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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 March 31, 2008

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 375, 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, and (2) has
been subject to such filing requirements for the past 90 days.    Yes  x    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  x
|Non-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 registrants common stock as of May 9, 2008 was 56,105,292 shares.









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##### Table of Contents

Raser Technologies, Inc.

SEC Form 10-Q

Table of Contents



|                                                                                              |  |         
|--------------------------------------------------------------------------------------------- |  | --------
|                                                                                              |  | Page No.
|Part I. Financial Information                                                                 |  | 3       
|Item 1. Financial Statements                                                                  |  | 3       
|Condensed Consolidated Balance Sheets                                                         |  | 3       
|Condensed Consolidated Statements of Operations                                               |  | 4       
|Condensed Consolidated Statements of Cash Flows                                               |  | 5       
|Notes to Condensed Consolidated Financial Statements                                          |  | 6       
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 22      
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 33      
|Item 4. Controls and Procedures                                                               |  | 33      
|Part II. Other Information                                                                    |  | 35      
|Item 1. Legal Proceedings                                                                     |  | 35      
|Item 1A. Risk Factors                                                                         |  | 35      
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 43      
|Item 6. Exhibits                                                                              |  | 44      
|SIGNATURES                                                                                    |  | 46      



2



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

RASER TECHNOLOGIES, INC. AND SUBSIDIARIES

(a development stage enterprise)

Condensed Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                   |  |                |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                   |  | March 31, 2008 |             |   | December 31,2007 |  
|Assets                                                                                                                             |  |                |             |   |                  |   |             |  
|Current assets:                                                                                                                    |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                          |  | $              | 21,377,606  |   |                  | $ | 5,912,210   |  
|Restricted cash                                                                                                                    |  |                | 75,000      |   |                  |   | 75,000      |  
|Accounts receivable                                                                                                                |  |                | 322,700     |   |                  |   | 12,200      |  
|Unbilled receivable                                                                                                                |  |                |            |   |                  |   | 192,157     |  
|Note receivable and accrued interest, net                                                                                          |  |                |            |   |                  |   | 506,273     |  
|Restricted short-term marketable securities (held to maturity)                                                                     |  |                | 4,011,227   |   |                  |   |            |  
|Other current assets                                                                                                               |  |                | 636,981     |   |                  |   | 725,648     |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total current assets                                                                                                               |  |                | 26,423,514  |   |                  |   | 7,423,488   |  
|Restricted long-term marketable securities (held to maturity)                                                                      |  |                | 3,885,256   |   |                  |   |            |  
|Unproved property and prepaid delay rentals                                                                                        |  |                | 6,536,965   |   |                  |   | 6,153,688   |  
|Geothermal well field development                                                                                                  |  |                | 9,099,085   |   |                  |   | 4,750,525   |  
|Power project equipment, net                                                                                                       |  |                | 8,234,285   |   |                  |   | 603,814     |  
|Equipment, net                                                                                                                     |  |                | 672,629     |   |                  |   | 680,188     |  
|Intangible assets, net                                                                                                             |  |                | 520,990     |   |                  |   | 515,037     |  
|Deferred financing costs                                                                                                           |  |                | 2,297,986   |   |                  |   |            |  
|Power project development deposits                                                                                                 |  |                |            |   |                  |   | 3,562,500   |  
|Other assets                                                                                                                       |  |                | 1,165,649   |   |                  |   | 95,213      |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total assets                                                                                                                       |  | $              | 58,836,359  |   |                  | $ | 23,784,453  |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|                                                                                                                                   |  |               
|Liabilities and Stockholders (Deficit) Equity                                                                                     |  |                |             |   |                  |   |             |  
|Current liabilities:                                                                                                               |  |                |             |   |                  |   |             |  
|Accounts payable                                                                                                                   |  | $              | 3,962,455   |   |                  | $ | 3,623,359   |  
|Accrued liabilities                                                                                                                |  |                | 8,618,048   |   |                  |   | 623,424     |  
|Note payable                                                                                                                       |  |                | 908,333     |   |                  |   |            |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total current liabilities                                                                                                          |  |                | 13,488,836  |   |                  |   | 4,246,783   |  
|Asset retirement obligation                                                                                                        |  |                | 60,893      |   |                  |   | 86,193      |  
|Long-term 8.00% convertible senior notes                                                                                           |  |                | 50,000,000  |   |                  |   |            |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                                  |  |                | 63,549,729  |   |                  |   | 4,332,976   |  
|Contingencies and commitments, (see Notes C, I, J and R)                                                                           |  |                |             |   |                  |   |             |  
|Stockholders (deficit) equity:                                                                                                    |  |                |             |   |                  |   |             |  
|Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding.                                    |  |                |            |   |                  |   |            |  
|Common stock, $.01 par value, 250,000,000 shares authorized, 56,102,885 and 55,923,705 shares issued and outstanding,
respectively |  |                | 561,029     |   |                  |   | 559,237     |  
|Additional paid in capital                                                                                                         |  |                | 51,358,719  |   |                  |   | 70,114,893  |  
|Accumulated deficit                                                                                                                |  |                | (30,972,177 | ) |                  |   | (30,972,177 | )
|Accumulated deficit after re-entry into development stage                                                                          |  |                | (25,660,941 | ) |                  |   | (20,250,476 | )
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total stockholders (deficit) equity                                                                                               |  |                | (4,713,370  | ) |                  |   | 19,451,477  |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  
|Total liabilities and stockholders (deficit) equity                                                                               |  | $              | 58,836,359  |   |                  | $ | 23,784,453  |  
|                                                                                                                                   |  |                |             |   |                  |   |             |  

See accompanying notes to condensed consolidated financial statements.



3



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RASER TECHNOLOGIES, INC. AND SUBSIDIARIES

(a development stage enterprise)

Condensed Consolidated Statements of Operations

(Unaudited)



|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|------------------------------------------------ |  | ---------------------------- | ---------- | - | ----------------------------------------------------------------------------- | - | ---------- | --------------- |  | - | ----------- | -
|                                                 |  | Three months ended March 31, |            |   | For the period after re-entry into development stage (October 1, 2006 through |  
|                                                 |  | 2008                         |            |   | 2007                                                                          |   |            | March 31, 2008) | 
|Revenue                                          |  | $                            | 130,543    |   |                                                                               | $ | 123,763    |                 |  | $ | 495,332     |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Operating expense                                |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Cost of sales                                    |  |                              | 74,112     |   |                                                                               |   | 466,130    |                 |  |   | 746,036     |  
|General and administrative                       |  |                              | 2,780,238  |   |                                                                               |   | 3,405,938  |                 |  |   | 16,583,037  |  
|Power project development                        |  |                              | 1,787,054  |   |                                                                               |   | 244,890    |                 |  |   | 4,424,369   |  
|Research and development                         |  |                              | 969,183    |   |                                                                               |   | 796,300    |                 |  |   | 5,302,330   |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Total operating expenses                         |  |                              | 5,610,587  |   |                                                                               |   | 4,913,258  |                 |  |   | 27,055,772  |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Operating loss                                   |  |                              | (5,480,044 | ) |                                                                               |   | (4,789,495 | )               |  |   | (26,560,440 | )
|Interest income                                  |  |                              | 59,734     |   |                                                                               |   | 183,938    |                 |  |   | 1,016,902   |  
|Interest expense                                 |  |                              | (65,512    | ) |                                                                               |   |           |                 |  |   | (65,512     | )
|Gain on completion of contract                   |  |                              | 75,357     |   |                                                                               |   |           |                 |  |   | 75,357      |  
|Other                                            |  |                              |           |   |                                                                               |   | (21,012    | )               |  |   | (127,248    | )
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Loss before income taxes                         |  |                              | (5,410,465 | ) |                                                                               |   | (4,626,569 | )               |  |   | (25,660,941 | )
|Income tax benefit (expense)                     |  |                              |           |   |                                                                               |   |           |                 |  |   |            |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Net loss applicable to common stockholders       |  | $                            | (5,410,465 | ) |                                                                               | $ | (4,626,569 | )               |  | $ | (25,660,941 | )
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Loss per common share-basic and diluted          |  | $                            | (0.10      | ) |                                                                               | $ | (0.09      | )               |  |   |             |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Weighted average common shares-basic and diluted |  |                              | 56,023,000 |   |                                                                               |   | 51,486,000 |                 |  |   |             |  
|                                                 |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  

See accompanying notes to condensed consolidated financial statements.



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RASER TECHNOLOGIES, INC. AND SUBSIDIARIES

(a development stage enterprise)

Condensed Consolidated Statements of Cash Flows

(Unaudited)



|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ----------------------------------------------------------------------------- | - | ---------- | --------------- |  | - | ----------- | -
|                                                                            |  | Three Months Ended March 31, |             |   | For the period after re-entry into development stage (October 1, 2006
through |  
|                                                                            |  | 2008                         |             |   | 2007                                                                          |   |            | March 31, 2008) | 
|Cash flows from operating activities:                                       |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Net loss                                                                    |  | $                            | (5,410,465  | ) |                                                                               | $ | (4,626,569 | )               |  | $ | (25,660,941 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Depreciation, amortization and accretion expense                            |  |                              | 76,303      |   |                                                                               |   | 67,157     |                 |  |   | 404,115     |  
|Impairment of abandoned patent applications                                 |  |                              |            |   |                                                                               |   |           |                 |  |   | 130,777     |  
|Loss (gain) on disposal of assets                                           |  |                              | 418         |   |                                                                               |   | (100       | )               |  |   | 3,302       |  
|Gain on completion of contract                                              |  |                              | (75,357     | ) |                                                                               |   |           |                 |  |   | (75,357     | )
|Bad debt expense                                                            |  |                              | 27,200      |   |                                                                               |   |           |                 |  |   | 27,200      |  
|Common stock, stock options and warrants issued for services                |  |                              | 783,467     |   |                                                                               |   | 2,148,241  |                 |  |   | 8,032,202   |  
|Decrease (increase) in accounts receivable                                  |  |                              | (322,700    | ) |                                                                               |   | 69,150     |                 |  |   | (319,150    | )
|Decrease (increase) in unbilled receivable                                  |  |                              | 192,157     |   |                                                                               |   | (99,330    | )               |  |   |            |  
|Increase in other assets                                                    |  |                              | (536,186    | ) |                                                                               |   | (35,297    | )               |  |   | (650,848    | )
|Decrease in interest receivable                                             |  |                              | 3,757       |   |                                                                               |   | 404,522    |                 |  |   | 262,180     |  
|(Decrease) increase in accounts payable                                     |  |                              | 339,097     |   |                                                                               |   | (20,197    | )               |  |   | 3,702,531   |  
|Increase in accrued liabilities                                             |  |                              | 2,197,452   |   |                                                                               |   | 446,467    |                 |  |   | 2,509,926   |  
|Decrease in unearned revenues                                               |  |                              |            |   |                                                                               |   | (24,433    | )               |  |   |            |  
|(Decrease) increase in asset retirement obligation                          |  |                              | (26,453     | ) |                                                                               |   |           |                 |  |   | 59,740      |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Net cash used in operating activities                                       |  |                              | (2,751,310  | ) |                                                                               |   | (1,670,389 | )               |  |   | (11,574,323 | )
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Cash flows from investing activities:                                       |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Purchase of marketable equity securities                                    |  |                              | (7,894,798  | ) |                                                                               |   |           |                 |  |   | (7,894,798  | )
|Decrease in notes receivable                                                |  |                              | 350,000     |   |                                                                               |   | 5,547,552  |                 |  |   | 5,397,552   |  
|Increase in deposits                                                        |  |                              | (292,067    | ) |                                                                               |   | (50,000    | )               |  |   | (868,507    | )
|Decrease in restricted cash                                                 |  |                              |            |   |                                                                               |   | 250,000    |                 |  |   | 325,000     |  
|Increase in intangible assets                                               |  |                              | (12,191     | ) |                                                                               |   | (67,444    | )               |  |   | (156,013    | )
|Purchase of equipment                                                       |  |                              | (63,078     | ) |                                                                               |   | (34,891    | )               |  |   | (388,375    | )
|Proceeds from the sale of equipment                                         |  |                              |            |   |                                                                               |   | 5,000      |                 |  |   | 5,000       |  
|Acquisition of unproved property                                            |  |                              | (400,965    | ) |                                                                               |   | (38,516    | )               |  |   | (5,821,766  | )
|Well field development costs                                                |  |                              | (1,548,829  | ) |                                                                               |   |           |                 |  |   | (6,299,354  | )
|Purchase of project power equipment                                         |  |                              | (3,728,055  | ) |                                                                               |   |           |                 |  |   | (4,331,869  | )
|Project power development deposits                                          |  |                              | 3,562,500   |   |                                                                               |   |           |                 |  |   |            |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Net cash provided by (used in) investing activities                         |  |                              | (10,027,483 | ) |                                                                               |   | 5,611,701  |                 |  |   | (20,033,130 | )
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Cash flows from financing activities:                                       |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Proceeds from exercise of common stock warrants                             |  |                              | 9,300       |   |                                                                               |   |           |                 |  |   | 6,435,343   |  
|Proceeds from exercise of common stock options                              |  |                              | 482,875     |   |                                                                               |   | 73,000     |                 |  |   | 1,402,800   |  
|Proceeds from the issuance of 8.00% convertible senior notes                |  |                              | 50,000,000  |   |                                                                               |   |           |                 |  |   | 50,000,000  |  
|Purchase of forward stock purchase transaction                              |  |                              | (15,000,000 | ) |                                                                               |   |           |                 |  |   | (15,000,000 | )
|Purchase of call spread option transaction                                  |  |                              | (5,850,000  | ) |                                                                               |   |           |                 |  |   | (5,850,000  | )
|Incurrence of deferred financing fees                                       |  |                              | (2,297,986  | ) |                                                                               |   |           |                 |  |   | (2,297,986  | )
|Proceeds from issuance of a note payable                                    |  |                              | 900,000     |   |                                                                               |   |           |                 |  |   | 900,000     |  
|Proceeds from the sale of common stock in private equity placement          |  |                              |            |   |                                                                               |   | 11,853,751 |                 |  |   | 11,853,751  |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Net cash provided by financing activities                                   |  |                              | 28,244,189  |   |                                                                               |   | 11,926,751 |                 |  |   | 47,443,908  |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                              | 15,465,396  |   |                                                                               |   | 15,868,063 |                 |  |   | 15,836,455  |  
|Cash and cash equivalents at beginning of period                            |  |                              | 5,912,210   |   |                                                                               |   | 3,351,568  |                 |  |   | 5,541,151   |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  
|Cash and cash equivalents at end of period                                  |  | $                            | 21,377,606  |   |                                                                               | $ | 19,219,631 |                 |  | $ | 21,377,606  |  
|                                                                            |  |                              |             |   |                                                                               |   |            |                 |  |   |             |  

See accompanying notes to condensed consolidated financial statements.



