lightning
Dock. The Proposed Equity Investment would represent an initial 51% interest in
Lightning Dock (converting to a 50% interest at completion), and such funds
would be used to finance a portion of the development and operation of the
Lightning Dock geothermal power project.




The terms
of the Evergreen-FE Secured Promissory Note state that interest accrues at a
rate of 0.25% per month on any amounts that are loaned to Lightning Dock prior
to the Evergreen-FE Secured Promissory Note's Maturity Date of November 30,
2010. After the Maturity Date, interest accrues on any amounts that remain
outstanding at a rate of 0.83% per month.




39




The terms
of the Evergreen-FE Letter Agreement state that if the parties are able to
negotiate and finalize definitive agreements relating to Evergreen-FE's proposed
equity investment in Lightning Dock, any amounts loaned to Lightning Dock by
Evergreen-FE would be credited toward the purchase price for the Proposed Equity
Investment. Although we intend to work closely with Evergreen-FE to finalize
definitive agreements, Evergreen-FE will not be obligated to make the proposed
equity investment until the parties execute definitive agreements. In addition,
even if definitive agreements are executed, Evergreen-FE's obligations to fund
its investment will likely be subject to the satisfaction of certain conditions,
which could include commitments for debt financing, additional due diligence or
other conditions beyond our control.




The
terms of our outstanding Preferred Stock and certain other rights we have
granted security holders may make it more difficult for us to sell additional
securities.




Certain
terms and conditions included in securities that we have sold, or rights granted
to purchasers of securities we have sold, may make it more difficult for us to
negotiate and complete sales of our securities in the future. The terms of our
outstanding securities could also require us to issue additional shares to
purchasers of securities we have sold, or adjust the price of outstanding
warrants to purchase our common stock.




The terms
of our outstanding Preferred Stock provide that each share of Preferred Stock is
entitled to a quarterly dividend, payable in cash or shares of our common stock
at an annual rate equal to the 3-month LIBOR plus 8%, but in no event higher
than 14%. The terms of the Preferred Stock restrict our ability to pay dividends
to our common stockholders unless we are current in our dividend obligations to
the Preferred Stock and any dividend payment to our common stockholders is made
equally to the holders of the Preferred Stock as if such holders had converted
or redeemed their Preferred Stock for shares of our common stock. In addition,
the holders of the Preferred Stock may redeem the shares of Preferred Stock. The
preferential dividend and redemption rights of the Preferred Stock may make
investments in our securities less attractive to potential
investors.




The
holders of the Preferred Stock are also entitled to voting rights that require
the majority vote of the outstanding Preferred Stock prior to making certain
amendments or changes to our certificate of incorporation or bylaws, including
the terms of the Preferred Stock. A majority vote of the Preferred Stock is also
required prior to any future issuance of our securities, subject to certain
exceptions, including an exception that allows us to issue up to $25.0 million
of our securities as long as we have given the holders of the Preferred Stock
the exclusive right to purchase such securities prior to their issuance. We
cannot predict whether we will be able to obtain any approvals required by these
voting requirements, and the uncertainties associated with these voting
requirements could adversely affect our ability to negotiate with potential
investors.




In
connection with an offering of securities that we completed in July 2009, we
granted the purchasers of those securities the right, subject to certain
exceptions, to participate in any future equity financing by us prior to
December 30, 2010. The participation right allows the investors to purchase
up to 35% of any equity securities we offer. These participation rights may make
investments in our securities less attractive to potential investors and could
adversely affect our ability to negotiate with potential investors.




Outstanding
warrants to purchase 1,350,000 shares of our common stock and outstanding
preferred warrants to purchase 14,000 shares of our preferred stock provide for
anti-dilution protection, which adjusts the exercise price of each warrant, from
time to time upon the occurrence of certain events, including the issuance of
shares of common stock at a price lower than the exercise price, stock splits,
dividends, recapitalizations and similar events. These price adjustment
provisions may result in dilution to potential investors, which could make
investments in our securities less attractive to potential investors, and could
adversely affect our ability to negotiate with potential investors.




While we
have issued all of the shares underlying the warrant that we issued to Fletcher
in 2008 if we announce an event that results in the change of control of our
company, Fletcher would be entitled to exert certain rights to purchase a
certain quantity of shares of the acquiring company. The ability of Fletcher to
exert this right could make investments in our securities less attractive to
potential investors, and could adversely affect our ability to negotiate with
potential investors.




The
geothermal power production development activities of our Power Systems segment
may not be successful.




We are
devoting a substantial amount of our available resources to the power production
development activities of our Power Systems segment. To date, we have placed one
geothermal power plant in service, and we continue our efforts to ramp up
production of that plant. However, our ability to successfully complete that
plant and develop additional projects is uncertain.




In
connection with our first power plant (Thermo No. 1 plant), we have
experienced unexpected difficulties and delays in developing a well field that
will produce sufficient heat to operate the plant at full capacity. While we
have gained valuable experience that could benefit future projects, we could
experience similar unexpected difficulties at future projects, which could
adversely affect the economics of those projects. As a result, we cannot be
certain that we will be able to operate any of our plants at full capacity on an
economic basis.




Our
success in developing a particular geothermal project is contingent upon, among
other things, locating and developing a viable geothermal site, negotiation of
satisfactory engineering, procurement and construction agreements, negotiation
of satisfactory power purchase agreements, receipt of required governmental
permits, obtaining interconnection rights, obtaining transmission service
rights, obtaining adequate financing, and the timely implementation and
satisfactory completion of construction. We may be unsuccessful in accomplishing
any of these necessary requirements or doing so on a timely
basis.


40




We
have limited operating experience and revenue, and we are not currently
profitable. We expect to continue to incur net losses for the foreseeable
future, and we may never achieve or maintain profitability.




We have a
limited operating history and, from our inception, we have earned limited
revenue from operations. We have incurred significant net losses in each year of
our operations, including a net loss applicable to common stockholders of
approximately $20.2 million and $84.5 million for the year ended
December 31, 2009 and the nine months ended September 30, 2010,
respectively. As a result of ongoing operating losses, we had an accumulated
deficit of approximately $194.2 million on cumulative revenues during the last
three years of approximately $5.4 million as of September 30,
2010.  In addition, at September 30, 2010, we had negative
working capital totaling $44.5 million.




Under our
current growth plan, we do not expect that our revenues and cash flows will be
sufficient to cover our expenses unless we are able to successfully place a
number of power plants in service. As a result, we expect to continue to incur
substantial losses until we are able to generate significant revenues. Our
ability to generate significant revenues and become profitable will depend on
many factors, including our ability to:




•
            secure
      adequate capital;




•
            identify
      and secure productive geothermal
sites;




•
            verify
      that the properties in which we have acquired an interest contain
      geothermal resources that are sufficient to generate
      electricity;




•
            acquire
      electrical transmission and interconnection rights for geothermal plants
      we intend to develop;




•
            enter
      into power purchase agreements for the sale of electrical power from the
      geothermal power plants we intend to develop at prices that support our
      operating and financing costs;




•
            enter
      into additional tax equity partner agreements with potential financing
      partners that will provide for the allocation of tax benefits to them and
      for the contribution of capital by them to our projects or to successfully
      utilize new incentive provisions being implemented by the United States
      government;




•
            finance
      and complete the development of multiple geothermal power
      plants;




•
            manage
      construction, drilling and operating costs associated with our geothermal
      power projects;




•
            successfully
      license commercial applications of our motor, generator and drive
      technologies;




•
            enforce
      and protect our intellectual property while avoiding infringement
      claims;




•
            comply
      with applicable governmental regulations;
and




•
            attract
      and retain qualified personnel.




Our
independent registered public accounting firm’s report on our 2009 financial
statements questions our ability to continue as a going concern.




Our
independent registered public accounting firm’s report on our financial
statements as of December 31, 2009 and 2008 and for the three year period
ended December 31, 2009 expresses doubt about our ability to continue as a
going concern. Their report includes an explanatory paragraph stating that there
is substantial doubt about our ability to continue as a going concern due to the
lack of sufficient capital, as of the date their report was issued, to support
our business plan through the end of 2010.




We will
need to secure additional financing in the future and if we are unable to secure
adequate funds on terms acceptable to us, we will be unable to support our
business requirements, build our business or continue as a going concern.
Accordingly, we can offer no assurance that the actions we plan to take to
address these conditions will be successful. Inclusion of a “going concern
qualification” in the report of our independent accountants or any future report
may have a negative impact on our ability to obtain financing and may adversely
impact our stock price.