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

(a development stage enterprise)

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 condensed balance sheet as of December 31, 2007 has been derived from audited financial statements and the unaudited interim condensed financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting
principles in the United States have been condensed or omitted pursuant to such rules and regulations. 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, 2007. The results of operations for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending
December 31, 2008 or any other period.

Development Stage Enterprise

We currently operate as a development stage enterprise as defined in Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises. In 2005, we transitioned from a development stage to an operating stage enterprise for accounting purposes. In the fourth quarter of 2006, our management reassessed our
operations and determined that we should report as a development stage enterprise effective October 1, 2006. The decision was primarily based upon the fact that anticipated licensing revenue from the transportation and industrial technology
segment did not materialize as expected, and our determination that our efforts to license our technologies would take longer than originally anticipated.

Additionally, we are currently utilizing some of our resources to research and locate high probability areas for geothermal activity. We continue developing relationships in order to acquire mineral and geothermal
rights, through long-term geothermal lease agreements, that enable us to explore, drill and construct geothermal power plants on leased property. To fund these and our other operations, we raised capital totaling $12.5 million in a private placement
of common stock that closed on March 30, 2007 and $6.3 million from subsequent exercises of warrants issued in connection with the private placement. We raised additional capital totaling $50 million from the issuance of 8.00% Convertible
Senior Notes due 2013 (the Convertible Notes), which closed on March 26, 2008, and $5 million in connection with the issuance of additional Convertible Notes pursuant to the initial purchasers exercise of its overallotment
option, which closed on April 1, 2008. We also intend to raise additional capital through project financing arrangements including tax equity financing of certain tax benefits associated with these renewable energy plants. Accordingly, the
condensed consolidated statements of operations and cash flows include cumulative balances from the re-entry into the development stage date of October 1, 2006 to March 31, 2008.

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. As discussed
above, we re-entered the development stage in October 2006. As reflected in the accompanying condensed consolidated financial statements, as of March 31, 2008, we had cash and cash equivalents on hand of $21.4 million. Cash used in operations
totaled approximately $2.8 million for the quarter ended March 31, 2008 and the accumulated deficit and deficit accumulated after re-entry into development stage totaled $56.6 million. Our ability to continue as a going concern is
dependent upon our ability to raise additional funds and implement our business plan to increase revenues and ultimately achieve profitable operations.

We have incurred substantial losses since inception and we are not operating at cash breakeven. Our continuation as a going concern is dependent on efforts to raise additional capital, increase revenues, reduce
expenses, and ultimately achieve profitable operations. If substantial losses continue, or if we are unable to raise sufficient, additional capital on reasonable terms, liquidity concerns may require us to curtail operations, liquidate or sell
assets or pursue other actions that could adversely affect future operations.



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As a result of the private placement of the Convertible Notes, our independent registered public
accounting firm reissued their report with respect to our 2007 financial statements on April 1, 2008 to remove an explanatory paragraph that expressed substantial doubt about our ability to continue as a going concern. Although the private
placement provided us with sufficient proceeds to remove the substantial doubt about our ability to continue as a going concern through December 31, 2008, we will need to secure additional financing in the future. 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 our well field development activities or extend the time frame over which these activities will take place.

These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should we be unable to continue as a going concern.

Certain reclassifications have been made in the
prior years consolidated financial statements to conform to the current year presentation.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157). This statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not change which assets and liabilities are required to be recorded at fair value, but the application of this statement could change
practices in determining fair value. We adopted this guidance effective January 1, 2008. In February 2008, the FASB issued FSP SFAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which delays the effective date for SFAS 157
for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until our 2009 fiscal year.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 expands the use of
fair value accounting but does not affect existing standards, which require financial assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use a fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. We adopted SFAS 159 effective January 1, 2008, and elected not to measure any of our currently eligible financial
assets and liabilities at fair value.

Concentration of Credit Risk

We maintain our cash in deposit accounts in one bank in Utah. At times, cash balances may exceed federally insured limits. We also maintain cash in one money market account, not affiliated with the bank, which earns a
variable interest rate. The money market variable interest rate on March 31, 2008 was 2.77%. The average money market variable interest rate for the quarter ended March 31, 2008 was 3.61%. We reviewed the underlying investments included in
the money market account and concluded that the money market account is properly classified as a cash equivalent for financial statement purposes. We have not experienced losses in such accounts and we believe that we are not exposed to any
significant credit risk relating to our money market account.

Concurrent with the issuance of our Convertible Notes, we entered into a
Pledge and Escrow Agreement that required us to utilize approximately $7.9 million of our gross proceeds to purchase a portfolio of U.S. Treasury Strips that were placed in escrow to secure the payment of the first four interest payments on the
Convertible Notes. Since these U.S. Treasury Strips are backed by the U.S. government, we believe that we are not exposed to any significant credit risk relating to these government securities.

We generated revenue in 2008 from one government contractor. We have not experienced losses from uncollected receivables and we believe that we are not
exposed to any significant credit risk on cash and accounts receivable relating to the government contractor.

B. Restricted Short-Term and Long-Term
Marketable Securities

On March 26, 2008, we sold $50 million aggregate principal amount of our Convertible Notes pursuant to the
terms of a purchase agreement, dated March 19, 2008 (the Purchase Agreement), between Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the Initial Purchaser or Merrill
Lynch), and us. The accrued interest payments on the Convertible Notes are due semi-annually on October 1 and April 1 of each year from October 1, 2008 until April 1, 2013. In connection with the issuance of the Convertible
Notes, we entered into a Pledge and Escrow Agreement with the Initial Purchaser that required us to use approximately $7.9 million of the proceeds from the issuance of the Convertible Notes to purchase low-risk government securities that were
pledged to secure the first four interest payments on the Convertible Notes.



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On March 26, 2008, we used approximately $7.9 million of the proceeds from the Convertible Notes to
purchase four discounted U.S. Treasury Strips that have coupon dates and coupon amounts that correspond with the amount of interest payable at each semi-annual payment date of the Convertible Notes. Under the Pledge and Escrow Agreement, we are
required to hold these securities to maturity. Accordingly, the discounts are amortized over the period of the coupon and recognized as interest income. At March 31, 2008 the short-term and long-term marketable securities are as follows:



|                        |  |                 |           |      |   |             |  |              |  |   |          
|----------------------- |  | --------------- | --------- | ---- | - | ----------- |  | ------------ |  | - | ---------
|Maturity                |  | PrincipalAmount |           | Cost |   | Coupon Date |  | CouponAmount
|Short-term portion:     |  |                 |           |      |   |             |  |              |  |   |          
|09/30/08                |  | $               | 2,056,000 |      | $ | 2,042,718   |  | 10/01/08     |  | $ | 2,055,556
|03/31/09                |  | $               | 2,000,000 |      |   | 1,967,720   |  | 04/01/09     |  | $ | 2,000,000
|                        |  |                 |           |      |   |             |  |              |  |   |          
|                        |  |                 |           |      |   | 4,010,438   |  |              |  |   |          
|Discount amortization   |  |                 |           |      |   | 789         |  |              |  |   |          
|                        |  |                 |           |      |   |             |  |              |  |   |          
|Total at March 31, 2008 |  |                 |           |      | $ | 4,011,227   |  |              |  |   |          
|                        |  |                 |           |     
|Long-term portion:      |  |                 |           |      |   |             |  |              |  |   |          
|09/30/09                |  | $               | 2,000,000 |      | $ | 1,951,280   |  | 10/01/09     |  | $ | 2,000,000
|03/15/10                |  | $               | 2,000,000 |      |   | 1,933,080   |  | 04/01/10     |  | $ | 2,000,000
|                        |  |                 |           |      |   |             |  |              |  |   |          
|                        |  |                 |           |      |   | 3,884,360   |  |              |  |   |          
|Discount amortization   |  |                 |           |      |   | 896         |  |              |  |   |          
|                        |  |                 |           |      |   |             |  |              |  |   |          
|Total at March 31, 2008 |  |                 |           |      | $ | 3,885,256   |  |              |  |   |          

On April 1, 2008, we sold an additional $5.0 million aggregate principal amount of the
Convertible Notes pursuant to the exercise of the Initial Purchasers overallotment option. We also purchased additional U.S. Treasury Strips totaling approximately $0.8 million to secure the first four interest payments on the additional $5.0
million of Convertible Notes.

C. Unproved Property and Prepaid Delay Rentals

During the second quarter of 2007, we paid $25,000 to a property owner in California who granted us an option to further pursue the acquisition of 640
acres of geothermal property. In August 2007, we exercised the option and paid $75,000 for the right to develop the geothermal resources on 640 acres in California. Under our binding letter agreement with the property owner, upon exercise of the
option, we agreed to create a joint venture agreement to hold permits and development rights that Raser will fully control. The joint venture is expected to be created during 2008. We also agreed to pay an additional $1.2 million upon successful
completion of an exploratory well, which is defined as the discovery of commercial water quantities above 380 degrees Fahrenheit. Drilling is not expected to begin on the property until 2008 or later.

Our wholly-owned subsidiary has entered into six geothermal lease agreements for certain properties in Nevada with private land owners. Under these lease
agreements, we obtained the right to begin development and construction of geothermal power plants. The initial lease term is 50 years for five of these geothermal lease agreements and is 10 years for one of the geothermal lease agreements, subject
to extension for as long as we are actively pursuing or generating resources from the leased lands. In addition to these six Nevada geothermal lease agreements with private land owners, we have been assigned the rights to two United States Bureau of
Land Management (BLM) geothermal leases previously leased to two of the private land owners. The BLM leases expire in 2011 and 2014, respectively, subject to extension for as long as we are actively pursuing or generating resources from
the leased lands.

During the third quarter of 2007, we participated in a BLM auction to obtain the geothermal development rights for
certain parcels of land in Nevada. We successfully won the bids for four parcels of land and entered into four separate 10-year renewable lease agreements with the BLM covering a total of approximately 15,325 acres. Our total payment obligation
under these leases was $619,712, all of which was paid in the third quarter of 2007.

In 2007, we entered into an agreement to acquire
GeoLectric, LLC. This agreement was later superseded by our agreement to purchase BLM lease #NM 34790 and other miscellaneous assets totaling $4,140,000 from a subsidiary of GeoLectric, LLC (the Purchase). The expenses associated with
the negotiation, documents preparation, due diligence and other acquisition related activities were capitalized as part of the land acquisition. The Purchase was subject to the BLMs approval of the assignment of the BLM Lease from the
subsidiary of GeoLectric, LLC to us. On December 13, 2007, the



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BLM approved the assignment of the BLM Lease to us, thereby fulfilling the condition required to complete the Purchase pursuant to the terms of agreement.
Under the assigned BLM Lease, we obtained rights to begin development of geothermal power plants on the property located on approximately 2,500 acres in Hidalgo County, New Mexico. The initial lease term of the assigned BLM Lease began in January
1979 and has been extended based upon certain conditions in the lease until January 2024. We have capitalized certain legal fees directly associated with completing the Purchase and obtaining the BLM lease. We also capitalized the prior plug and
abandoned obligation that we assumed for certain wells located on the property.

In November 2007, we exercised an option giving us the
right to pursue the development of geothermal resources on four properties totaling 77,914 acres owned by International Paper, Inc. in the States of Oregon and Washington. Under our binding letter agreement, if we fail to develop and deliver certain
geologic reports within the first twelve months after exercising the option, we agreed to compensate International Paper the sum of $0.50 per acre and surrender all properties.

As of December 30, 2007, our wholly-owned subsidiary had entered into 47 geothermal lease agreements for certain properties in Utah. Under these
lease agreements, we obtained the right to begin development and construction of geothermal power plants. The initial lease term for these Utah properties is 10 years, subject to certain extension provisions.

In January 2008, we paid $7,500 to enter into a binding option agreement to purchase 100% of the membership interests of Eureka Green Systems, LLC
(Eureka) which is a 49% member of an entity that has acquired leases around a proven geothermal resource in northern Utah (the Northern Utah Resource). Under the terms of the binding option agreement with Eureka, 360 days
from the execution of the agreement, we have the right to exercise the option to purchase Eureka for $175,000 and 15,000 shares of our restricted stock. We also agreed to pay Eureka a royalty of 1.5% of the gross income generated by the Northern
Utah Resource for the first 10 years and 2.0% of the gross income generated by the Northern Utah Resource thereafter.

In January 2008, we
entered into a surface access and use lease agreement with a property owner in New Mexico and paid $320,000 to obtain surface right of way access and drilling rights to develop our geothermal power plant in Hidalgo County, New Mexico. The term of
the lease agreement shall continue until our geothermal rights respective to BLM lease #NM 34790 have expired. Pursuant to the lease agreement, we also obtained water rights to use in our operations at $0.50 per acre foot of water with a minimum
annual fee of $1,000.

In January 2008, we paid $25,000 to enter into a binding option agreement with a land owner in Utah. Under the terms
of the binding option agreement, 90 days from the execution of the agreement, we have the option to enter into a lease agreement with the property owner which would grant us the surface and subsurface geothermal rights to drill and develop a
geothermal power plant on the property totaling 108 acres. Upon exercise of the option, we would be required to pay an additional $75,000. The term of the binding option agreement has been extended, by mutual agreement to May 15, 2008.

In January 2008, we paid $10,000 as a lease bonus and entered into a geothermal lease with private land owners for 984 acres in Oregon.
Under the lease agreement, we obtained the right to begin development and construction of geothermal power plants. The initial lease term is 10 years, subject to extension for as long as we are actively pursuing or generating resources from the
leased lands.

During the first quarter of 2008, we paid $40,000 to enter into two separate binding option agreements with two private
property owners in Utah. Under the terms of the binding option agreements, 90 days from the execution of the agreements, we have the options to enter into lease agreements with the property owners which would grant us surface and subsurface
geothermal and certain water rights to drill and develop a geothermal power plant on the properties totaling 147 acres. Upon exercise of the options, we would be required to pay up to an additional $75,000.

The following represent capitalized costs by geographical area as of March 31, 2008:



|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          
|--------------------- |  | ------- | --- |  | --------------------------------------------- | --------- | ----------------------- | - | --------------------- |  | - | ---------
|State                 |  | Acreage |     |  | CapitalizedAcquisitionCosts(UnprovedProperty) |           | PrepaidDelayRentalCosts |   | TotalCapitalizedCosts
|California            |  | 640     | (a) |  | $                                             | 210,076   |                         | $ | 53,063                |  | $ | 263,139  
|Nevada                |  | 32,400  | (b) |  |                                               | 1,323,075 |                         |   | 50,000                |  |   | 1,373,075
|New Mexico            |  | 2,500   |     |  |                                               | 4,665,072 |                         |   |                      |  |   | 4,665,072
|Utah                  |  | 101,075 | (c) |  |                                               | 186,722   |                         |   |                      |  |   | 186,722  
|Washington and Oregon |  | 78,898  |     |  |                                               | 48,957    |                         |   |                      |  |   | 48,957   
|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          
|Total                 |  | 215,513 |     |  | $                                             | 6,433,902 |                         | $ | 103,063               |  | $ | 6,536,965
|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          



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The following represent capitalized costs by geographical area as of December 31, 2007:



|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          
|--------------------- |  | ------- | --- |  | --------------------------------------------- | --------- | ----------------------- | - | --------------------- |  | - | ---------
|State                 |  | Acreage |     |  | CapitalizedAcquisitionCosts(UnprovedProperty) |           | PrepaidDelayRentalCosts |   | TotalCapitalizedCosts
|California            |  | 640     | (a) |  | $                                             | 210,076   |                         | $ | 70,750                |  | $ | 280,826  
|Nevada                |  | 32,400  | (b) |  |                                               | 1,323,075 |                         |   | 50,000                |  |   | 1,373,075
|New Mexico            |  | 2,500   |     |  |                                               | 4,346,608 |                         |   |                      |  |   | 4,346,608
|Utah                  |  | 100,819 | (c) |  |                                               | 114,222   |                         |   |                      |  |   | 114,222  
|Washington and Oregon |  | 77,914  |     |  |                                               | 38,957    |                         |   |                      |  |   | 38,957   
|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          
|Total                 |  | 214,273 |     |  | $                                             | 6,032,938 |                         | $ | 120,750               |  | $ | 6,153,688
|                      |  |         |     |  |                                               |           |                         |   |                       |  |   |          



|(a) | Acreage excludes interest in approximately 11,000 acres of mineral rights in the State of California. Delay rentals totaling $53,063 relating to the mining rights have been prepaid
for 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | We also have rights to pursue three million additional acres of land with respect to which the land owner may have geothermal rights.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(c) | In September 2007, we entered into a geothermal resources lease agreement for the right to develop the geothermal resource on certain property in Utah with a party that holds an
undivided 75% interest on 11,294 acres.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Once a viable resource is discovered, the unproved property is classified as
proved property and capitalized costs will be amortized. Management is currently assessing which generally accepted accounting principle method to use for depletion. As of March 31, 2008, all properties but two are still in the
exploratory phase and none have been fully evaluated for viability, generating capacity, or potential reserves.

As part of the overall
consideration for the geothermal lease agreements, we issued 25,000, 5,000 and 2,500 restricted shares of our common stock in connection with three Nevada leases, respectively. The fair values of these equity awards were $115,250, $27,350 and
$12,450 on the respective grant dates, respectively. We have also granted options to purchase 35,000 shares of our common stock at a strike price of $15.10 per share to a property owner in Nevada. The Black-Scholes fair value of the options on the
grant date total $423,987. These costs have been capitalized and classified as unproved property. Certain legal fees incurred in connection with acquiring the geothermal lease agreements were also capitalized as unproved property totaling $212,815.
We also agreed to pay $50,000 as an advance against future delay rentals and/or royalties beginning in the second year of one of the lease agreements in Nevada.

We also committed to issue to two separate parties (the owner of the geothermal rights and the owner of the surface rights to the land) a cumulative total of 50,000 restricted shares of our common stock, contingent
upon successfully placing a geothermal power plant in operation upon the leased property in Nevada. When 25,000 of the shares become unrestricted and are sold by the land owners, the total market value of the 25,000 shares will be credited as an
advance against future rentals and royalty payments. In December 2007, the geothermal lease with the owner of the surface rights was amended to cancel the 25,000 restricted shares that would be credited as an advance against future rentals when
sold. The remaining 25,000 restricted shares granted to the owner of the geothermal rights on the land will not apply towards or be credited against royalties payable. Management assessed the likelihood of placing a geothermal power plant in
operation in accordance with this lease and concluded that it remained reasonably possible and, accordingly has not recorded equity compensation during the first quarter of 2008. Unproved property and prepaid delay rentals are not
amortized.

D. Geothermal Well Field Development

In the second quarter of 2007, we received the appropriate permits and began developing a well field on certain leased land in Nevada. In the fourth quarter of 2007, we received the appropriate permits and began
developing our second well field on certain leased land in Utah. During the first quarter of 2008, we received the appropriate permits and began drilling our third well on the same well field in Utah. We have also begun the permitting process to
develop well fields at two additional sites in Nevada, one additional site in Utah, one site in New Mexico and one site in Oregon. We capitalized intangible drilling costs primarily relating to permit preparation, equipment rental, certain direct
labor and overhead charges and other services and we capitalized tangible drilling costs for items such as pipes, wellheads, rings, and drilling pads. The following represent capitalized well field development costs by geographical locations as of
March 31, 2008:



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|                      |  |                          |           |                        |   |                       |  |   |          
|--------------------- |  | ------------------------ | --------- | ---------------------- | - | --------------------- |  | - | ---------
|State                 |  | Intangible DrillingCosts |           | Tangible DrillingCosts |   | TotalCapitalizedCosts
|Nevada                |  | $                        | 2,708,563 |                        | $ | 384,174               |  | $ | 3,092,737
|New Mexico            |  |                          | 74,386    |                        |   |                      |  |   | 74,386   
|Utah                  |  |                          | 5,325,142 |                        |   | 569,179               |  |   | 5,894,321
|Washington and Oregon |  |                          | 37,641    |                        |   |                      |  |   | 37,641   
|                      |  |                          |           |                        |   |                       |  |   |          
|Total                 |  | $                        | 8,145,732 |                        | $ | 953,353               |  | $ | 9,099,085
|                      |  |                          |           |                        |   |                       |  |   |          

The following represent capitalized well field development costs by geographical locations as of
December 31, 2007:



|           |  |                          |           |                        |   |                       |  |   |          
|---------- |  | ------------------------ | --------- | ---------------------- | - | --------------------- |  | - | ---------
|State      |  | Intangible DrillingCosts |           | Tangible DrillingCosts |   | TotalCapitalizedCosts
|Nevada     |  | $                        | 2,632,305 |                        | $ | 384,174               |  | $ | 3,016,479
|New Mexico |  |                          | 12,168    |                        |   |                      |  |   | 12,168   
|Utah       |  |                          | 1,473,420 |                        |   | 248,458               |  |   | 1,721,878
|           |  |                          |           |                        |   |                       |  |   |          
|Total      |  | $                        | 4,117,893 |                        | $ | 632,632               |  | $ | 4,750,525
|           |  |                          |           |                        |   |                       |  |   |          

Although we have begun drilling at two locations, the properties have not yet been fully evaluated
for geothermal viability, generating capacity, or potential reserves.

E. Power Project Equipment, Net

As of March 31, 2008, we have received completed blue print designs for two geothermal power plants, and we have taken possession of 23 completed
turbines which are stored at a warehouse in Utah. Project power equipment consisted of the following:



|                            |  |                |           |                   |   |        
|--------------------------- |  | -------------- | --------- | ----------------- | - | -------
|                            |  | March 31, 2008 |           | December 31, 2007
|Power project equipment     |  | $              | 8,234,285 |                   | $ | 603,814
|                            |  |                |           |                   |   |        
|Total                       |  |                | 8,234,285 |                   |   | 603,814
|Accumulated depreciation    |  |                |          |                   |   |       
|                            |  |                |           |                   |   |        
|Net power project equipment |  | $              | 8,234,285 |                   | $ | 603,814
|                            |  |                |           |                   |   |        

Power project equipment will not be depreciated until the related geothermal power plant is placed
in service.

F. Note Payable

On
February 15, 2008, we executed a promissory note, whereby we agreed to pay to Lightening Dock Geothermal, Inc. (Lender) $900,000 in principal plus $50,000 in interest on or before January 5, 2009. The promissory note is secured
by a mortgage agreement whereby, our BLM lease #NM 34790 is assigned as security against an event of default by us. In the event that we cannot pay the promissory note when due, an event of default would occur. Under the mortgage agreement, we would
have 15 business days to cure such event of default or the Lender may exercise any or all of its rights, remedies and recourses including, but not limited to, foreclosure and sale of the BLM lease #NM 34790. Accrued interest payable at
March 31, 2008 totaled $8,333.

G. Asset Retirement Obligation

Pursuant to the asset purchase agreement described in Note C above relating to the purchase of a BLM lease in New Mexico, we agreed to assume certain plug and abandon obligations for certain wells on the leased land.
Management determined that the present value of the total estimated costs to plug and abandon the wells was $89,193. In February 2008, we plugged and abandoned 11 of the well sites at a cost of $26,453.

H. Convertible Senior Notes

On March 26,
2008, we sold $50 million aggregate principal amount of our 8.00% Convertible Notes due 2013 pursuant to the terms of the Purchase Agreement between the Initial Purchaser and us. Based upon the timing of the issuance, the carrying value at
March 31, 2008 approximates fair market value. We granted the Initial Purchaser of the



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Convertible Notes a 30-day overallotment option to purchase up to an additional $5.0 million aggregate principal amount of the Convertible Notes. On
April 1, 2008, we sold an additional $5.0 million aggregate principal amount of the Convertible Notes pursuant to the exercise of the Initial Purchasers overallotment option. The Convertible Notes were offered through the Initial
Purchaser only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. Six qualified institutional buyers purchased the Convertible Notes. The net proceeds from the sale of the Convertible Notes,
after deducting the Initial Purchasers discount of $2 million, totaled $48 million. The Initial Purchasers discount of $2 million has been capitalized as a deferred financing fee and will be amortized as additional interest expense over
the five-year term of the Convertible Notes.

The Convertible Notes bear interest at a rate of 8.00% per annum, which is payable
semi-annually. The Convertible Notes are convertible, at the holders option, at an initial conversion rate of 108.3658 shares of common stock per $1,000 principal amount of Convertible Notes, which represents a 20% conversion premium based on
the last reported sale price of $7.69 per share of our common stock on March 19, 2008. Conversion of all Convertible Notes will result in the issuance of up to a maximum of 5,418,292 shares of our common stock. As of March 31, 2008, none
of the Convertible Notes had been converted. The Convertible Notes are unsecured and rank on parity with all of our other existing and future unsecured indebtedness.

We used approximately $7.9 million of the proceeds from the Convertible Notes to purchase four discounted U.S. Treasury Strips that have coupon dates and coupon amounts that correspond with the amount of interest
payable at each semi-annual payment date of the Convertible Notes. Under the Pledge and Escrow Agreement, we are required to hold these securities to maturity. For additional information, see Note B. Restricted Short-Term and Long-Term Marketable
Securities above.

Concurrently, with the pricing of the Convertible Notes, we entered into a call spread option transaction (see Note J.
Stockholders (Deficit) Equity below) and a confirmation of our forward stock purchase transaction (see Note J. Stockholders (Deficit) Equity below) with an affiliate of the initial purchaser of the Convertible Notes. We used
approximately $15.0 million of the net proceeds from the offering to repurchase shares of our common stock pursuant to the forward stock purchase transaction and approximately $5.9 million of net proceeds to fund the call spread option transaction.
We intend to use the remaining net proceeds from the offering for general corporate purposes and to continue well field and other development activities for the geothermal power plants we intend to develop.

I. Contingencies and Commitments

During the first
quarter of 2008, we leased a warehouse to store our completed geothermal power plant turbines located in Tooele County, Utah. The warehouse has approximately 22,239 square feet with monthly rent of $4,448. Expansion increments are 2,880 square feet,
3,240 square feet, and 3,600 square feet at $0.20 per square foot. The warehouse lease expires on July 31, 2008 upon which the lease converts to a month to month lease. We expect that the lease will be renewed or that alternative space will be
obtained. All facilities are well maintained and in good condition.

Total rent expense for all of our leases for the three months ended
March 31, 2008, and 2007, was approximately $75,500, and $62,700, respectively.

As of March 31, 2008, we did not have any
letters of credit or repurchase obligations.

J. Stockholders (Deficit) Equity

Stock-Based Compensation Plans

In March 2004, our Board of Directors (the Board) adopted
the Raser Technologies, Inc. Amended and Restated 2004 Long-Term Incentive Plan (the Plan), and in May 2004, our board recommended and the stockholders approved the Plan. The Plan was adopted to facilitate (1) grants of a wider
range of stock incentive awards, including restricted stock, stock appreciation rights, performance shares and performance units, (2) an automatic annual increase to the number of shares of common stock reserved for issuance under the Plan
beginning in 2005 equal to the lesser of 1,750,000 shares of common stock, 3% of the outstanding shares of common stock on the first of each fiscal year, or an amount determined by the Board, and (3) optional automatic, nondiscretionary annual
stock option grants for employees and non-employee directors. As of March 31, 2008, we were authorized to issue up to 7,943,173 shares of common stock pursuant to the Plan.