The
current worldwide political and economic conditions, specifically disruptions in
the capital and credit markets, may materially and adversely affect our
business, operations and financial condition.




Recently,
general worldwide economic conditions have experienced a downturn due to the
credit conditions resulting from the subprime-mortgage turmoil and other
factors, slower economic activity, concerns about inflation and deflation,
decreased consumer confidence, reduced corporate profits and capital spending,
recent international conflicts, recent terrorist and military activity, and the
impact of natural disasters and public health emergencies. If the current market
conditions continue or worsen, our business, operations and financial condition
will likely be materially and adversely affected.


41




The
United States credit and capital markets have become increasingly volatile as a
result of adverse conditions that have caused the failure and near failure of a
number of large financial services companies. If the capital and credit markets
continue to experience volatility and the availability of funds remains limited,
our ability to obtain needed financing on favorable terms could be severely
limited. In the current environment, lenders may seek more restrictive lending
provisions and higher interest rates that may reduce our ability to obtain
financing and increase our costs. Also, lenders may simply be unwilling or
unable to provide financing.




Longer
term disruptions in the capital and credit markets as a result of uncertainty,
changing or increased regulation, reduced alternatives or failures of
significant financial institutions could adversely affect our access to capital
needed for our operations and development plans. If we are unable to obtain
adequate financing, we could be forced to reduce, delay or cancel planned
capital expenditures, sell assets or seek additional equity capital, or pursue
other actions that could adversely affect future operations. Failure to obtain
sufficient financing or a reduction of expenditures may cause delays and make it
more difficult to execute our plans to develop geothermal power plants in
accordance with our expectations. It would also make it more difficult to
conduct adequate research and development and other activities necessary to
commercialize our SymetronTM technologies.




The
market price for our common stock has experienced significant price and volume
volatility and is likely to continue to experience significant volatility in the
future. Such volatility may cause investors to experience dramatic declines in
our stock price from time to time, may impair our ability to secure additional
financing and may otherwise harm our business.




The
closing price of our common stock declined significantly over the last twelve
months. The closing price fluctuated from a low of $0.17 per share to a high of
$1.38 per share during the period from January 1, 2010 to November 5, 2010. Our
stock price is likely to experience significant volatility in the future as a
result of numerous factors outside of our control, including the level of short
sale transactions. As a result, the market price of our stock may not reflect
our intrinsic value. In addition, following periods of volatility in our stock
price, there may be increased risk that securities litigation, governmental
investigations or enforcement proceedings may be instituted against us. Any such
litigation, and investigation or other procedures, regardless of merits, could
materially harm our business and cause our stock price to decline due to
potential diversion of management attention and harm to our business
reputation.




In
addition, if the market price for our common stock remains below $5.00 per
share, our common stock may be deemed to be a penny stock, and therefore subject
to rules that impose additional sales practices on broker-dealers who sell our
securities. For example, broker-dealers must make a special suitability
determination for the purchaser and have received the purchaser’s written
consent to the transaction prior to sale. Also, a disclosure schedule must be
delivered to each purchaser of a penny stock, disclosing sales commissions and
current quotations for the securities. Monthly statements are also required to
be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Because of these
additional conditions, some brokers may choose to not effect transactions in
penny stocks. This could have an adverse effect on the liquidity of our common
stock.




The
volatility in our stock price could impair our ability to raise additional
capital. Further, to the extent we do raise additional funds through equity
financing, we may need to issue such equity at a substantial discount to the
market price for our stock. This, in turn, could contribute to the volatility in
our stock price. In addition, in connection with future equity financing
transactions, we may be required to issue additional shares of stock to
investors who purchased securities from us in prior transactions, and future
equity financings may result in adjustments to the exercise price of our
outstanding warrants. These factors could also contribute to volatility in our
stock price.




The
financial performance of our Power Systems segment is subject to changes in the
legal and regulatory environment.




Our
geothermal power projects will be subject to extensive regulation. Changes in
applicable laws or regulations, or interpretations of those laws and
regulations, could result in increased compliance costs and require additional
capital expenditures. Future changes could also reduce or eliminate certain
benefits that are currently available.




Federal
and state energy regulation is subject to frequent challenges, modifications,
the imposition of additional regulatory requirements, and restructuring
proposals. We may not be able to obtain or maintain all regulatory approvals or
modifications to existing regulatory approvals that may be required in the
future. In addition, the cost of operation and maintenance and the financial
performance of geothermal power plants may be adversely affected by changes in
certain laws and regulations, including tax laws.




In order
to promote the production of renewable energy, including geothermal energy, the
federal government has created several significant tax incentives. These tax
incentives are instrumental to our ability to finance and develop geothermal
power plants by providing increased economic benefits. If the available tax
incentives were reduced or eliminated, the economics of the projects would be
adversely affected and there could be reductions in our overall profitability or
the amount of funding available from tax equity partners. Some projects may not
be viable without these tax incentives.


42




Available
federal tax incentives include deductibility of intangible drilling costs,
accelerated depreciation, depletion allowances and the investment tax credit
(“ITC”), all of which currently are permanent features of the Internal Revenue
Code with respect to geothermal power projects. In addition, the Recovery Act
extended the availability of the Production Tax Credit (“PTC”) for geothermal
projects placed in service before 2014 and created a new grant program for
geothermal projects that are placed in service in 2009 or 2010, regardless of
when construction begins, or for which construction begins in 2009 or 2010 and
which are placed in service before 2014.




The ITC
is claimed in the year in which the qualified project is placed in service, and
the amount of the credit is a specified percentage (10% or 30%) of the eligible
costs of the facility. All or some of the ITC is subject to recapture if the
property eligible for the credit is sold or otherwise disposed, or ceases to be
eligible property, within five years after being placed in service. In lieu of
claiming the ITC, a project owner generally can claim the PTC during the first
ten years after the project is placed in service. The amount of the PTC is
adjusted for inflation. For 2009, the amount was $21.00 per megawatt hour of
electricity produced from the facility and sold to unrelated parties. As
extended by the Recovery Act, the PTC applies to qualifying facilities that are
placed in service before 2014. The amount of the PTC also is subject to
phase-out if the national average price of electricity produced from qualified
energy resources exceeds an inflation adjusted threshold.




In
addition, pursuant to the Recovery Act, an owner may elect to receive a grant
from the U.S. Treasury Department in lieu of claiming either the ITC or the PTC.
For a geothermal project, the amount of the grant is 30% of the cost of
qualifying geothermal property placed in service in 2009 or 2010, or placed in
service before 2014 if construction begins in 2009 or 2010. Grants are to be
paid 60 days after the date the U.S. Treasury Department deems the application
is properly submitted and complete. All or some of the grant is subject to
recapture if the property eligible for the grant is sold or otherwise disposed,
or ceases to be eligible property within, five years after being placed in
service. None of the grant should be included in federal taxable income, but may
be included in applicable state taxable income.




Owners of
projects also are permitted to depreciate for tax purposes most of the cost of
the power plant on an accelerated basis, generally, over a five-year period. If
an owner elects to receive a grant from the U.S. Treasury Department in lieu of
claiming either the ITC or PTC, or if the owner elects to receive the ITC, the
basis of the property for depreciation purposes is reduced by an amount equal to
50 percent of the grant or ITC, whichever is applicable.




All of
these programs are subject to review and change by Congress from time to time.
For example, recent legislation has been introduced to remove equipment sourced
outside of the United States from the eligible basis used in calculating the
Section 1603 grant. In addition, several of the programs are currently
scheduled to expire, and continuation of those incentives will require
affirmative Congressional action. Moreover, there are ambiguities as to how some
of the provisions of the Recovery Act will operate.




Many of
the tax incentives associated with geothermal power projects generally are
beneficial only if the owners of the project have sufficient taxable income to
utilize the tax incentives. Due to the nature and timing of these tax
incentives, it is likely that the tax incentives available in connection with
our geothermal power plants (other than the grant in lieu of the ITC and PTC)
will exceed our ability to efficiently utilize these tax benefits for at least
several years of operations. Therefore, an important part of our strategy
involves partnering with investors that are able to utilize the tax incentives
to offset taxable income associated with their operations unrelated to our
geothermal power plants. For example, a corporation in an unrelated industry may
be willing to finance the development of a geothermal power plant in exchange
for receiving the benefit of the tax incentives, which it could then use to
reduce the tax liability associated with its regular operations.