On July 3, 2006, the Compensation Committee of the Board approved a new compensation plan for its outside directors. The standard equity package
under the new plan consists of stock awards, each award having a nominal value of $95,000 as of the date of the Annual Meeting of Stockholders (with the actual share award rounded to the nearest round lot of 100 shares). Current outside directors
are allowed to transition to the new plan by making an election within 30 days of the plans adoption by the Compensation Committee or the Annual Meeting of Stockholders in subsequent years. Any director



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who elects to adopt the new plan will retain all options vested up to that point under previous compensation arrangements and forfeit all unvested options.
In June 2007, three of the eligible outside directors chose to adopt the new plan and were each granted 12,700 shares to be delivered one year after the 2007 Annual Meeting of Stockholders. Accordingly, in 2007, one outside director forfeited
5,000 options which had not yet vested. The other two directors adopting the new plan did not have unvested options in 2007. As a result of these three directors adopting the new plan in 2006, 10,600 shares were delivered to each of them on
June 27, 2007.

Employee and Director Share Grants and Option Grants

No shares of common stock were granted to employees and directors during the three months ended March 31, 2008 and 2007, respectively. We granted to
our employees and directors options to purchase an aggregate of 72,000 and 755,000 shares of common stock in the three months ended March 31, 2008 and 2007, respectively. During the three months ended March 31, 2008 and 2007, no vested
options were forfeited or expired, respectively. During the three months ended March 31, 2008 and 2007, no unvested options were forfeited by employees.

Third Party Share Grants

On January 4, 2008, in settlement of two separate outstanding invoices totaling $370,000, we
issued 22,217 restricted shares of our common stock to a service provider for the design and engineering services of our 10 megawatt geothermal power plants and 3,565 restricted shares of our common stock to another service provider for certain
permitting activities. The fair value of the restricted shares on the grant date equaled the amounts outstanding on the separate invoices.

On February 2, 2008, in settlement of an outstanding invoice totaling $450,000, we issued 45,732 restricted shares to a service provider for design and engineering services related to our geothermal power plant development efforts. The
fair value of the unregistered shares on the grant date equaled the amount outstanding on the invoice.

Third Party Option and Warrant Grants

Stock options and warrants granted to non-employees for services are accounted for in accordance with EITF 96-18, Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods, or Services which requires expense recognition based on the fair value of the options. We calculate the fair value of options and
warrants that have been granted by using the Black-Scholes pricing model. During the three months ended March 31, 2008 and 2007, we granted no options to third parties to purchase shares of our common stock, respectively. During the three
months ended March 31, 2008 and 2007, we granted no warrants to third parties to purchase shares of our common stock, respectively.

The maximum term of each option is ten years. With respect to stock options granted during the three months ended March 31, 2008 and 2007, the assumptions used in the Black-Scholes option-pricing model were as follows:



|                                  |  |                             |   |  |             |  
|--------------------------------- |  | --------------------------- | - |  | ----------- | -
|                                  |  | Three Months EndedMarch 31, |  
|                                  |  | 2008                        |   |  | 2007        |  
|Risk-free interest rate           |  | 2.61  3.41                 | % |  | 4.51  4.68 | %
|Expected dividend yield           |  | 0.0                         | % |  | 0.0         | %
|Volatility                        |  | 97  99                     | % |  | 99  101    | %
|Expected exercise life (in years) |  | 6.0                         |   |  | 6.0         |  

The risk-free interest rate is based on a yield curve of interest rates at the time of the grant
based on the contractual life of the option. Expected dividend yield is based on our dividend history and anticipated dividend policy. Expected volatility is based on historical volatility for our common stock. Expected exercise life is based on
management estimates of future attrition and early exercise rates, giving consideration to employee exercise behavior.

During the three
months ended March 31, 2008 and 2007, we issued 102,500 and 20,000 shares of common stock as a result of option exercises, and 2,000 and zero shares of common stock as a result of warrant exercises, respectively. The total intrinsic value of
options exercised in the three months ended March 31, 2008 and 2007 was approximately $446,738 and $71,295, respectively. The cash received from exercises of options during the three months ended March 31, 2008 and 2007 was approximately
$482,875 and $73,000, respectively. In the three months ended March 31, 2008, the intrinsic value of warrants exercised was approximately $23,900 and cash received from the warrant exercise totaled $9,300.



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##### Table of Contents

The activity for stock options and warrants during the first three months of 2008 is summarized as
follows:



|                                |  |                               |   |  |                                |       |                          |   |          
|------------------------------- |  | ----------------------------- | - |  | ------------------------------ | ----- | ------------------------ | - | ---------
|                                |  | Number of Optionsand Warrants |   |  | Weighted AverageExercise Price |       | Aggregate IntrinsicValue
|Outstanding at January 1, 2008: |  | 2,910,566                     |   |  | $                              | 8.14  |                          |   |          
|Granted                         |  | 3,872,000                     |   |  |                                | 15.25 |                          |   |          
|Exercised                       |  | (104,500                      | ) |  |                                | 4.71  |                          |   |          
|Expired or forfeited            |  |                              |   |  |                                |      |                          |   |          
|                                |  |                               |   |  |                                |       |                          |   |          
|Outstanding at March 31, 2008:  |  | 6,678,066                     |   |  | $                              | 12.34 |                          | $ | 5,868,835
|                                |  |                               |   |  |                                |       |                          |   |          
|Exercisable at March 31, 2008:  |  | 1,552,216                     |   |  | $                              | 7.22  |                          | $ | 4,388,990
|                                |  |                               |   |  |                                |       |                          |   |          

The following tables summarize certain stock option and warrant information at March 31,
2008:

Outstanding Options and Warrants Fully Vested and/or Expected to Vest



|                        |  |           |  |                                  |  |                                |       |                |   |          
|----------------------- |  | --------- |  | -------------------------------- |  | ------------------------------ | ----- | -------------- | - | ---------
|Range of exercise price |  | Number    |  | Weighted averagecontractual life |  | Weighted averageexercise price |       | Intrinsicvalue
|$ 3.00  $5.75          |  | 1,246,233 |  | 6.84                             |  | $                              | 4.32  |                | $ | 5,200,835
|$ 6.00  $9.10          |  | 789,500   |  | 8.51                             |  |                                | 7.82  |                |   | 668,000  
|$11.01  $17.20         |  | 3,909,000 |  | 7.19                             |  |                                | 14.50 |                |   |         
|$18.25  $25.95         |  | 733,333   |  | 6.81                             |  |                                | 19.29 |                |   |         
|                        |  |           |  |                                  |  |                                |       |                |   |          
|Total                   |  | 6,678,066 |  | 7.24                             |  | $                              | 12.34 |                | $ | 5,868,835
|                        |  |           |  |                                  |  |                                |       |                |   |          

Outstanding Options and Warrants Fully Vested and Exercisable



|                        |  |           |  |                                  |  |                                |       |                |   |          
|----------------------- |  | --------- |  | -------------------------------- |  | ------------------------------ | ----- | -------------- | - | ---------
|Range of exercise price |  | Number    |  | Weighted averagecontractual life |  | Weighted averageexercise price |       | Intrinsicvalue
|$ 3.00  $5.75          |  | 937,483   |  | 6.16                             |  | $                              | 4.08  |                | $ | 4,129,620
|$ 6.00  $9.10          |  | 316,625   |  | 8.17                             |  |                                | 7.85  |                |   | 259,370  
|$11.01  $17.20         |  | 264,775   |  | 7.92                             |  |                                | 15.21 |                |   |         
|$25.95                  |  | 33,333    |  | 7.05                             |  |                                | 25.95 |                |   |         
|                        |  |           |  |                                  |  |                                |       |                |   |          
|Total                   |  | 1,552,216 |  | 6.89                             |  | $                              | 7.22  |                | $ | 4,388,990
|                        |  |           |  |                                  |  |                                |       |                |   |          

The following table summarizes the non-vested stock options at March 31, 2008:

Non-Vested Option Grants



|                              |  |                   |   |  |                                             |      
|----------------------------- |  | ----------------- | - |  | ------------------------------------------- | -----
|                              |  | Number of Options |   |  | Weighted averageper option fairmarket value
|Non-vested at January 1, 2008 |  | 1,395,925         |   |  | $                                           | 7.73 
|Granted                       |  | 172,000           |   |  |                                             | 11.40
|Vested                        |  | (157,075          | ) |  |                                             | 6.40 
|Forfeited                     |  |                  |   |  |                                             |     
|                              |  |                   |   |  |                                             |      
|Non-vested at March 31, 2008: |  | 1,410,850         |   |  | $                                           | 8.32 
|                              |  |                   |   |  |                                             |      

The following table summarizes the non-vested stock awards at March 31, 2008:

Non-Vested Share Awards



|                                |  |                  |   |  |                                            |      
|------------------------------- |  | ---------------- | - |  | ------------------------------------------ | -----
|                                |  | Number of Shares |   |  | Weighted averageper share fairmarket value
|Outstanding at January 1, 2008: |  | 44,850           |   |  | $                                          | 8.54 
|Granted                         |  | 71,514           |   |  |                                            | 11.47
|Vested                          |  | (74,680          | ) |  |                                            | 11.62
|Forfeited                       |  |                 |   |  |                                            |     
|                                |  |                  |   |  |                                            |      
|Outstanding at March 31, 2008:  |  | 41,684           |   |  | $                                          | 8.03 
|                                |  |                  |   |  |                                            |      



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##### Table of Contents

As of March 31, 2008, there was $9,201,347 (pre-tax) and $131,874 (pre-tax) of unrecognized
compensation expense related to non-vested stock option and stock award grants, respectively. This expense is expected to be recognized over a weighted average period of 2.10 years. As of March 31, 2008, the following table summarizes the
unrecognized compensation expense expected to be recognized in future periods.



|                   |  |                                          |          
|------------------ |  | ---------------------------------------- | ---------
|                   |  | Stock-basedcompensationexpense (pre-tax)
|Remainder of 2008: |  | $                                        | 2,304,752
|2009               |  |                                          | 2,944,419
|2010               |  |                                          | 2,624,306
|2011               |  |                                          | 936,145  
|2012               |  |                                          | 506,485  
|2013               |  |                                          | 17,114   
|                   |  |                                          |          
|Total:             |  | $                                        | 9,333,221
|                   |  |                                          |          

Contingent Options Grant

On January 14, 2008, the Compensation Committee granted options to purchase 100,000 shares of our common stock to a key power systems employee. Vesting of these options is contingent upon successfully achieving
certain sales levels. The option price is $16.50 per share, which was the closing market price on the grant date. Failure to successfully, attain the predetermined sales levels will result in forfeiture of the unvested contingent options. At
March 31, 2008, management assessed the likelihood of completing the contingent requirements in accordance with the definition in SFAS No. 5. Accounting for Contingencies. Based on this assessment management concluded that it
is reasonably possible that a geothermal power plant will be placed in service under the employees supervision and that the required sales level can be met. Accordingly, we did not recognize equity compensation during the three
months ended March 31, 2008.

Call Spread Option Transaction

Concurrent with the issuance the Convertible Notes, we entered into a call spread option transaction with an affiliate of Merrill Lynch. The call spread option transaction was intended to reduce the potential dilution
of our common stock upon conversion of the Convertible Notes. The Convertible Notes are convertible at any time prior to maturity at a conversion rate of 108.3658 shares per $1,000 principal amount of Convertible Notes, which represents a conversion
price of $ 9.23 per share, subject to adjustment. The call spread option transaction allows us to receive up to 934,118 shares of our common stock at $9.23 per share from the call spread option transaction holder, equal to the amount of our common
stock related to the excess conversion value that we would deliver to the holders of the Convertible Notes upon conversion. The number of shares that we would receive pursuant to the call spread option transaction declines after the market price
exceeds $11.15 per share to reflect the aggregate market value of $10.4 million of our common stock. The call spread option transaction will terminate upon the earlier of the maturity date of the related Convertible Notes or the first day all of the
related Convertible Notes are no longer outstanding due to conversion or otherwise.

In accordance with the provisions of EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, we recorded the $5,850,000 cost of the call spread option transaction as a net reduction in additional paid in capital on
the Condensed Consolidated Balance Sheet for the quarter ended March 31, 2008 and will not recognize subsequent changes in fair value.

Forward
Stock Purchase Transaction

Concurrent with the issuance of the Convertible Notes, we entered into a forward stock purchase transaction
with Merrill Lynch under which we are entitled to receive from Merrill Lynch 1.95 million shares of our common stock on or about the maturity date of the Convertible Notes. The forward stock purchase transaction was also intended to reduce the
potential dilution of our common stock that would result from the conversion of the Convertible Notes into shares of our common stock. The Convertible Notes are convertible at any time prior to maturity at a conversion rate of 108.3658 shares per
$1,000 principal amount of Convertible Notes, which represents a conversion price of $9.23 per share, subject to adjustment.



15



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##### Table of Contents

We accounted for the forward stock purchase transaction pursuant to guidance in EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. Accordingly, the $15.0 million cost of the forward stock purchase transaction was recorded as a reduction to additional
paid in capital in the Balance Sheet for the quarter ended March 31, 2008 and will not recognize subsequent changes in fair value.

K. Warrants

Contingent Warrants

On
January 16, 2008, we granted to Merrill Lynch warrants to purchase up to 3,700,000 shares of our common stock, subject to vesting requirements associated with the financing of our geothermal power plants. The warrants will vest and become
exercisable in increments over the term of the Commitment Letter based on the actual funding provided. In accordance with the anti-dilution protection included in the warrants, the issuance of the Convertible Notes resulted in a reduction of the
original strike prices of the warrants from a range of $14.98 to $19.71 to a range of $14.47 to $18.79. The warrants expire on January 16, 2015 and would generate proceeds totaling $56.6 million if all of the warrants vest and are exercised.

In accordance with EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, because the performance criteria related to the vesting of the warrants has not been completed, we have not recognized the fair value of these warrants as deferred financing costs. The fair value of
any warrants that vest will be capitalized and recorded as deferred financing costs.

The number of warrants that vest in connection with a
project funding will depend on the amount of funding provided. No more than 3,700,000 warrants may vest pursuant to the financing of the first 100 MW of power projects funded under the Merrill Lynch Commitment Letter. The following table sets forth
the general terms of the vesting schedule and the exercise price applicable to each portion of warrants to vest in accordance with the schedule:



|                                                                                                                                                                                                                                                                                                                                                                    |  |               |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -----
|Vesting Schedule                                                                                                                                                                                                                                                                                                                                                    |  | ExercisePrice
|Concurrent with the closing of each funding with respect to any portion of the first 10 MWs of geothermal power projects, warrants vest and
become exercisable for the purchase of 300,000 shares of common stock for each $10 million of financing provided or arranged pursuant to the Commitment Letter.                                                         |  | $             | 14.47
|                                                                                                                                                                                                                                                                                                                                                                    | 
|Concurrent with the closing of each funding with respect to any portion of the next 10 MWs of geothermal power projects after taking into
account the projects previously funded, warrants vest and become exercisable for the purchase of 150,000 shares of common stock for each $10 million of financing provided or arranged pursuant to the Commitment Letter. |  | $             | 14.47
|                                                                                                                                                                                                                                                                                                                                                                    | 
|Concurrent with the closing of each funding with respect to any portion of the next 30 MWs of geothermal power projects after taking into
account the projects previously funded, warrants vest and become exercisable for the purchase of 100,000 shares of common stock for each $10 million of financing provided or arranged pursuant to the Commitment Letter. |  | $             | 14.47
|                                                                                                                                                                                                                                                                                                                                                                    | 
|Concurrent with the closing of each funding with respect to any portion of the next 50 MWs of geothermal power projects after taking into
account the projects previously funded, warrants vest and become exercisable for the purchase of 50,000 shares of common stock for each $10 million of financing provided or arranged pursuant to the Commitment Letter.  |  | $             | 18.79
|                                                                                                                                                                                                                                                                                                                                                                    | 
|Concurrent with the closing of the funding with respect to the final MW (i.e., the one hundredth MW) of geothermal power projects after taking
into account the projects previously funded, warrants vest and become exercisable for the purchase of 200,000 shares of common stock.                                                                                |  | $             | 18.79

We have agreed to grant additional warrants to Merrill Lynch upon funding of any of the additional
55 MW of geothermal power projects with respect to which Merrill Lynch has a right of first refusal. The exercise price of any such additional warrants will be based on the volume weighted average price of our common stock over a 20 consecutive
trading day period prior to the issuance of such warrants.



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##### Table of Contents

Contingent Warrants Call Provision

Any vested warrants may be called for cancellation by us if certain conditions have been met. In general, warrants may be called for cancellation if during any period (a Call Measurement Period) of twenty
(20) consecutive trading days concluding at any time after the date such warrants first become subject to being called for cancellation (the Call Period) the closing price of the common stock exceeds a specified price (the
Trigger Price). The following table sets forth the general terms under which the warrants may be called for cancellation:



|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                         |  |              |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----
|Warrants Subject to Being Called for Cancellation                                                                                                                                                                                                                                                                   |  | Call Period                                                                                                                             |  | TriggerPrice
|The first 395,000 warrants to vest and become exercisable in accordance with the vesting schedule (the First Series of Warrants).                                                                                                                                                                                 |  | Any time after the later of (x) thirty (30) days after the date of the first funding under the Commitment Letter and (y) March 1, 2008. |  | $            | 23.66
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 395,000 warrants to vest and become exercisable after the First Series of Warrants in accordance with the vesting schedule (the Second Series of Warrants).                                                                                                                                              |  | Any time after the later of (x) ninety (90) days after the date of the first funding under the Commitment Letter and (y) May 1, 2008.   |  | $            | 23.66
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 395,000 warrants to vest and become exercisable after the Second Series of Warrants in accordance with the vesting schedule (the Third Series of Warrants).                                                                                                                                              |  | At any time after the later of (x) 150 days after the date of the first funding under the Commitment Letter and (y) July 1, 2008.       |  | $            | 23.66
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 395,000 warrants to vest and become exercisable after the Third Series of Warrants in accordance with the vesting schedule (the Fourth Series of Warrants).                                                                                                                                              |  | At any time after the later of (x) 210 days after the date of the first funding under the Commitment Letter and (y) September 1, 2008.  |  | $            | 39.43
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 395,000 warrants to vest and become exercisable after the Fourth Series of Warrants in accordance with the vesting schedule (the Fifth Series of Warrants).                                                                                                                                              |  | At any time after January 16, 2009.                                                                                                     |  | $            | 39.43
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 987,500 warrants to vest and become exercisable after the Fifth Series of Warrants in accordance with the vesting schedule (the Sixth Series of Warrants).                                                                                                                                               |  | At any time after January 16, 2011.                                                                                                     |  | $            | 59.14
|                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                        
|The next 987,500 warrants to vest and become exercisable after the Sixth Series of Warrants in accordance with the vesting schedule (the Seventh Series of Warrants). Because the
Commitment Letter was not signed before December 31, 2007, only 737,500 of the Seventh Series of Warrants are eligible to vest. |  | At any time after January 16, 2013.                                                                                                     |  | $            | 78.85

In order to call any or all of a series of warrants for cancellation, we must provide written
notice to the holder that we intend to cancel any or all of such warrants (a Notice of Intention to Cancel) prior to 6:30 p.m. New York City time on the third (3rd) trading day immediately following the end of the relevant Call
Measurement Period. After receipt of such notice, the holder has ten (10) trading days to exercise the warrants subject to the Notice of Intention to Cancel. If the holder does not exercise such warrants during the ten (10) trading day
period, we may cancel the warrants upon delivery of notice to the holder.

The terms of the warrants provide for anti-dilution protection,
which adjusts the exercise price of each warrant, from time to time upon the occurrence of certain events, including stock splits, dividends, recapitalizations and similar events. In these cases we shall:



| | (i) | pay a dividend or make a distribution to all holders of the outstanding common stock in shares of common stock;
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (ii) | subdivide into a greater number of shares of common stock;
| | ---- | ----------------------------------------------------------



| | (iii) | combine into a smaller number of shares of common stock; or
| | ----- | -----------------------------------------------------------



| | (iv) | issue by reclassification of shares of our common stock any shares of our capital stock; or
| | ---- | -------------------------------------------------------------------------------------------



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##### Table of Contents

then, upon happening of such events, the exercise price will be appropriately adjusted in accordance with the provisions
of the Common Stock Purchase Warrant. As of March 31, 2008, no warrants had vested or become exercisable by Merrill Lynch.

Contingent Warrant
Registration Rights Agreement

In connection with the Commitment Letter and the issuance of warrants to purchase up to 3,700,000 shares
of our common stock, we entered into a registration rights agreement that provides the holder of the warrants with certain rights to register the resale of the warrants and the shares of common stock issuable upon exercise of the warrants. Upon a
series of warrants vesting, we are obligated to register the shares underlying the vested warrants for resale pursuant to the exercise of such warrants and cause the registration statement to remain continuously effective until all vested warrants
and exercised or expired. Management currently believes that the likelihood that the shares will fail to be registered in accordance with the registration rights agreement or fail to remain continuously effective is remote as defined in
SFAS No. 5 Accounting for Contingencies. Accordingly, no accrued liability is deemed necessary.

L. Net Loss Per Common Share

Basic net loss per common share (Basic EPS) is computed by dividing the net loss by the weighted average number of common
shares outstanding during the period. Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and the weighted average dilutive common share
equivalents then outstanding. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect. Common share equivalents consist of shares issuable upon the exercise of options and warrants
to purchase common stock, the conversion of any convertible debentures and related accrued interest, and shares issuable upon conversion of any preferred stock.

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 March 31, 2008:



|                          |  |                |  |                   
|------------------------- |  | -------------- |  | ------------------
|                          |  | In the Money |  | Out of the Money
|Warrants granted          |  | 29,233         |  | 3,715,000         
|Vested employee options   |  | 1,032,625      |  | 380,358           
|Unvested employee options |  | 626,875        |  | 783,975           
|Vested contractor options |  | 75,000         |  | 35,000            

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 March 31, 2007:



|                          |  |                |  |                   
|------------------------- |  | -------------- |  | ------------------
|                          |  | In the Money |  | Out of the Money
|Warrants granted          |  | 63,947         |  | 1,037,012         
|Vested employee options   |  | 842,834        |  | 545,850           
|Unvested employee options |  | 399,166        |  | 890,983           
|Vested contractor options |  | 247,000        |  |                  

Unvested and fully-vested and undelivered stock grants totaling 41,684 and 318,465 were
outstanding on March 31, 2008 and 2007, respectively. None of these contingent shares have met the performance criteria for vesting. These warrants, options and share grants were not included in the calculation of diluted net loss per share
because their effect was anti-dilutive. Our common stock underlying the call spread option transaction and forward stock purchase transaction would be recorded as treasury stock when delivered and; therefore, would be excluded from the calculation
of diluted net loss per share because their effect is anti-dilutive.



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##### Table of Contents

M. Fair Value

Transition Impact

We adopted SFAS No. 157, Fair Value Measurements effective January 1, 2008. As a
result, the effect of adopting SFAS 157 was to implement the guidelines relating the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value as noted below.

Fair Value Measurement

Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a framework for measuring fair value that includes a hierarchy
used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls
is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1Fair value is based on unadjusted quoted prices in active markets that are accessible to us for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure
fair value whenever available. Our Level 1 assets primarily include our money market account that is traded on active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets
or liabilities.

Level 2Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities,
quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. Our Level 2 assets include: our restricted cash certificate of deposit. Valuations are generally obtained from third
party pricing services for identical or comparable assets or liabilities (and validated through back testing to trade data or confirmation that the pricing service significant inputs are observable) or determined through use of valuation
methodologies using observable market inputs such as market interest rates.

Level 3Fair value is based on significant unobservable
inputs for the asset or liability. These inputs reflect ours or third party pricing service assumptions about the assumptions market participants would use in pricing the asset or liability. Level 3 valuations are normally determined using
valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques. We currently do not have any Level 3 assets and liabilities.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at March 31, 2008:



|                          |  |         |            |         |   |         |  |       |   |  |   |           
|------------------------- |  | ------- | ---------- | ------- | - | ------- |  | ----- | - |  | - | ----------
|                          |  | Level 1 |            | Level 2 |   | Level 3 |  | Total
|Cash and cash equivalents |  | $       | 21,377,606 |         | $ | 0       |  | $     | 0 |  | $ | 21,377,606
|Restricted cash           |  |         | 0          |         |   | 75,000  |  |       | 0 |  |   | 75,000    
|                          |  |         |            |         |   |         |  |       |   |  |   |           
|Total assets              |  | $       | 21,377,606 |         | $ | 75,000  |  | $     | 0 |  | $ | 21,452,606
|                          |  |         |            |         |   |         |  |       |   |  |   |           

N. 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 Financial Accounting Standard Board
Statement No. 131, Disclosure About Segments of an Enterprise and Related Information, which establishes reporting standards for disclosure of operating segments. All consolidating items and corporate administrative costs are
included in Corporate and Other.



19



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##### Table of Contents

Accordingly, the presentation below comprises financial information relating to our segments for the
three months ended March 31, 2008 and 2007, respectively:



|                                                    |  |                              |            |   |               |   |            |                    |  |   |            |   |  |   |            |  
|--------------------------------------------------- |  | ---------------------------- | ---------- | - | ------------- | - | ---------- | ------------------ |  | - | ---------- | - |  | - | ---------- | -
|As of and for the Three Months Ended March 31, 2008 |  | Transportationand Industrial |            |   | Power Systems |   |            | Corporate andOther |  |   | Total      |  
|Revenues                                            |  | $                            | 130,543    |   |               | $ | 0          |                    |  | $ | 0          |   |  | $ | 130,543    |  
|Segment Operating Loss                              |  |                              | (912,752   | ) |               |   | (1,759,854 | )                  |  |   | (2,807,438 | ) |  |   | (5,480,044 | )
|Depreciation, Amortization and Accretion            |  |                              | 42,158     |   |               |   | 5,136      |                    |  |   | 29,008     |   |  |   | 76,302     |  
|Fixed Asset Purchases                               |  |                              | 24,960     |   |               |   | 9,356      |                    |  |   | 28,762     |   |  |   | 63,078     |  
|Total Assets                                        |  | $                            | 1,041,080  |   |               | $ | 24,799,036 |                    |  | $ | 32,996,243 |   |  | $ | 58,836,359 |  
|                                                    |  |                              |            |  
|As of and for the Three Months Ended March 31, 2007 |  |                              |            |   |               |   |            |                    |  |   |            |  
|Revenues                                            |  | $                            | 123,763    |   |               | $ | 0          |                    |  | $ | 0          |   |  | $ | 123,763    |  
|Segment Operating Loss                              |  |                              | (1,164,805 | ) |               |   | (247,613   | )                  |  |   | (3,377,077 | ) |  |   | (4,789,495 | )
|Depreciation, Amortization and Accretion            |  |                              | 45,966     |   |               |   | 2,723      |                    |  |   | 18,468     |   |  |   | 67,157     |  
|Fixed Asset Purchases                               |  |                              | 21,948     |   |               |   | 1,447      |                    |  |   | 11,496     |   |  |   | 34,891     |  
|Total Assets                                        |  | $                            | 924,809    |   |               | $ | 453,272    |                    |  | $ | 19,917,425 |   |  | $ | 21,295,506 |  

O. Income Taxes

Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 requires a company to determine whether it is more likely than not that a
tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
The application of income tax law is inherently complex. Laws and regulation in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding the income tax exposures.
Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in the subjective assumptions and judgments can materially affect amounts recognized in the balance sheets and statements of income.