Tax
reform has the potential to have a material effect on our business, financial
condition, future results and cash flow. Tax reform could reduce or eliminate
the value of the tax subsidies currently available to geothermal projects. Any
restrictions or tightening of the rules for lease or partnership transactions,
whether or not part of major tax reform, could also materially affect our
business, financial condition, future results and cash flow. In addition,
changes to the Internal Revenue Code could significantly increase the
regulatory-related compliance and other expenses incurred by geothermal projects
which, in turn, could materially and adversely affect our business, financial
condition, future results and cash flow. Any such changes could also make it
more difficult for us to obtain financing for future projects.




A
significant part of our business strategy is to utilize the tax and other
incentives available to developers of geothermal power generating plants to
attract strategic alliance partners with the capital sufficient to complete
these projects. Many of the incentives available for these projects are new and
highly complex. There can be no assurance that we will be successful in
structuring agreements that are attractive to potential strategic alliance
partners. If we are unable to do so, we may be unable to complete the
development of our geothermal power projects and our business could be
harmed.


43




The
exploration, development, and operation of geothermal energy resources by our
Power Systems segment is subject to geological risks and uncertainties, which
may result in decreased performance, increased costs, or abandonment of our
projects.




Our Power
Systems segment is involved in the exploration, development and operation of
geothermal energy resources. These activities are subject to uncertainties,
which vary among different geothermal resources. These uncertainties include dry
holes, flow-constrained wells, wells that become obstructed during drilling,
uncontrolled releases of pressure and temperature decline, and other factors,
all of which can increase our operating costs and capital expenditures or reduce
the efficiency of our power plants. In addition, the high temperature and high
pressure in geothermal energy resources requires special resource management and
monitoring. Because geothermal resources are complex geological structures, we
can only estimate their geographic area. The viability of geothermal projects
depends on different factors directly related to the geothermal resource, such
as the heat content (the relevant composition of temperature and pressure) flow
of the geothermal resource, the useful life (commercially exploitable life) of
the resource and operational factors relating to the extraction of geothermal
fluids. Although we believe our geothermal resources will be fully renewable if
managed appropriately, the geothermal resources we intend to exploit may not be
sufficient for sustained generation of the anticipated electrical power capacity
over time. Further, any of our geothermal resources may suffer an unexpected
decline in capacity. In addition, we may fail to find commercially viable
geothermal resources in the expected quantities and temperatures, which would
adversely affect our development of geothermal power projects.




The
operation of geothermal power plants depends on the continued availability of
adequate geothermal resources. Although we believe our geothermal resources will
be fully renewable if managed properly, we cannot be certain that any geothermal
resource will remain adequate for the life of a geothermal power plant. If the
geothermal resources available to a power plant we develop become inadequate, we
may be unable to perform under the power purchase agreement for the affected
power plant, which in turn could reduce our revenues and materially and
adversely affect our business, financial condition, future results and cash
flow. If we suffer degradation in our geothermal resources, our insurance
coverage may not be adequate to cover losses sustained as a result
thereof.




Our ability to operate a geothermal
plant at full capacity depends significantly on the characteristics of the
production wells we drill to use for the plant. The wells need to provide
sufficient heat at flow rates that can be maintained without a significant
increase in the parasitic load associated with the plant. The parasitic load
refers to the amount of electricity used by the plant and well field to maintain
operations. A significant portion of the parasitic load results from pumps and
other equipment used to maintain the flow of geothermal water from the earth
through the plant and back into the earth through reinjection wells. Generally,
water with a higher temperature will allow the plant to operate with a slower
rate of flow, which results in a decrease in the parasitic load because less
electricity is required to maintain the necessary flow rate. Water with lower
temperatures, on the other hand, requires a higher flow rate to operate the
plant, which increases the parasitic load. Unless the water produced by a well
is hot enough to increase the amount of power generated by the plant without a
corresponding increase to the parasitic load, the well will not result in a net
increase in the amount of power available for sale from the plant. Therefore,
the overall temperature of the water produced by the production wells is
critical to our ability to operate the plant at full capacity. Similarly, a
deeper resource increases parasitic load because the pumps have to lift the
water a greater distance. We cannot be certain whether wells will increase net
production at a plant until the wells are brought online and the impact to the
parasitic load at the plant has been determined.




We
have experienced certain delays and cost overruns on the Thermo No. 1
plant, and we may experience similar delays and cost overruns on subsequent
projects.




We
completed major construction of the cooling towers and transmission lines and
installed the power generating units at the Thermo No. 1 plant in the
fourth quarter of 2008. We completed the commissioning of the plant in the first
quarter of 2009. In April 2009, we began selling electricity generated by the
Thermo No. 1 plant to the City of Anaheim pursuant to a power purchase
agreement we previously entered into with Anaheim.




During
the nine months ended September 30, 2010, we delivered 34,690 MW hours of
electricity to the City of Anaheim. Although we placed the Thermo No. 1
plant in service in the first quarter of 2009 for accounting purposes, we were
unable to operate the plant at designed capacity due primarily to mechanical
deficiencies of the power generating units, lower than anticipated well field
temperature and flow from certain wells and other inefficiencies which occurred
as a result of overall design of the plant. Accordingly, we initiated several
actions to improve the electrical output of the plant and the resource. These
efforts included reworking certain production wells, the installation of bottom
cycling operations and the replacement of recirculation pumps on each of the
generating units with more efficient pumps. These efforts culminated in June
2010, at which time we evaluated the actual impact of these initiatives and the
resulting overall performance of the plant. The results of this evaluation
indicate that plant performance may improve from the current output level of
approximately 6.6 megawatts, but most likely will not achieve originally
designed electrical output levels.


44




The
Thermo No. 1 plant is the first ever large-scale commercial application of
the PWPS Pure-Cycle units and the first plant built under our rapid-deployment
approach so delays and overruns are not entirely unexpected. Some of the key
drivers of the delays and cost overruns are as follows:




Well
Field Development:




•
            Increased
      costs to broaden previous well field
plans.




•
            Complications
      encountered by drilling
contractors.




•
            High
      demand for drilling services and related materials due to the rapid
      increase in the price of oil.




•
            Higher
      than expected loads for well field
pumps.




Construction:




•
            Wider
      than originally planned step-outs for injection wells, which increased
      piping and electrical costs, due to concerns of
  lenders.




•
            Construction
      of primary access road improvements to accommodate wider access to Thermo
      No. 1 than previously
anticipated.




•
            Additional
      costs incurred to connect piping from additional production wells to the
      plant.




•
            Additional
      costs incurred relating to establishing the greater Thermo
      area.




•
            Increased
      prices for steel, concrete and other commodities due to high
      demand.




•
            Payment
      of overtime and other additional costs in order to accelerate the
      construction schedule.




Equipment:




•
            Expenses
      associated with installing PWPS power generating units for the first time,
      which allowed us to identify design changes for the benefit of future
      plants.




Transmission:




•
            In
      anticipation of future plants, we built a larger transmission
      infrastructure.




If we are
unable to find adequate solutions for the problems we are encountering with the
construction and operation of the Thermo No. 1 plant, we may experience
similar delays and cost overruns on subsequent projects.




Our Power Systems
segment operations may be materially adversely affected if we fail to properly
manage and maintain our geothermal resources.




Our
geothermal power plants use geothermal resources to generate electricity. When
we develop a geothermal power plant, we conduct hydrologic and geologic studies.
Based on these studies, we consider all of the geothermal resources used in our
power plants to be fully renewable.




Unless
additional hydrologic and geologic studies confirm otherwise, there are a number
of events that could have a material adverse effect on our ability to generate
electricity from a geothermal resource and/or shorten the operational duration
of a geothermal resource, which could cause the applicable geothermal resource
to become a non-renewable wasting asset. These events include:




•
            Any
      increase in power generation above the amount our hydrological and
      geological studies indicate that the applicable geothermal resource will
      support;




•
            Failure
      to recycle all of the geothermal fluids used in connection with the
      applicable geothermal resource; and




•
            Failure
      to properly maintain the hydrological balance of the applicable geothermal
      resource.