At the adoption date of January 1, 2007, we had no unrecognized tax benefit which would affect the effective tax rate if recognized.
There has been no significant change in the unrecognized tax benefit during the year ended December 31, 2007 and for the three months ended March 31, 2008.

We classify interest and penalties arising from the underpayment of income taxes in the statement of income under general and administrative expenses. As of March 31, 2008, we had no accrued interest or penalties
related to uncertain tax positions. The tax year 2007 federal return remains open to examination and the tax years 2004-2007 remain open to examination by other taxing jurisdictions to which we are subject. The Internal Revenue Service is currently
examining our 2005 federal tax return and the examination should be complete in 2008.

P. Supplemental Cash Information

For the three months ended March 31, 2008:



| |  |  | No cash was paid for interest and $400 was paid for income taxes.
| | - |  | -----------------------------------------------------------------



| |  |  | We recorded in accrued liabilities certain capitalized well field development expenditures that were not paid as of March 31, 2008. These accrued capitalized
costs included both tangible and intangible drilling costs and were omitted from the statement of cash flows as non-cash items totaling $2,799,022.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded in accrued liabilities certain capitalized power systems equipment that were not paid as of March 31, 2008. These accrued expenses included the
turbines and related shipping costs that will be used to construct a 10 megawatt geothermal power plant that we intend to build. These accrued capitalized costs were omitted from the statement of cash flows as non-cash items totaling $3,133,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $450,000 non-cash payment for 45,732 shares of our common stock issued to settle an outstanding invoice from a service provider for design and
engineering services relating to construction of a 10 megawatt geothermal power plant. The non-cash payment was equal to the fair market value of the shares on the date the shares were granted.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We recorded a $318,814 non-cash payment for 22,217 shares of our common stock issued to settle an outstanding invoice from a service provider for design and
engineering services relating to construction of our 10 megawatt 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 $51,158 non-cash payment for 3,565 shares of our common stock issued to settle an outstanding invoice for professional services related to obtaining
the proper permits that enable us to drill for geothermal resources. The non-cash payment was equal to the fair market value of the shares on the date the shares were granted.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three months ended March 31, 2007:



| |  |  | No cash was paid for interest and $200 was paid for income taxes.
| | - |  | -----------------------------------------------------------------



| |  |  | We recorded a $39,800 non-cash payment for 7,500 shares of our common stock issued to acquire the geothermal mineral rights on properties in Nevada. The non-cash
payment was equal to the fair market value of the shares on the date the 50-year geothermal leases were signed.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $990,000 non-cash payment for 200,000 shares of restricted common stock issued to a service provider for advisory services. The non-cash payment was
equal to the fair market value of the shares on the date the advisory services payment was approved by our Board of Directors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Q.
Recent Accounting Pronouncements

SFAS 161

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133 (SFAS 161).The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial position, results of operations and cash flows. The new
standard also improves transparency about how and why a company uses derivative instruments and how derivative instruments and related hedged items are accounted for under Statement 133. It is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently assessing the new disclosure requirements required by SFAS 161.

SFAS 160

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160). In SFAS 160, the FASB established accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parents
ownership interest while the parent retains its controlling interest to be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value.
SFAS 160 is effective for annual periods beginning on or after December 15, 2008. Retroactive application of SFAS 160 is prohibited. We are currently evaluating the requirements of SFAS 160 and the potential impact on our financial
statements.

SFAS 141(R)

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). In SFAS 141(R), the FASB retained the fundamental requirements of Statement No. 141 to account for all
business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) is effective for annual periods beginning on or after December 15, 2008. We
are currently evaluating the requirements of SFAS 141(R) and the potential impact on our financial statements.

EITF 07-01

In December 2007, the FASB issued Emerging Issues Task Force No. 07-01, Accounting for Collaborative Arrangements Related to the Development
and Commercialization of Intellectual Property (EITF 07-01). EITF 07-01 prescribes the accounting for parties of a collaborative arrangement to present the results of activities for the party acting as the principal on a gross
basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable,



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rational, and consistently applied accounting policy election. Further, EITF No. 07-01 clarified that the determination of whether transactions within a
collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer. EITF No. 07-01 is effective for collaborative arrangements that
exist on January 1, 2009 and application is retrospective. We are currently assessing the impact of adopting EITF -07-01 on our financial statements.

EITF 07-03

In June 2007, the FASB issued Emerging Issues Task Force No. 07-03, Accounting for Non-Refundable
Advance Payments for Goods or Services to Be Used in Future Research and Development Activities (EITF 07-03). EITF 07-03 provides guidance on whether non-refundable advance payments for goods that will be used or services that
will be performed in future research and development activities should be accounted for as research and development costs or deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-03 is
effective for fiscal years beginning after December 15, 2007. Effective January 1, 2008, we adopted EITF 07-03 which did not materially impact our financial position or results of operations.

R. Subsequent Events

On April 1, 2008, the
Initial Purchaser of the Convertible Notes exercised its overallotment option and we sold an additional $5.0 million aggregate principal amount of the Convertible Notes. The net proceeds from the offering of the additional Convertible Notes were
approximately $4.8 million, after deducting the Initial Purchasers discount of $0.2 million payable by us. We placed approximately $0.8 million of such net proceeds in an escrow account to secure payment of the first four interest payments
payable on the additional Convertible Notes.

We entered into a Purchase Contract (the Purchase Contract), dated April 3,
2008, with UTC Power Corporation (UTCP). In connection with the Purchase Contract, we agreed to purchase from UTCP additional PureCycle geothermal heat-to-electricity power systems (the Current Generation Systems) for use in
geothermal power plants that we are seeking to develop. We made an initial payment to UTCP of approximately $5,007,750 pursuant to the Purchase Contract. We are obligated to pay an additional $28,377,250 over the term of the Purchase Contract. If we
fail to perform our obligations under the Purchase Contract, we are obligated to pay to UTCP liquidated damages in the amount of $10,000 for each Current Generation System that we either fail to accept or pay in full.

On April 3, 2008, the Compensation Committee of our Board awarded Brent Cook, Chief Executive Officer, options to purchase 100,000 shares of our
common stock at an exercise price of $9.11 per share, which was the last quoted sales price of our common stock on April 3, 2008. The options will vest with respect to 5,000 shares per quarter over the next five years. The fair value of the
equity-based compensation to be recognized over the requisite service period of five years totals $722,500. The Compensation Committee also approved an increase in Mr. Cooks annual salary from $220,000 to $250,000, retroactively effective
on February 1, 2008.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Cautionary Statement 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 and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as
believes, expects, may, 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.



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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 read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report
and should be considered in light of the risks referenced in Part II. Item 1A. Risk Factors below.

Overview

We are an environmentally focused geothermal power development and technology licensing company. We operate in two business segments: Power Systems and
Transportation and Industrial Technology. Our Power Systems segment is seeking to develop clean, renewable geothermal electric power plants and bottom-cycling operations. Our Transportation and Industrial Technology segment focuses on using our
Symetron technology to improve the efficiency of electric motors and related components. Through these two business segments, we are employing a Well to Wheels strategy in an effort to produce a positive impact on the environment
and economically beneficial results for our stockholders. By executing our Well to Wheels strategy, we aim to become both a producer of clean, geothermal electric power as well as a provider of technologies that improve the efficiency of
electric motors used in hybrid electric vehicles and other applications.

Our Power Systems segment is currently in the development stage
of drilling wells to further develop viable geothermal resources. We have accumulated a large portfolio of geothermal interests in six western continental states. These geothermal interests are important to our ability to develop the geothermal
power plants that we intend to build. We continue to accumulate additional interests in geothermal resources for future projects. We have either obtained or are in the process of obtaining permits approving the development of eight well fields in
Nevada, Utah, New Mexico and Oregon. We believe that each of these well fields has the potential to provide enough geothermal energy for a power plant of approximately 10 megawatts (MW). We currently have projects under development with an aggregate
potential generating capacity of 80 to 85 MWs.

In addition to developing our geothermal resources, we are in the process of completing
other steps necessary to enable us to finance, construct and operate geothermal power plants. We obtained a commitment letter from Merrill Lynch that sets forth general terms and conditions relating to the structuring and financing of up to 155
Megawatts (MW) of geothermal power plants and includes a financing commitment with respect to a 10.5 MW plant we intend to develop in Nevada, subject to certain conditions. We have also entered into purchase agreements with a certain
manufacturer of turbines that we intend to use in the construction of geothermal power plants. We are also in negotiations for several power purchase agreements with investor owned utilities and municipalities. Among these, on March 10, 2008,
we submitted signed power purchase agreements for two of our future plants totaling 22 MW for approval by the city council of the City of Anaheim, California. The city council approved these power purchase agreements at a meeting held on
March 18, 2008.

We intend to complete the remaining steps necessary to commence construction of multiple geothermal power plants as
quickly as possible. However, the timing of construction, as well as the specific sites we choose to develop and construct, will depend on a number of factors, including drilling results, permitting and our ability to obtain adequate financing.

Our Transportation and Industrial Technology segment continues to focus on commercializing our Symetron electric motor, generator
and drive technologies and our series plug-in hybrid vehicle (PHEV) with range extender technologies. During 2007, we completed our final milestones pursuant to our subcontract with ARINC Incorporated (ARINC), which relates
to the development of an integrated starter alternator for potential use in a military hybrid vehicle. During 2007 and early 2008, we also entered into several other agreements and collaborative arrangements with large manufacturers to explore
additional potential applications of our Symetron technologies, including a collaborative arrangement with Hyundai Heavy Industries (HHI) of Korea and a license agreement with Wilson Auto of Canada. We intend to continue to explore
opportunities to commercialize our Symetron technologies.

Consistent with our limited operating history, we have generated limited
revenues from operations. We anticipate that material revenue will not be generated from our Power Systems segment until the geothermal power plants we intend to develop are constructed and placed in service. To date, our primary source of revenue
has been from research and development subcontracts administered through contractors for certain government agencies. Pursuant to these subcontracts, we perform engineering design, development and testing activities to demonstrate that specific
applications of our technologies are viable.

Because we are in an early stage of development, there is limited historical information upon
which an evaluation can be made regarding our business and prospects. We also have limited insight into how market and technology trends may affect our future business. The revenue and income potential of both of our business segments is unproven
and the markets in which we expect to compete are very competitive and rapidly evolving. Our business and prospects should be considered in light of the risks, expenses, cash requirements, challenges and uncertainties that exist in a development
stage company seeking to develop new technologies and products in competitive and rapidly evolving markets.



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We have incurred substantial losses since inception and we are not operating at cash breakeven. Our
continuation as a going concern is dependent on efforts to raise additional capital, increase revenues, reduce expenses, and ultimately achieve profitable operations. If substantial losses continue, or if we are unable to raise sufficient,
additional capital on reasonable terms, liquidity concerns may require us to curtail operations, liquidate or sell assets or pursue other actions that could adversely affect future operations.

The amount and timing of our future capital needs depend on many factors, including the timing of our development efforts, opportunities for strategic
transactions, and the amount and timing of any revenues we are able to generate. Given our current business strategy, however, we will need to secure additional financing in order to execute our plans and continue our operations.

Research and Development

Our Transportation and
Industrial Technology segment is engaged in an ongoing process of researching, developing and demonstrating new applications for our motor and drive/controller-related technologies as well as our new extended range PHEV-based product and solution
technologies. These include the periodic introduction of new motor and generator-related technologies, application of applicable technologies to manufacturers test applications, testing and performance evaluations of these technologies and
participation in the design and engineering of related projects for original equipment manufacturers (OEMs).

We devote
considerable effort to further develop various technologies and to internally test, refine, characterize and further verify the technologies. Characterization of the technology is the process by which the performance levels that can be achieved over
a range of likely operating conditions are determined. This data provides a performance description that is useful to the customer in understanding the capabilities of the motor without revealing the intellectual property underlying the improved
performance levels.

Our research and development costs for the three months ended
March 31, 2008 and 2007 totaled $969,183 and $796,300, respectively Future research and development expenditures are anticipated in order to develop additional SymetronTMand PHEV with extended range technologies primarily relating to plug-in hybrid electric vehicles and propulsion systems, integrated starter alternators (ISAs), AC electric motors, generators and power
electronic AC drives. Research and development costs, relating to development of potential technologies, are expected to increase over time as milestones in the development process are achieved.

Sources of Revenue

To date, our primary source of
revenue has been from research and development subcontracts, administered through contractors with certain government agencies. Pursuant to these subcontracts, we performed engineering design, development and testing activities in an effort to
demonstrate that specific applications of our technology are viable.

We are seeking
to generate revenues from both of our business segments. Our Power Systems segment is seeking to generate revenues from the geothermal power plants it intends to develop. Our Transportation and Industrial Technology segment is seeking to generate
revenues by licensing our SymetronTMtechnologies to third parties. We expect to begin to generate modest revenues in the future from contracts we
have entered into for the development of extended range PHEV demonstration vehicles. We recently accepted an initial deposit of $200,000 for the production of these vehicles. We also expect to begin to realize modest revenues from the sale of
Symetron-enhanced motors and generators through our business cooperation agreement with HHI in the fourth quarter of 2008, although the exact amount and timing of these revenues will be dependent on HHIs ability to implement these
Symetron-enhanced designs into its manufacturing and distribution system. Although progress is being made by each of our business segments, significant revenues may not be generated as expected by either of our segments, if at all.

Significant Expenses

We have incurred significant
losses since our inception. As of March 31, 2008, we had incurred an accumulated deficit and deficit accumulated after re-entry into the development stage of approximately $56.6 million on cumulative revenues since inception of approximately
$935,000. Our net losses before preferred stock dividends for the three months ended March 31, 2008 and 2007 totaled $5.4 million and $4.6 million, respectively.

During the three months ended March 31, 2008, the monthly accrual based expenditure rate for operations increased to $1.6 million per month from approximately $1.0 million per month during the twelve months ended
December 31, 2007. The higher spending rate primarily reflects increased professional services associated with designing the tax and corporate structures for our potential tax equity partners as identified in our commitment letter signed by
Merrill Lynch and prospecting and exploration costs associated with geothermal power plant development. We expect that our average monthly cash expenditure rate will continue to increase as we implement our plans to develop geothermal power plants.



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For the three months ended March 31, 2008 and 2007, our operating expenses consisted primarily of
cost of sales, general and administrative expenses, power project development expenses and research and development expenses. Cost of sales for each of the periods presented includes the direct labor, materials and overhead expenses required to
perform work on research and development subcontracts. These subcontracts are now completed and we intend to further develop certain applications our Transportation and Industrial Technology segment is seeking to commercialize.

General and administrative expenses for all periods presented include expenses related to our marketing, sales, accounting, legal, investor relations,
human resources and other administrative functions. General and administrative expenses also include non-cash equity-based compensation paid to employees, consultants and service providers. We have made significant use of non-cash equity-based
compensation to conserve cash and provide incentives to our employees. We expect to continue to use equity-based compensation to provide incentives to our employees and certain service providers.

Power project development expenses for the three months ended March 31, 2008 and 2007 primarily include professional services for mapping,
environmental and geological studies and other prospecting costs related to the exploration for geothermal resources. We expect that our power project development expenses will increase in future periods as we pursue the development of additional
power projects and continue to explore for geothermal resources.

Research and development expenses for all periods presented primarily
include the costs incurred by our Transportation and Industrial Technology segment in connection with engineering design, development and testing of the technologies it is seeking to commercialize. Total engineering expenses for each period are
allocated between cost of sales and research and development based on the engineering time and expenses by project. While we do not expect our research and development expenses to increase significantly in future periods, our research and
development expenses will increase as we pursue additional opportunities to commercialize our technologies.

Results of Operations



|                                                 |  |                              |            |   |      |   |            |  
|------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                 |  | Three months ended March 31, |           
|                                                 |  | 2008                         |            |   | 2007 |  
|Revenue                                          |  | $                            | 130,543    |   |      | $ | 123,763    |  
|                                                 |  |                              |            |   |      |   |            |  
|Operating expense                                |  |                              |            |   |      |   |            |  
|Cost of sales                                    |  |                              | 74,112     |   |      |   | 466,130    |  
|General and administrative                       |  |                              | 2,780,238  |   |      |   | 3,450,938  |  
|Power project development                        |  |                              | 1,787,054  |   |      |   | 244,890    |  
|Research and development                         |  |                              | 969,183    |   |      |   | 796,300    |  
|                                                 |  |                              |            |   |      |   |            |  
|Total operating expenses                         |  |                              | 5,610,587  |   |      |   | 4,958,258  |  
|                                                 |  |                              |            |   |      |   |            |  
|Operating loss                                   |  |                              | (5,480,044 | ) |      |   | (4,789,495 | )
|Interest income                                  |  |                              | 59,734     |   |      |   | 183,938    |  
|Interest expense                                 |  |                              | (65,512    | ) |      |   |           |  
|Gain on completion of contract                   |  |                              | 75,357     |   |      |   |           |  
|Series B warrant registration costs              |  |                              |           |   |      |   | (21,012    | )
|                                                 |  |                              |            |   |      |   |            |  
|Loss before income taxes                         |  |                              | (5,410,465 | ) |      |   | (4,626,569 | )
|Income tax benefit (expense)                     |  |                              |           |   |      |   |           |  
|                                                 |  |                              |            |   |      |   |            |  
|Net loss applicable to common stockholders       |  | $                            | (5,410,465 | ) |      | $ | (4,626,569 | )
|                                                 |  |                              |            |   |      |   |            |  
|Loss per common share-basic and diluted          |  | $                            | (0.10      | ) |      | $ | (0.09      | )
|                                                 |  |                              |            |   |      |   |            |  
|Weighted average common shares-basic and diluted |  |                              | 56,023,000 |   |      |   | 51,486,000 |  
|                                                 |  |                              |            |   |      |   |            |  

Comparison of Three Months Ended March 31, 2008 and 2007

Revenue

During the three months ended March 31,
2008, we recognized revenue totaling $0.1 million, which was consistent with the same period in 2007. During the first quarter of 2008, we completed the ARINC subcontract, which began in October 2006. We accounted for this subcontract on a
percentage of completion basis.



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Operating Expenses

Cost of sales. We reported cost of sales for the three months ended March 31, 2008 and 2007 totaling $0.1 million and $0.5 million, respectively. The decrease in cost of sales for 2008 compared to the
prior year is primarily related to a $342,000 loss during the first quarter of 2007 resulting from costs greater than originally anticipated to complete the ARINC subcontract objectives. As noted above, we completed the ARINC subcontract in the
first quarter of 2008.

General and Administrative.General and administrative expenses decreased to approximately $2.8 million for
the three months ended March 31, 2008 from approximately $3.4 million for the three months ended March 31, 2007. This decrease is due primarily to a reduction in equity-based non-cash employee compensation expense, which declined to $0.5
million in the first quarter of 2008 compared to $0.9 million in same period of 2007. Equity-based non-cash compensation expense was higher during the first quarter of 2007 due to the vesting of a larger number of executive stock and option grants.
Equity-based non-cash service provider compensation for the three months ended March 31, 2008 decreased by approximately $1.0 million from the same period in 2007 since no shares were issued to service providers in the first quarter of 2008.
200,000 shares of common stock were issued to a provider of financial advisory services. Other employment related costs increased by approximately $0.1 million during the first quarter of 2008 compared to the first quarter of 2007, reflecting higher
average salaries and employment levels. Professional service expenses increased during the three months ended March 31, 2008 by approximately $0.7 million over the same prior year period. This increase reflects professional services associated
with designing the tax equity and financing structures contemplated by our commitment letter we obtained from Merrill Lynch. Office expenses totaled $0.1 for the three months ended March 31, 2008, which remained relatively flat when compared to
the same period in 2007.

Power Project Developments.Power project development expenses during the three months ended
March 31, 2008 totaled $1.8 million as compared to $0.2 for the three months ended March 31, 2007. Equity-based non-cash employee and contractor compensation for the three months ended March 31, 2008 increased $0.1 million over the
first quarter of 2007 as a result of stock option grants to new employees. Employment related costs for power project development employees increased during the first quarter of 2008 by $0.3 million over the first quarter of 2007 due to increasing
employment levels to execute our business plan. During the three months ended March 31, 2008, professional services relating to geological engineering consulting related to geothermal power plant development increased $1.1 million over the
first quarter of 2007.

Research and Development. Research and Development expense increased from $0.8 million in the three months
ended March 31, 2007 to $1.0 million for the three months ended March 31, 2007. Equity based non-cash employee compensation remained relatively flat at approximately $0.2 million for each of the three months ended March 31, 2008 and
2007. Cash based employee compensation decreased by approximately $0.1 million from the three months ended March 31, 2007 to the same period in 2008 reflecting a slight reduction in the number of employees performing research and development
activities. The portion of engineering expenses that could be attributed to cost of sales increased during the three months ended March 31, 2008 over the comparable 2007 period by approximately $0.2 million primarily due to the increased
materials consumed in testing.

Interest and Other Income. Interest income for the three months ended March 31, 2008 decreased
slightly to $0.1 million from $0.2 million from the same period in 2007. The decrease was primarily due to higher average monthly cash balances in the prior period.

Liquidity and Capital Resources



|                                              |  |               |            |                  |   |          
|--------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ---------
|Cash and Cash Equivalents                     |  | March 31,2008 |            | December 31,2007
|Cash                                          |  | $             | 1,309,678  |                  | $ | 516,938  
|Certificate of Deposit (unrestricted portion) |  |               |           |                  |   | 325,000  
|Money Market Account                          |  |               | 20,067,928 |                  |   | 5,070,272
|                                              |  |               |            |                  |   |          
|Total                                         |  | $             | 21,377,606 |                  | $ | 5,912,210

Since inception, we have funded our operations primarily through the sale of equity instruments
and borrowings. Most recently, in March 2008, we raised gross proceeds of $50,000,000, before deducting fees and commissions, from the issuance of 8.00% Convertible Senior Notes due 2013 (the Convertible Notes). We placed approximately
$7.9 million of the proceeds in an escrow account to secure payment of the first four interest payments payable on the Convertible Notes. We also used approximately $15 million of the proceeds to enter into a forward stock purchase transaction,
pursuant to which we will repurchase shares of our common stock, and approximately $5.9 million of net proceeds to fund a call spread option transaction. On April 1, 2008, the initial purchaser of the Convertible Notes exercised its
overallotment option and we sold an additional $5.0 million aggregate principal amount of Convertible Notes. We placed



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approximately $0.8 million of the proceeds from the overallotment exercise in an escrow account to secure payment of the first two years of interest payable
on the additional Convertible Notes issued pursuant to the overallotment exercise. In March 2007, we raised gross proceeds of $12,525,001, before deducting fees and commissions, pursuant to the private placement of 2,693,552 shares of our common
stock. In connection with the private placement, we also issued 1,037,012 warrants that were called in August 2007, resulting in additional proceeds totaling $6.3 million.

Our outstanding Convertible Notes pay interest semi-annually on April 1 and October 1 of each year at a rate of 8.00% per annum. As
described above, we placed an aggregate of approximately $8.7 million in an escrow account to secure payment of the first two years of interest payable on the Convertible Notes. The Convertible Notes are convertible, at the holders option, at
an initial conversion rate of 108.3658 shares of common stock per $1,000 principal amount of Convertible Notes. The conversion rate is subject to adjustment. If a fundamental change occurs, holders will have the right to require us to repurchase for
cash all or any portion of their notes at 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest. Holders who convert their notes in connection with certain fundamental changes may also be entitled to a make
whole premium in the form of additional shares of our common stock. The maturity date of the Convertible Notes is April 1, 2013.

At
March 31, 2008, we had approximately $21.4 million in cash and cash equivalents. Our operating activities used approximately $2.8 million and approximately $1.7 million of cash during the three months ended March 31, 2008 and 2007,
respectively. We have incurred substantial losses since inception and we are not operating at cash breakeven. Our continuation as a going concern is dependent on efforts to raise additional capital, increase revenues, reduce expenses, and ultimately
achieve profitable operations. If substantial losses continue, or if we are unable to raise sufficient, additional capital on reasonable terms, liquidity concerns may require us to curtail operations, liquidate or sell assets or pursue other actions
that could adversely affect future operations.

As a result of the private placement of the Convertible Notes, our independent registered
public accounting firm reissued their report with respect to our 2007 financial statements on April 1, 2008 to remove an explanatory paragraph that expressed substantial doubt about our ability to continue as a going concern. Although the
private placement provided us with sufficient proceeds to remove the substantial doubt about our ability to continue as a going concern through December 31, 2008, we will need to secure additional financing in the future. 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 our well field development activities or extend the time frame over which these activities will take place.

The amount and timing of our future capital needs depend on many factors, including the timing of our development efforts, opportunities for strategic
transactions, and the amount and timing of any revenues we are able to generate. Given our current business strategy, however, we will need to secure additional financing in order to execute our plans and continue our operations.

In addition to funding for general corporate purposes and certain other expenses, we will need to finance each of the geothermal power projects we intend
to develop. As more fully described below, we have entered into a Commitment Letter (the Commitment Letter) with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch). The Commitment Letter sets forth
certain general terms relating to the structure and financing of up to 155 megawatts ( MW) of geothermal power plants we intend to develop and includes a financing commitment from Merrill Lynch with respect to a 10.5 MW plant we intend
to develop in Nevada. The funding of the commitment for the Nevada plant remains subject to certain conditions. If Merrill Lynch elects to provide or arrange a financing commitment with respect to any additional projects, such financing commitment
will be subject to satisfactory due diligence, the execution of a separate commitment letter relating to such project and certain other conditions.

In addition to the anticipated funding for the development of projects pursuant to the Commitment Letter, we will need additional financing, from time to time, to cover general operating expenses, well field development and certain other
development expenses that are not covered by the Commitment Letter. We will most likely seek funding for these expenses, as necessary, through the issuance of debt, preferred stock, equity or a combination of these instruments if available on
reasonable terms or at all.

As part of our geothermal power project development efforts, we have made a variety of financial commitments.
Currently, our most significant financial commitments relate to our obligations under our purchase agreements with UTCP. These purchase agreements allow us to order and purchase turbine generators and other major components for use in the geothermal
power plants we intend to develop. As of March 31, 2008, we were obligated to pay UTCP $25.1 million in 2008 and $1.6 million per year beginning in 2009 and continuing through 2012. However, we entered into another purchase agreement with UTCP
effective April 1, 2008 whereby we agreed to purchase additional turbines totaling $33.4 million



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during 2008. In connection with the Lightening Dock Purchase, we also executed a promissory note in February 2008 whereby we agreed to pay to Lightening Dock
$900,000 in principal plus $50,000 in interest charges on or before January 5, 2009. We expect to fund these obligations primarily through the financing commitments we intend to seek for the power projects we intend to develop. However, we may
need to obtain financing for a portion of these commitments from other sources.

We also have obligations to pay delay rentals and other
expenses associated with the geothermal resources on properties in which we have acquired an interest. Generally, these obligations will not be financed as part of a financing commitment for a specific power project, and we will need to finance the
payment of these obligations from other sources.

Our Commitment Letter with Merrill Lynch

On January 16, 2008, we, together with our wholly-owned subsidiary, Truckee Geothermal No. 1 SV-01, LLC (the Subsidiary), entered
into the Commitment Letter with Merrill Lynch. The Commitment Letter sets forth general terms relating to the structuring and financing of up to 155 MW of geothermal power plants we intend to develop, including a financing commitment (the
Truckee Commitment) from Merrill Lynch to provide non-recourse financing for the construction of a 10.5 MW geothermal power plant in Nye County, Nevada (the Truckee Plant), subject to certain conditions as described below. In
connection with the Commitment Letter, we also granted to Merrill Lynch warrants to purchase up to 3,700,000 shares of our common stock, subject to vesting requirements associated with the financing of each of the power plants, and entered into a
registration rights agreement relating to the registration of the resale of the warrants and the shares of common stock issuable upon exercise of the warrants.