While we
intend to properly manage and maintain our geothermal resources in order to
ensure that they are fully renewable, our ability to do so could be subject to
unforeseen risks and uncertainties beyond our control.




Our
Power Systems segment may be materially adversely affected if we are unable to
successfully utilize certain heat transfer technologies in our geothermal power
projects.




Our Power
Systems segment intends to utilize certain heat transfer technologies in its
geothermal power projects. One of the providers of these heat transfer
technologies is PWPS. PWPS’s heat transfer technologies are designed to enable
the generation of power from geothermal resources that are lower in temperature
than those resources used in traditional flash steam geothermal
projects.


45




PWPS’s
heat transfer technologies have a limited operating history and have only been
deployed in a limited number of geothermal power projects. Although we are using
these technologies in our Thermo No. 1 plant, that power plant has only
been operating for a short time. As a result, we cannot be certain that PWPS’s
heat transfer technologies or other vendors’ heat transfer technologies can be
successfully implemented. If we are not able to successfully utilize heat
transfer technologies in our geothermal power projects and we are unable to
utilize appropriate substitute technologies, we may be unable to develop our
projects and our business, prospects, financial condition and results of
operations could be harmed.




The
costs of compliance with environmental laws and of obtaining and maintaining
environmental permits and governmental approvals required for construction
and/or operation of geothermal power plants are substantial, and any
non-compliance with such laws or regulations may result in the imposition of
liabilities, which could materially and adversely affect our business, financial
condition, future results and cash flow.




Our
geothermal power projects are required to comply with numerous federal,
regional, state and local statutory and regulatory environmental standards.
Geothermal projects must also maintain numerous environmental permits and
governmental approvals required for construction and/or operation. Environmental
permits and governmental approvals typically contain conditions and
restrictions, including restrictions or limits on emissions and discharges of
pollutants and contaminants, or may have limited terms. If we fail to satisfy
these conditions or comply with these restrictions, or we fail to comply with
any statutory or regulatory environmental standards, we may become subject to a
regulatory enforcement action and the operation of the projects could be
adversely affected or be subject to fines, penalties or additional
costs.




The
geothermal power projects developed by our Power Systems segment could expose us
to significant liability for violations of hazardous substances laws because of
the use or presence of such substances.




The
geothermal power projects developed by our Power Systems segment will be subject
to numerous federal, regional, state and local statutory and regulatory
standards relating to the use, storage and disposal of hazardous substances. We
may use industrial lubricants, water treatment chemicals and other substances at
our projects that could be classified as hazardous substances. If any hazardous
substances are found to have been released into the environment at or near the
projects, we could become liable for the investigation and removal of those
substances, regardless of their source and time of release. If we fail to comply
with these laws, ordinances or regulations or any change thereto, we could be
subject to civil or criminal liability, the imposition of liens or fines, and
large expenditures to bring the projects into compliance. Furthermore, we can be
held liable for the cleanup of releases of hazardous substances at other
locations where we arranged for disposal of those substances, even if we did not
cause the release at that location. The cost of any remediation activities in
connection with a spill or other release of such substances could be
significant.




In order to
finance the development of our geothermal power projects, we may transfer a
portion of our equity interest in the individual projects to a third party and
enter into long-term fixed price power purchase agreements. Under generally
accepted accounting principles, this may result in the deconsolidation of these
subsidiaries, and the reflection of only our net ownership interests in our
financial statements.




Each of
the geothermal power projects our Power Systems segment develops will likely be
owned by a separate subsidiary. The geothermal power projects developed by these
subsidiaries will likely be separately financed. To obtain the financing
necessary to develop the geothermal power projects, we may transfer a portion of
our equity interest in the individual subsidiaries to a third party and enter
into long-term fixed price power purchase agreements. Depending upon the nature
of these arrangements and the application of generally accepted accounting
principles, we may be required to deconsolidate one or more or all of these
subsidiaries, which would result in our share of the net profits or loss
generated by the deconsolidated entities being presented as a net amount in our
financial statements. As a result, our financial statements would not reflect
the gross revenues and expenses of the deconsolidated entities. However, we do
not expect the effect of such deconsolidation, if required, to have an impact on
our stockholders’ equity (deficit), net income/loss or earnings/loss per
share.




Our
foreign projects expose us to risks related to the application of foreign laws,
taxes, economic conditions, labor supply and relations, political conditions,
and policies of foreign governments, any of which risks may delay or reduce our
ability to profit from such projects.




We have
accumulated a large portfolio of geothermal interests in four western
continental states and a geothermal concession in Indonesia. These geothermal
interests are important to our ability to develop geothermal power plants. We
continue to accumulate additional interests in geothermal resources for
potential future projects. Our foreign operations are subject to regulation by
various foreign governments and regulatory authorities and are subject to the
application of foreign laws. Such foreign laws or regulations may not provide
for the same type of legal certainty and rights, in connection with our
contractual relationships in such countries, as are afforded to our projects in
the United States, which may adversely affect our ability to receive revenues or
enforce our rights in connection with our foreign operations. Furthermore,
existing laws or regulations may be amended or repealed, and new laws or
regulations may be enacted or issued. In addition, the laws and regulations of
some countries may limit our ability to hold a majority interest in some of the
projects that we may develop or acquire, thus limiting our ability to control
the development, construction and operation of such projects. Our foreign
operations are also subject to significant political, economic and financial
risks, which vary by country, and include:


46




•
            changes
      in government policies or
personnel;




•
            changes
      in general economic conditions;




•
            restrictions
      on currency transfer or
convertibility;




•
            changes
      in labor relations;




•
            political
      instability and civil unrest;




•
            changes
      in the local electricity market;




•
            breach
      or repudiation of important contractual undertakings by governmental
      entities; and




•
            expropriation
      and confiscation of assets and
facilities.




Our
foreign projects may expose us to risks related to fluctuations in currency
rates, which may reduce our profits from such projects.




Risks
attributable to fluctuations in currency exchange rates can arise when any of
our foreign subsidiaries borrow funds or incur operating or other expenses in
one type of currency but receive revenues in another. In such cases, an adverse
change in exchange rates can reduce such subsidiary’s ability to meet its debt
service obligations, reduce the amount of cash and income we receive from such
foreign subsidiary or increase such subsidiary’s overall expenses. In addition,
the imposition by foreign governments of restrictions on the transfer of foreign
currency abroad, or restrictions on the conversion of local currency into
foreign currency, would have an adverse effect on the operations of our foreign
projects and foreign manufacturing operations, and may limit or diminish the
amount of cash and income that we receive from such foreign projects and
operations.




A
significant portion of our net revenue is attributed to payments made by power
purchasers under power purchase agreements. The failure of any such power
purchaser to perform its obligations under the relevant power purchase agreement
or the loss of a power purchase agreement due to a default would reduce our net
income and could materially and adversely affect our business, financial
condition, future results and cash flow.




A
significant portion of our net revenue is attributed to revenues derived from
power purchasers under the relevant power purchase agreements. The City of
Anaheim has accounted for 100%, of our revenues for the nine months ended
September 30, 2010. We do not make any representations as to the financial
condition or creditworthiness of any purchaser under a power purchase agreement,
and nothing in this quarterly report should be construed as such a
representation.




There is
a risk that the City of Anaheim or any future power purchasers may not fulfill
their respective payment obligations under their power purchase agreements. If
any of the power purchasers fails to meet its payment obligations under its
power purchase agreements, it could materially and adversely affect our
business, financial condition, future results and cash flow.




If
any of our domestic projects loses its current qualifying facility status under
PURPA, or if amendments to PURPA are enacted that substantially reduce the
benefits currently afforded to qualifying facilities, our domestic operations
could be adversely affected.




Most of
our domestic projects are qualifying facilities pursuant to the Public Utilities
Regulatory Policies Act of 1978 (“PURPA”) and are eligible for regulatory
exemptions from most provisions of the Federal Power Act (“FPA”) and certain
state laws and regulations, which largely exempt the projects from the FPA, and
certain state and local laws and regulations regarding rates and financial and
organizational requirements for electric utilities.




If any of
our domestic projects were to lose its qualifying facility status, such project
could become subject to the full scope of the FPA and applicable state
regulation. The application of the FPA and other applicable state regulation to
our domestic projects could require our operations to comply with an
increasingly complex regulatory regime that may be costly and greatly reduce our
operational flexibility.


47




In
addition, pursuant to the FPA, the Federal Energy Regulatory Commission (“FERC”)
has exclusive rate-making jurisdiction over wholesale sales of electricity and
transmission of public utilities in interstate commerce. These rates may be
based on a cost of service approach or may be determined on a market basis
through competitive bidding or negotiation. Qualifying facilities are largely
exempt from the FPA. If a domestic project were to lose its qualifying facility
status, it would become a public utility under the FPA, and the rates charged by
such project pursuant to its power purchase agreements would be subject to the
review and approval of FERC. FERC, upon such review, may determine that the
rates currently set forth in such power purchase agreements are not appropriate
and may set rates that are lower than the rates currently charged. In addition,
FERC may require that some or all of our domestic projects refund amounts
previously paid by the relevant power purchaser to such project. Such events
would likely result in a decrease in our future revenues or in an obligation to
disgorge revenues previously received from our domestic projects, either of
which would have an adverse effect on our revenues. Even if a project does not
lose its qualifying facility status, pursuant to a final rule issued by FERC for
projects above 20 MW, if a project’s power purchase agreement is terminated or
otherwise expires, and the subsequent sales are not made pursuant to a state’s
implementation of PURPA, that project will become subject to FERC’s ratemaking
jurisdiction under the FPA. Moreover, a loss of qualifying facility status also
could permit the power purchaser, pursuant to the terms of the particular power
purchase agreement, to cease taking and paying for electricity from the relevant
project or, consistent with FERC precedent, to seek refunds of past amounts
paid. This could cause the loss of some or all of our revenues payable pursuant
to the related power purchase agreements, result in significant liability for
refunds of past amounts paid, or otherwise impair the value of our projects. If
a power purchaser were to cease taking and paying for electricity or seek to
obtain refunds of past amounts paid, there can be no assurance that the costs
incurred in connection with the project could be recovered through sales to
other purchasers or that we would have sufficient funds to make such payments.
In addition, the loss of qualifying facility status would be an event of default
under the financing arrangements currently in place for some of our projects,
which would enable the lenders to exercise their remedies and enforce the liens
on the relevant project.




Pursuant
to the Energy Policy Act of 2005, FERC was also given authority to prospectively
lift the mandatory obligation of a utility under PURPA to offer to purchase the
electricity from a qualifying facility if the utility operates in a workably
competitive market. Existing power purchase agreements between a qualifying
facility and a utility are not affected. If the utilities in the regions in
which our domestic projects operate were to be relieved of the mandatory
purchase obligation, they would not be required to purchase energy from the
project in the region under Federal law upon termination of the existing power
purchase agreement or with respect to new projects, which could materially and
adversely affect our business, financial condition, future results and cash
flow.




Some
of our leases will terminate if we do not achieve commercial production during
the primary term of the lease, thus requiring us to enter into new leases or
secure rights to alternate geothermal resources, none of which may be available
on terms as favorable to us as any such terminated lease, if at
all.




Most of
our geothermal resource leases are for a fixed primary term, and then continue
for so long as we achieve commercial production or pursuant to other terms of
extension. The land covered by some of our leases is undeveloped and has not yet
achieved commercial production of the geothermal resources. Leases that cover
land which remains undeveloped and does not achieve commercial production and
leases that we allow to expire, will terminate. In the event that a lease is
terminated and we determine that we will need that lease once the applicable
project is operating, we would need to enter into one or more new leases with
the owner(s) of the premises that are the subject of the terminated lease(s) in
order to develop geothermal resources from, or inject geothermal resources into,
such premises or secure rights to alternate geothermal resources or lands
suitable for injection, all of which may not be possible or could result in
increased cost to us, which could materially and adversely affect our business,
financial condition, future results and cash flow.




Claims have been
made that some geothermal plants cause seismic activity and related property
damage.




There are
approximately two-dozen geothermal plants operating within a fifty-square-mile
region in the area of Anderson Springs, in Northern California, and there is
general agreement that the operation of these plants causes a generally low
level of seismic activity. Some residents in the Anderson Springs area have
asserted property damage claims against those plant operators. There are
significant issues whether the plant operators are liable, and to date no court
has found in favor of such claimants. While we do not believe the areas that we
are developing, as noted above, will present the same geological or seismic
risks, there can be no assurance that we would not be subject to similar claims
and litigation, which may adversely impact our operations and financial
condition.




Our
Transportation & Industrial segment may be unable to successfully
license our intellectual property.




A
significant part of our long-term business strategy for our
Transportation & Industrial segment is based upon the licensing of our
SymetronTMtechnologies to electric motor, controller, alternator and generator
manufacturers, suppliers and system integrators. We expect the sales cycle with
respect to the licensing of our technology to be lengthy, and there can be no
assurance that we will achieve meaningful licensing revenues in the time frames
that we expect.


48




Our
SymetronTMtechnologies are relatively new and commercially unproven. While we have
completed some laboratory testing, our technologies have not yet been durability
tested for long-term applications. We can provide no assurance that our
technologies will prove suitable for our target business segments. Our potential
product applications require significant and lengthy product development
efforts. To date, we have not developed any commercially available products. It
may be years before our technology is proven viable, if at all. During our
product development process, we may experience technological issues that we may
be unable to overcome. Superior competitive technologies may be introduced or
potential customer needs may change resulting in our technology or products
being unsuitable for commercialization. Because of these uncertainties, our
efforts to license our technologies may not succeed.




We are
currently focusing on commercializing our SymetronTMtechnologies in the transportation and industrial markets. We cannot
predict the rate at which market acceptance of our technologies will develop in
these markets, if at all. Additionally, we may focus our product
commercialization activities on a particular industry or industries, which may
not develop as rapidly as other industries, if at all. The commercialization of
our products or the licensing of our intellectual property in an industry or
industries that are not developing as rapidly as other industries could harm our
business, prospects, financial condition and results of operations.




The
demand for our technologies may be dependent on government regulations and
policies such as standards for Corporate Average Fuel Economy, or CAFE,
Renewable Portfolio Standards, or RPS, the Clean Air Act and Section 45 of
the Internal Revenue Code. Changes in these regulations and policies could have
a negative impact on the demand for the power we plan to generate and our
technologies. Any new government regulations or policies pertaining to our
products or technologies may result in significant additional expenses to us and
our potential customers and could cause a significant reduction in demand for
our technologies and thereby significantly harm our Transportation &
Industrial segment.




The
recent economic downturn has had a dramatic, adverse effect on the automotive
industry and other large industrial manufacturers that would be in a position to
use and benefit from our technologies. As a result, we believe our ability to
commercialize our SymetronTM
technologies will be limited until economic conditions improve. We intend to
evaluate the prospects for our Transportation & Industrial segment on
an ongoing basis. If we believe there are attractive opportunities, we will
devote the resources to pursue those opportunities to the extent we believe
appropriate. If, on the other hand, we determine that the risks and
uncertainties for this business segment are too great in light of the current
economic climate, we may choose to further reduce the resources devoted to these
efforts. We may also be required to develop a new long-term business strategy
for the Transportation & Industrial segment, or discontinue operating
this business segment.




We
may not be able to enforce or protect the intellectual property that our
Transportation & Industrial segment is seeking to license.




The
success of our Transportation & Industrial segment is dependent upon
protecting our proprietary technology. We rely primarily on a combination of
copyright, patent, trade secret and trademark laws, as well as confidentiality
procedures and contractual provisions to protect our proprietary rights. These
laws, procedures and provisions provide only limited protection. We have applied
for patent protection on most of our key technologies. We cannot be certain that
our issued United States patents or our pending United States and international
patent applications will result in issued patents or that the claims allowed are
or will be sufficiently broad to protect the inventions derived from our
technology or prove to be enforceable in actions against alleged infringers.
Also, additional patent applications that we may file for our current and future
technologies may not be issued. We have received three trademark registrations
in the United States and ten trademark registrations internationally. We have
also applied for five additional trademark registrations in the United States
and one additional trademark registration internationally which may never be
granted.




The
contractual provisions we rely on to protect our trade secrets and proprietary
information, such as our confidentiality and non-disclosure agreements with our
employees, consultants and other third parties, may be breached and our trade
secrets and proprietary information may be disclosed to the public. Despite
precautions that we take, it may be possible for unauthorized third parties to
copy aspects of our technology or products or to obtain and use information that
we regard as proprietary. In particular, we may provide our licensees with
access to proprietary information underlying our licensed applications which
they may improperly appropriate. Additionally, our competitors may independently
design around patents and other proprietary rights we hold.




Policing
unauthorized use of our technology may be difficult and some foreign laws do not
protect our proprietary rights to the same extent as United States laws.
Litigation may be necessary in the future to enforce our intellectual property
rights or determine the validity and scope of the proprietary rights of others.
Litigation could result in substantial costs and diversion of resources and
management attention resulting in significant harm to our business.




If third
parties assert that our current or future products infringe their proprietary
rights, we could incur costs and damages associated with these claims, whether
the claims have merit or not, which could significantly harm our business. Any
future claims could harm our relationships with existing or potential customers.
In addition, in any potential dispute involving our intellectual property, our
existing or potential customers could also become the targets of litigation,
which could trigger indemnification obligations under license and service
agreements and harm our customer relationships. If we unsuccessfully defend an
infringement claim, we may lose our intellectual property rights, which could
require us to obtain licenses which may not be available on acceptable terms or
at all.


49




We
license patented intellectual property rights from third party owners. If such
owners do not properly maintain or enforce the patents underlying such licenses,
our competitive position and business prospects could be harmed. Our licensors
may also seek to terminate our licenses.




We are a
party to licenses that give us rights to third-party intellectual property that
is necessary or useful to our business. Our success will depend in part on the
ability of our licensors to obtain, maintain and enforce our licensed
intellectual property. Our licensors may not successfully prosecute the patent
applications to which we have licenses. Even if patents are issued in respect of
these patent applications, our licensors may fail to maintain these patents, may
determine not to pursue litigation against other companies that are infringing
these patents, or may pursue such litigation less aggressively than we would.
Without protection for the intellectual property we license, other companies
might be able to offer substantially identical products for sale, which could
adversely affect our competitive business position and harm our business
prospects.




Our
licensors may allege that we have breached our license agreement with them, and
accordingly seek to terminate our license. If successful, this could result in
our loss of the right to use the licensed intellectual property, which could
adversely affect our ability to commercialize our technologies, products or
services, as well as harm our competitive business position and our business
prospects.




Our
Transportation & Industrial segment could incur significant expenses if
products built with our technology contain defects.




If our
Transportation & Industrial segment successfully licenses our
technology, products built with that technology may result in product liability
lawsuits for any defects that they may contain. Detection of any significant
defects may result in, among other things, loss of, or delay in, market
acceptance and sales of our technology, diversion of development resources,
injury to our reputation, or increased service and warranty costs. A material
product liability claim could significantly harm our business, result in
unexpected expenses and damage our reputation.




We
face significant competition in each of our business segments. If we fail to
compete effectively, our business will suffer.




Our Power
Systems segment faces significant competition from other companies seeking to
develop the geothermal opportunities available. Some of our competitors for
geothermal projects have substantial capabilities and greater financial and
technical resources than we do. As a result, we may be unable to acquire
additional geothermal resources or projects on terms acceptable to
us.




Our Power
Systems segment also competes with producers of energy from other renewable
sources. This competition may make it more difficult for us to enter into power
purchase agreements for our projects on terms that are acceptable to
us.




We
believe our Transportation & Industrial segment will face significant
competition from existing manufacturers, including motor, controller,
alternator, and transportation vehicle companies. We may also face significant
competition from our future partners. These partners may have better access to
information regarding their own manufacturing processes, which may enable them
to develop products that can be more easily incorporated into their products. If
our potential partners improve or develop technology that competes directly with
our technology, our business will be harmed.




In each
of our business segments, we face competition from companies that have access to
substantially greater financial, engineering, manufacturing and other resources
than we do, which may enable them to react more effectively to new market
opportunities. Many of our competitors may also have greater name recognition
and market presence than we do, which may allow them to market themselves more
effectively to new customers or partners.




We
may pursue strategic acquisitions that could have an adverse impact on our
business.




Our
success depends on our ability to execute our business strategies. Our Power
Systems segment is seeking to develop geothermal power plants. Our
Transportation & Industrial segment is seeking to license our
intellectual property to electric motor and controller manufacturers, suppliers
and system integrators. Executing these strategies may involve entering into
strategic transactions to acquire complementary businesses or technologies. In
executing these strategic transactions, we may expend significant financial and
management resources and incur other significant costs and expenses. There is no
assurance that the execution of any strategic transactions will result in
additional revenues or other strategic benefits for either of our business
segments. The failure to enter into strategic transactions, if doing so would
enable us to better execute our business strategies, could also harm our
business, prospects, financial condition and results of operations.




We may
issue company stock as consideration for acquisitions, joint ventures or other
strategic transactions, and the use of common stock as purchase consideration
could dilute each of our current stockholder’s interests. In addition, we may
obtain debt financing in connection with an acquisition. Any such debt financing
could involve restrictive covenants relating to capital-raising activities and
other financial and operational matters, which may make it more difficult for us
to obtain additional capital and pursue business opportunities, including
potential acquisitions. In addition, such debt financing may impair our ability
to obtain future additional financing for working capital, capital expenditures,
acquisitions, general corporate or other purposes, and a substantial portion of
cash flows, if any, from our operations may be dedicated to interest payments
and debt repayment, thereby reducing the funds available to us for other
purposes and could make us more vulnerable to industry downturns and competitive
pressures.


50




If
we are unable to effectively and efficiently maintain our controls and
procedures to avoid deficiencies, there could be a material adverse effect on
our operations or financial results.




As a
publicly-traded company, we are subject to the reporting requirements of the
Exchange Act and the Sarbanes-Oxley Act of 2002. These requirements may place a
strain on our systems and resources. Our management is required to evaluate the
effectiveness of our internal control over financial reporting as of each year
end, and we are required to disclose management’s assessment of the
effectiveness of our internal control over financial reporting, including any
“material weakness” (within the meaning of Public Company Accounting Oversight
Board, or PCAOB, Auditing Standard No. 5) in our internal control over
financial reporting. On an on-going basis, we are reviewing, documenting and
testing our internal control procedures. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and internal control
over financial reporting, significant resources and management oversight will be
required.




During
the quarter ended September 30, 2010, we identified a material weakness in our
internal control over financial reporting related to footnote disclosure of
commitments relating to certain transmission contracts that were not properly
disclosed in prior periods. If we fail to adequately address any material
weaknesses or deficiencies, it could have a material adverse effect on our
business, results of operations and financial condition. Ultimately, if not
corrected, any material weaknesses or deficiencies could prevent us from
releasing our financial information and periodic reports in a timely manner,
making the required certifications regarding, and complying with our other
obligations with respect to our consolidated financial statements and internal
controls under the Sarbanes-Oxley Act. Any failure to maintain adequate internal
controls over financial reporting and provide accurate financial statements may
subject us to litigation and would cause the trading price of our common stock
to decrease substantially. Inferior controls and procedures could also subject
us to a risk of being removed from the Over The Counter Bulletin Board and cause
investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of our common stock.




We
were recently delisted from the New York Stock Exchange and are now quoted on
the Over the Counter Bulletin Board.  Our quotation on the Over the
Counter Bulletin may make it more difficult for our stockholders to sell their
stock, cause our stock price to decline or materially harm our
business.




Because
we were unable to maintain our listing on the New York Stock Exchange, our stock
is now quoted on the Over the Counter Bulletin Board.  As a result,
our stockholders may find it more difficult to sell our stock, which may cause
our stock price to decline or could materially harm our business. Being quoted
on the Over the Counter market may increase the volatility in our stock price
and could impair our ability to raise additional capital due to the fact that
our common stock is no longer listed on a national securities
exchange.




We
rely on key personnel and the loss of key personnel or the inability to attract,
train, and retain key personnel could have a negative effect on our
business.




We
believe our future success will depend to a significant extent on the continued
service of our executive officers and other key personnel. Of particular
importance to our continued operations are our executive management and
technical staff. We do not have key person life insurance for any of our
executive officers, technical staff or other employees. If we lose the services
of one or more of our current executive officers or key employees, or if one or
more of them decide to join a competitor or otherwise compete directly or
indirectly with us, our business could be harmed.


51




In recent
years we have experienced turnover in certain key positions. On August 5,
2009, our Chief Executive Officer resigned due to health reasons. He has since
been replaced by Nick Goodman effective January 25, 2010. On
January 15, 2010 our former Chief Financial Officer resigned. On
March 22, 2010, John T. Perry began his duties as our new Chief Financial
Officer. The replacement of our Chief Executive Officer and our Chief Financial
Officer could result in transitional issues that could make it more difficult to
execute our business plans in a timely manner.




Our
future success also depends on our ability to attract, train, retain and
motivate highly skilled technical and administrative personnel. Since we have
limited resources to attract qualified personnel, we may not be successful in
recruiting, training, and retaining personnel in the future, which would impair
our ability to maintain and grow our business.




Our
limited cash resources have in the past required us to rely heavily on equity
compensation to hire and retain key personnel, and we expect this to continue in
the future. This practice may result in significant non-cash compensation
expenses and dilution to our stockholders.




We
may record impairment charges which would adversely impact our results of
operations.




We review
our intangible assets and long-lived assets for impairment annually and whenever
events or changes in circumstances indicate that the carrying amounts of these
assets may not be recoverable as required by generally accepted accounting
principles.




One
potential indicator of impairment is whether our fair value, as measured by our
market capitalization, has remained below our net book value for a significant
period of time. Whether our market capitalization triggers an impairment charge
in any future period will depend on the underlying reasons for the decline in
stock price, the significance of the decline, and the length of time the stock
price has been trading at such prices.




In the
event that we determine in a future period that impairment exists for any
reason, we would record an impairment charge in the period such determination is
made, which would adversely impact our financial position and results of
operations.




The
large number of shares eligible for public sale could cause our stock price to
decline.




The
market price of our common stock could decline as a result of the resale of
shares of common stock that were previously restricted under Rule 144. In
addition, if our officers, directors or employees sell previously restricted
shares for tax, estate planning, portfolio management or other purposes, such
sales could be viewed negatively by investors and put downward pressure on our
stock price. Approximately 85.5 million shares were free of restrictive
legend as of September 30, 2010, up from approximately 67.2 million as
of December 31, 2009. The occurrence of such sales, or the perception that
such sales could occur, may cause our stock price to decline.




On
February 3, 2010, we completed the sale of 5,000 shares of the Preferred
Stock, pursuant to which we raised $5.0 million, before deducting underwriters’
fees, legal fees and other expenses. Each share of the Preferred Stock will pay
a quarterly dividend, payable in cash or shares of common stock equal to the
3-month rate of LIBOR plus 8%, but in no event higher than 14%, subject to
adjustment. Each share of the Preferred Stock will be convertible into shares of
our common stock at a price of $5.00 per share, such price being subject to
adjustment for stock splits, combinations, stock dividends and the like. The
holders of the Preferred Stock will have the right to redeem the shares of the
Preferred Stock purchased at the earlier of six months after the issue date or
the date on which the price of our common stock equals or exceeds $2.00 per
share, or the date of a public announcement of the intention or agreement to
engage in a transaction or series of transactions that may result in a change of
control of our Company. The redemption price for each share of the Preferred
Stock into shares of our common stock will be at least $1.22 per share of our
common stock, subject to adjustment under certain circumstances and
(b) 120% of the Prevailing Market Price (as defined in the Certificate of
Rights and Preferences of the Preferred Stock) at the first redemption date. We
also issued the Preferred Warrants to purchase up to an additional 14,000 shares
of the Preferred Stock. The issuance of any additional shares of common stock
pursuant to the terms of the Preferred Stock will dilute the holders of our
common stock and the possibility of these additional issuances of common stock
may put downward pressure on our stock price. Pursuant to certain equity
financings completed during the third quarter of 2010, the redemption price was
adjusted from $1.22 per share to $1.02 per share.  Accordingly, the
maximum number of shares of common stock that may be redeemed by the holder at
September 30, 2010 was also adjusted to 4,877,108.




Sales of
a substantial number of shares of our common stock or other securities in the
public markets, or the perception that these sales may occur, could cause the
market price of our common stock or other securities to decline and could
materially impair our ability to raise capital through the sale of additional
securities.


52




Our
reported financial results may be adversely affected by changes in United States
generally accepted accounting principles.




United
States generally accepted accounting principles are subject to interpretation by
the Financial Accounting Standards Board, or FASB, the American Institute of
Certified Public Accountants, the SEC, and various bodies formed to promulgate
and interpret appropriate accounting principles. A change in these principles or
interpretations could have a significant effect on our financial results. For
example, prior to January 1, 2009, we were required to record certain
warrants with exercise price reset features as equity, if the warrants were
considered to be indexed to our own stock. However, for periods after
January 1, 2009, we are required to record certain warrants with exercise
price reset features as derivative liabilities and record the quarterly changes
in fair market value as gains or losses in the financial statements. A
significant increase in the fair value of the warrants liability can result in a
significant loss recorded during the corresponding period in the financial
statements.




We
have never declared or paid dividends on our common stock and we do not
anticipate paying dividends on our common stock in the foreseeable
future.




Our
business requires significant funding, and we currently invest more in project
development than we earn from operating our projects and sales of our
technology. In addition, the agreements governing our debt and the terms of our
Preferred Stock restrict our ability to pay dividends on our common stock.
Therefore, we do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We currently plan to invest all available funds and
future earnings in the development and growth of our business. As a result,
capital appreciation, if any, of our common stock will be the sole source of
potential gain for our common stockholders in the foreseeable
future.




Item 5.
            Other
      Information




During
2008, we, through our subsidiaries, entered into four wheeling transmission
agreements in Utah, New Mexico, and Nevada (collectively, the “Wheeling
Agreements”): (i) Service Agreement for Point-to-Point Transmission Service
executed by the United States of America Department of Energy acting by and
through the Bonneville Power Administration and Western Renewable Power, LLC
dated March 27, 2008; (ii) Form of Service Agreement for Long-Term Firm
Point-to-Point Transmission Service between PacifiCorp and Intermountain
Renewable Power, LLC dated June 12, 2008; (iii) Service Agreement for Firm
Point-to-Point Transmission Service between Sierra Pacific Power Company and
Western Renewable Power, LLC dated February 19, 2008; and (iv) Tri-State
Contract No. TS-08-0071 Service Agreement for Firm Point-to-Point Transmission
Service for Lightning Dock Geothermal, LLC between Tri-State Generation and
Transmission Association, Inc. and Lightning Dock Geothermal, LLC dated December
9, 2008.  The terms of the Wheeling Agreements are from between five
to twenty years.  Under the Wheeling Agreements, the start dates are
deferrable annually for up to five years or until the later of the service
acceptance date or completion of required upgrades by us, if any.  The
four Wheeling Agreements obligate us to pay up to $16. 1 million over a 20 year
period.  We are currently paying $0.4 million per year under two of
these Wheeling Agreements. The wheeling costs are generally reimbursable under
power purchase agreements or can be sold to third parties at negotiated
prices.  Currently, our City of Anaheim and Salt River Project power
purchase agreements contain provisions that fully reimburse the wheeling
costs.  A copy of the Wheeling Agreements are attached to this
Quarterly Report on Form 10-Q as Exhibits 10.12, 10.13, 10.14 and 10.15 and are
incorporated herein by reference. The foregoing is only a brief description of
the material terms of the Wheeling Agreements, and does not purport to be a
complete description of the rights and obligations of the parties thereunder and
such descriptions are qualified in their entirety by reference to these
exhibits.


53




Item 6.
            Exhibits







Exhibit
                          Number
                        
                        Description of Document10.1
                        
                        Amendment,
      Consent and Forbearance Agreement, dated July 9, 2010 among Thermo
      No. 1 BE-01, LLC, The Prudential Insurance Company of America, Zurich
      American Insurance Company, Deutsche Bank Trust Company Americas, and
      Raser Technologies, Inc. (incorporated by reference to Exhibit 10.1 to our
      current report on Form 8-K filed July 14, 2010)10.2
                        
                        Second
      Amendment to Account and Security Agreement, dated July 9, 2010,
      between Thermo No. 1 BE-01, LLC and Deutsche Bank Trust Company Americas
      (incorporated by reference to Exhibit 10.2 to our current report on Form
      8-K filed July 14, 2010)10.3
                        
                        Subscription
      Agreement, dated July 14, 2010, between Raser Technologies, Inc. and
      War Chest Capital Partners (incorporated by reference to Exhibit 10.1 to
      our current report on Form 8-K filed July 20,
2010)10.4
                        
                        Subscription
      Agreement, dated July 19, 2010, between Raser Technologies, Inc. and
      Iroquois Master Fund, LTD. (incorporated by reference to Exhibit 10.2 to
      our current report on Form 8-K filed July 20,
2010)10.5
                        
                        Amendment
      No. 2 to Unsecured Line of Credit Agreement and Promissory Note, dated as
      of August 5, 2010, among Evergreen Clean Energy Fund, LLC, Bombay
      Investments, and Raser Technologies, Inc. (incorporated by reference to
      Exhibit 10.8 to our quarterly report on Form 10-Q filed August 11,
      2010)10.6
                        
                        Subscription
      Agreement, dated September 14, 2010, between Raser Technologies, Inc. and
      War Chest Capital Partners (incorporated by reference to Exhibit 10.1 to
      our current report on Form 8-K filed September 20,
2010)10.7
                        
                        Subscription
      Agreement, dated September 17, 2010, between Raser Technologies, Inc. and
      Capital Ventures International (incorporated by reference to Exhibit 10.2
      to our current report on Form 8-K filed September 20,
  2010)10.8
                        
                        Subscription
      Agreement, dated September 17, 2010, between Raser Technologies, Inc. and
      Iroquois Master Fund, LTD. (incorporated by reference to Exhibit 10.3 to
      our current report on Form 8-K filed September 20,
2010)10.9
                        
                        Letter
      Agreement, dated October 1, 2010, among Raser Technologies, Inc.,
      Evergreen-FE Lightning Dock, LLC, Los Lobos Renewable Power, LLC, Raser
      Power Systems LLC and Lightning Dock Geothermal HI-01, LLC (incorporated
      by reference to Exhibit 10.1 to our current report on Form 8-K filed
      October 4, 2010)10.10
                        
                        Secured
      Promissory Note, dated October 1, 2010, between Lightning Dock Geothermal
      HI-01, LLC and Evergreen-FE Lightning Dock, LLC (incorporated by reference
      to Exhibit 10.2 to our current report on Form 8-K filed October 4,
      2010)10.11
                        
                        Security
      Agreement, dated October 1, 2010, between Lightning Dock Geothermal HI-01,
      LLC and Evergreen-FE Lightning Dock, LLC (incorporated by reference to
      Exhibit 10.3 to our current report on Form 8-K filed October 4,
      2010)10.12*
                        
                        Service
      Agreement for Point-to-Point Transmission Service executed by the United
      States of America Department of Energy acting by and through the
      Bonneville Power Administration and Western Renewable Power, LLC dated
      March 27, 2008.10.13*
                        
                        Form
      of Service Agreement for Long-Term Firm Point-to-Point Transmission
      Service between PacifiCorp and Intermountain Renewable Power, LLC dated
      June 12, 2008.10.14*
                        
                        Service
      Agreement for Firm Point-to-Point Transmission Service between Sierra
      Pacific Power Company and Western Renewable Power, LLC dated February 19,
      2008.10.15*
                        
                        Tri-State
      Contract No. TS-08-0071 Service Agreement for Firm Point-to-Point
      Transmission Service for Lightning Dock Geothermal, LLC between Tri-State
      Generation and Transmission Association, Inc. and Lightning Dock
      Geothermal, LLC dated December 9, 2008.31.1*
                        
                        Certification
      of Chief Executive Officer pursuant to Exchange Act Rule
      13a-14(a)31.2*
                        
                        Certification
      of Chief Financial Officer pursuant to Exchange Act Rule
      13a-14(a)32.1*
                        
                        Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section
1350


*  
To be filed herewith.




54


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




RASER
      TECHNOLOGIES, INC.(Registrant)November
      10, 2010
                  /s/    John
      T. PerryJohn
      T. Perry,Chief
      Financial Officer
                    (Principal
      Financial and Accounting
Officer)




55


EXHIBIT
INDEX




Exhibit
                        Number
                      
                      Description of Document10.1
                      
                      Amendment,
      Consent and Forbearance Agreement, dated July 9, 2010 among Thermo
      No. 1 BE-01, LLC, The Prudential Insurance Company of America, Zurich
      American Insurance Company, Deutsche Bank Trust Company Americas, and
      Raser Technologies, Inc. (incorporated by reference to Exhibit 10.1 to our
      current report on Form 8-K filed July 14, 2010)10.2
                      
                      Second
      Amendment to Account and Security Agreement, dated July 9, 2010,
      between Thermo No. 1 BE-01, LLC and Deutsche Bank Trust Company Americas
      (incorporated by reference to Exhibit 10.2 to our current report on Form
      8-K filed July 14, 2010)10.3
                      
                      Subscription
      Agreement, dated July 14, 2010, between Raser Technologies, Inc. and
      War Chest Capital Partners (incorporated by reference to Exhibit 10.1 to
      our current report on Form 8-K filed July 20,
2010)10.4
                      
                      Subscription
      Agreement, dated July 19, 2010, between Raser Technologies, Inc. and
      Iroquois Master Fund, LTD. (incorporated by reference to Exhibit 10.2 to
      our current report on Form 8-K filed July 20,
2010)10.5
                      
                      Amendment
      No. 2 to Unsecured Line of Credit Agreement and Promissory Note, dated as
      of August 5, 2010, among Evergreen Clean Energy Fund, LLC, Bombay
      Investments, and Raser Technologies, Inc. (incorporated by reference to
      Exhibit 10.8 to our quarterly report on Form 10-Q filed August 11,
      2010)10.6
                      
                      Subscription
      Agreement, dated September 14, 2010, between Raser Technologies, Inc. and
      War Chest Capital Partners (incorporated by reference to Exhibit 10.1 to
      our current report on Form 8-K filed September 20,
2010)10.7
                      
                      Subscription
      Agreement, dated September 17, 2010, between Raser Technologies, Inc. and
      Capital Ventures International (incorporated by reference to Exhibit 10.2
      to our current report on Form 8-K filed September 20,
  2010)10.8
                      
                      Subscription
      Agreement, dated September 17, 2010, between Raser Technologies, Inc. and
      Iroquois Master Fund, LTD. (incorporated by reference to Exhibit 10.3 to
      our current report on Form 8-K filed September 20,
2010)10.9
                      
                      Letter
      Agreement, dated October 1, 2010, among Raser Technologies, Inc.,
      Evergreen-FE Lightning Dock, LLC, Los Lobos Renewable Power, LLC, Raser
      Power Systems LLC and Lightning Dock Geothermal HI-01, LLC (incorporated
      by reference to Exhibit 10.1 to our current report on Form 8-K filed
      October 4, 2010)10.10
                      
                      Secured
      Promissory Note, dated October 1, 2010, between Lightning Dock Geothermal
      HI-01, LLC and Evergreen-FE Lightning Dock, LLC (incorporated by reference
      to Exhibit 10.2 to our current report on Form 8-K filed October 4,
      2010)10.11
                      
                      Security
      Agreement, dated October 1, 2010, between Lightning Dock Geothermal HI-01,
      LLC and Evergreen-FE Lightning Dock, LLC (incorporated by reference to
      Exhibit 10.3 to our current report on Form 8-K filed October 4,
      2010)10.12*
                      
                      Service
      Agreement for Point-to-Point Transmission Service executed by the United
      States of America Department of Energy acting by and through the
      Bonneville Power Administration and Western Renewable Power, LLC dated
      March 27, 2008.10.13*
                      
                      Form
      of Service Agreement for Long-Term Firm Point-to-Point Transmission
      Service between PacifiCorp and Intermountain Renewable Power, LLC dated
      June 12, 2008.10.14*
                      
                      Service
      Agreement for Firm Point-to-Point Transmission Service between Sierra
      Pacific Power Company and Western Renewable Power, LLC dated February 19,
      2008.10.15*
                      
                      Tri-State
      Contract No. TS-08-0071 Service Agreement for Firm Point-to-Point
      Transmission Service for Lightning Dock Geothermal, LLC between Tri-State
      Generation and Transmission Association, Inc. and Lightning Dock
      Geothermal, LLC dated December 9, 2008.31.1*
                      
                      Certification
      of Chief Executive Officer pursuant to Exchange Act Rule
      13a-14(a)31.2*
                      
                      Certification
      of Chief Financial Officer pursuant to Exchange Act Rule
      13a-14(a)32.1*
                      
                      Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350





*
            To
      be filed herewith.





56