The Truckee Commitment is for up to $44 million, including approximately $38.4 million in the form of 15-year fully amortizing notes, to fund approximately $33 million of total construction costs, plus reserve
accounts, accrued interest, transaction fees and other costs. The balance of the commitment is attributable to a letter of credit to be required under a power purchase agreement. The interest rate payable by us on the amortizing notes will be equal
to LIBOR plus 500 basis points, swapped to a fixed rate of interest, determined at the time of funding. The Truckee Commitment is subject to certain conditions precedent including, due diligence, the absence of a material adverse change, receipt of
all necessary internal approvals by us and Merrill Lynch, acquisition of the Class A Interest (as defined below) in the Truckee Plant by a third party other than Merrill Lynch unless Merrill Lynch purchases such interest (at its discretion and
subject to certain conditions), Merrill Lynchs satisfaction with the final financial and tax model upon which the Truckee Commitment is based, and the satisfaction of certain other customary conditions, including, but not limited to, execution
of a power purchase agreement, satisfactory validation of the geothermal resource by a third-party geothermal consultant, and a final report on the project by an independent engineer.

The Subsidiary is a special purpose entity formed for the purpose of developing and operating the Truckee Plant. The Subsidiary will be responsible for
the debt service, all maintenance and operations expenses and various fees and distributions to the owners of the Subsidiary. Ownership of the Subsidiary will be divided into the Class A Interest, to be owned by Merrill Lynch or a third
party and the Class B Interest, to be owned by us. It is the intention of the parties that the Truckee Plant will qualify to receive tax credits and other benefits under the Internal Revenue Code of 1986, as amended, for geothermal power
plants. During the first ten years of operations, the holder of the Class A Interest will be allocated 95% of the income and the tax benefits of the Subsidiary and make required capital contributions to the Subsidiary, while the Class B
Interest will receive 95% of the cash available for distribution, subject to certain priority distributions. The Class A capital contributions, together with cash received by the Subsidiary for the sale of electrical power, are expected to
enable the Subsidiary to service the debt financing and cover operating expenses, as well as pay certain fees and distributions to the holders of the Class A Interest and Class B Interest. The finance structure is designed to convey the
economic benefit to us through the payment of fees and cash distributions to us based upon both the successful completion of the Truckee Plant and attainment of on-going operational targets. After the first ten years of operation, the income and the
tax benefits allocated to the Class A and Class B Interests will change so that the Class B Interest will receive 95% of the income and cash distributions and the Class A Interest will receive 5% of such benefits. At that point, we will
have the option to purchase the Class A Interests in order to obtain 100% ownership of the project. The Commitment Letter contemplates that any additional financing commitments provided in accordance with the Commitment Letter will be
structured in a similar manner unless agreed otherwise by both parties.

If the Truckee Plant is constructed and placed into service, our
share of fees and cash distributions from the Subsidiary is estimated to be approximately $4 million per year in gross fees and distributions during the Truckee Plants first three years of operations, after maintenance, operating expenses and
debt service. After the first three years of operations, our share of fees and distributions will be reduced until the Subsidiary repays the debt financing. As a result, our average share of gross fees and distributions is estimated to be $2.5
million per year for the first ten years of operations. After the debt is retired in year 15 of operations, we expect to receive gross distributions of more than $5 million per year, or net after-tax distributions of approximately $3.5 million per
year, for the remaining life of the Truckee Plant. The expected useful life of the Truckee Plant is approximately 35 years.



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Including the Truckee Commitment, the Commitment Letter gives Merrill Lynch the exclusive right to
provide or arrange financing for up to 100 MW of substantially similar geothermal power plants we intend to develop, other than certain excluded financings. Merrill Lynch also has a right of first refusal with respect to the financing of an
additional 55MW of geothermal plants to be developed by us. If Merrill Lynch provides a financing commitment proposal with respect to any future projects, such financing commitment will be subject to satisfactory due diligence and certain other
conditions and the execution of a separate commitment letter relating to such project. Until Merrill Lynch has financed 20 MW of geothermal power projects under the Commitment Letter, we are generally obligated to accept any financing commitment
proposed by Merrill Lynch that has terms similar to or more favorable than the financing commitment relating to the Truckee Plant. After Merrill Lynch has financed 20 MW of geothermal power projects under the Commitment Letter, we may enter into
certain excluded financings with parties other than Merrill Lynch.

The timing of construction for the geothermal power plants we intend to
develop, as well as the specific sites we choose to develop and construct, will depend on a number of factors, including drilling results, permitting and our ability to obtain adequate financing. Although the Commitment Letter includes the Truckee
Commitment relating to the Truckee Plant, our development efforts at this site may not progress as rapidly as our development efforts at other sites. As a result, we may seek to finance and construct geothermal power plants on other sites prior to
the completion of construction of the Truckee Plant. At the time we entered into the Commitment Letter, we believed it was likely that we would fund and construct the Truckee Plant earlier than the other sites we intend to develop. However, based on
the fact that some of the other projects are progressing more rapidly than the Truckee project, it is likely that we will seek financing under the Commitment Letter to fund construction at one or more other sites prior to funding and constructing
the Truckee Plant.

As part of the Commitment Letter, we have agreed to pay Merrill Lynch certain non-refundable structuring fees in
connection with the closing of each funding transaction. The structuring fees will initially be 4%, but will decrease for future financings once the cumulative financing commitment under the Commitment Letter reaches certain levels.

As additional consideration, we granted Merrill Lynch warrants to purchase our common stock. The warrants will vest and become exercisable in increments
over the term of the Commitment Letter based on the actual funding provided. The exercise price of the warrants will range from $14.98 to $19.71 per share, subject to adjustment upon any dilutive issuance by us. In accordance with the anti-dilution
protection included in the warrants, the issuance of the Convertible Notes resulted in a reduction of the original strike prices of the warrants from a range of $14.98 to $19.71 to a range of $14.47 to $18.79. In general, warrants that vest in
connection with the funding of earlier projects will be greater in number and have a lower exercise price, and warrants that vest in connection with the funding of later projects will be fewer in number and have a higher exercise price. Under
certain circumstances, a reduced percentage of the warrants will vest if we reject a Merrill Lynch funding proposal for a project and subsequently obtain funding for such project from another party or, in certain circumstances, from Merrill Lynch.
Any vested warrants may be called for cancellation by us if certain conditions have been met, including minimum market price requirements relating to our common stock. We have agreed to grant additional warrants to Merrill Lynch upon funding of any
of the additional 55 MW of geothermal power projects with respect to which Merrill Lynch has a right of first refusal. The exercise price of any such additional warrants will be based on the volume weighted average price of our common stock over a
20 consecutive trading day period prior to the issuance of such warrants. Pursuant to a registration rights agreement between us and Merrill Lynch, we have agreed to file one or more registration statements covering the resale of the warrants issued
pursuant to the Commitment Letter, as well as the resale of the shares of common stock issuable pursuant to the exercise of such warrants.

Consolidated
Statements of Cash Flows

Operating Activities. Cash consumed by operating activities for the three months ended March 31,
2008 consisted primarily of a net loss of approximately $5.4 million, adjusted for approximately $0.8 million of stock-based compensation and stock issued for services. Accounts payable and accrued liabilities increased $8.3 million to $12.6 million
at March 31, 2008 due primarily to accrued expenses for well field development and the purchase of power systems equipment. The portion of accrued liabilities relating to well field development and power systems equipment, totaling $5.9
million, has been reclassified as a non-cash item to decrease the change in accrued liabilities. Net accounts receivable increased $0.3 million reflecting the completion of the ARINC subcontract. Other assets increased by approximately $0.5 million,
reflecting a prepaid commission for services provided in finalizing power purchase agreements with the City of Anaheim.

Cash consumed by
operating activities for the three months ended March 31, 2007 consisted primarily of a net loss of approximately $4.6 million, adjusted for approximately $2.1 million of stock-based compensation and stock issued for services. Accounts payable
and accrued liabilities increased $0.4 million in the first three months of 2007 due to the timing of payments for certain professional services contracts.



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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. However, as of March 31, 2008,
cash in our money market account was invested with AIM Funds earning 2.77 percent interest and totaled $20.1 million. Cash from our checking account is swept nightly into a variable rate interest bearing account earning 2.45 percent per annum and
totaled $1.3 million at March 31, 2008.

Investing activities consumed approximately $10.0 million in the three months ended
March 31, 2008, reflecting payments of $3.7 million for the purchase of electric turbines for use in the geothermal power plants we intend to develop. We have also made deposits to manufacture prototypes of our Transportation and Industrial
Technology segment designs totaling $0.3 million. During the first quarter of 2008, we also purchased $1.5 million of equipment for geothermal well field development projects in Nevada and Utah. We also paid $0.4 million in connection with the
acquisition of leases and the exercise of certain options relating to interests in unproved geothermal properties in Oregon and Utah. In connection with the issuance of the Convertible Notes, we invested a portion of the proceeds totaling $7.9
million into four discounted U.S. Treasury Strips that mature separately on each of the first four semi-annual interest payment dates of the Convertible Notes. The U.S. Treasury Strips were placed into an escrow account to secure the first four
interest payments on the Convertible Notes. These expenditures were partially offset by cash provided by investing activities, including the net change in the notes receivable totaling $0.4 million.

Investing activities provided approximately $5.6 million in the three months ended March 31, 2007, reflecting collection in full of a promissory
note receivable of approximately $5.5 million and by changing the status of $0.3 million of a certificate of deposit from restricted to unrestricted. We also acquired leases for unproved geothermal properties, purchased office equipment and
leasehold improvements totaling $0.1 million.

Financing Activities. Financing activities provided approximately $28.2 million and
$11.9 million of cash in the three months ended March 31, 2008 and 2007, respectively. We completed the issuance of the Convertible Notes on March 26, 2008. From the proceeds, we incurred a financing charge of $2.0 million, which was paid
to Merrill Lynch. We also entered into a call spread option transaction and a forward stock purchase transaction totaling $5.9 million and $15.0 million, respectively. We intend to use the remaining net proceeds from the offering for general
corporate purposes and to continue well field and other development activities for the geothermal power plants we intend to develop. In connection with the purchase of our BLM lease in New Mexico, we entered into a promissory note payable and
received cash for $0.9 million in February 2008. During the first quarter of 2008, we also received approximately $0.5 million from the exercise of other outstanding stock options and warrants.

We completed the private placement of 2,693,552 shares of our common stock on March 30, 2007. We received net proceeds of $11.9 million from this
private placement transaction. As part of the private placement transaction, we issued warrants to purchase an aggregate of 1,037,012 shares of common stock at an exercise price of $6.05 per share to the purchasers of our common stock and the
placement agent. During August 2007, all of these warrants were exercised and we received approximately $6.3 million of proceeds for the purchase of the 1,037,012 shares.

As of March 31, 2008, we had stockholders deficit of approximately $4.7 million as compared to stockholders equity totaling $19.5 million at December 31, 2007. The stockholders deficit
primarily arose from entering into a call spread option transaction for $5.9 million and a forward stock purchase transaction for $15.0 million in connection with our issuance of the Convertible Notes during the first quarter of 2008. The effect of
purchasing the call spread option transaction and forward stock purchase transaction was a reduction in the additional paid-in capital account totaling $20.9 million.

Our cash balance, together with cash provided by the initial purchasers exercise of the overallotment option and customer sales will not be sufficient to satisfy our anticipated cash requirements for normal
operations and capital expenditures through March 31, 2009. As described above, we will need to secure additional financing in order to execute our plans and continue our operations.



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Dividends.No dividends have been paid relating to either common stock or preferred stock during
the fiscal year 2007 through the first quarter of 2008. We do not expect to pay dividends on either common stock or preferred stock in the near future.

Off-Balance Sheet Arrangements

As of March 31, 2008, we had the following off-balance sheet arrangements as defined by
item 303(a)(4)(II) of SEC Regulation S-K.

On September 2, 2006, we entered into a License and Sublicense Agreement for heat-transfer
technologies through a wholly-owned subsidiary of Raser, Raser  Power Systems, LLC. We also entered into a guaranty on behalf of the subsidiary to irrevocably and unconditionally guarantee full and prompt payment and performance of
all the subsidiary obligations under the License and Sublicense Agreement. The guaranty will remain in full force and effect until satisfaction in full of all the subsidiarys obligations under the License and Sublicense Agreement and is
binding on any successors, and inures to the benefit of any third party successor or assignees. The maximum potential amount of future payments under this guarantee cannot be estimated, but payment obligations will be limited to a fraction of
expected cash flows from developed projects that utilize the heat transfer license.

Contractual Obligations and Commitments

We lease our corporate office located at 5152 North Edgewood Drive, Suite 375, Provo, Utah. The corporate office has approximately 7,600 square feet of
office space with monthly rent of approximately $13,900. The lease expires on August 31, 2011. On August 15, 2007, we entered into a sublease to expand our corporate offices by approximately 3,800 additional square feet with a monthly rent
of $6,000. The sublease expires on July 31, 2008.

We also lease our transportation and industrial testing facility in Utah County,
Utah. The testing facility has approximately 12,000 square feet with monthly rent of approximately $6,200. The testing facility lease expires on June 1, 2009. We expect that the corporate office and testing facility leases will be renewed or
that alternative spaces will be obtained.

We lease a warehouse to store our completed geothermal power plant turbines located in Tooele
County, Utah. The warehouse has approximately 22,239 square feet with monthly rent of $4,448. Expansion increments are 2,880 square feet, 3,240 square feet, and 3,600 square feet at $0.20 per square foot. The warehouse lease expires on July 31,
2008 upon which the lease converts to a month to month lease. We expect that the lease will be renewed or that alternative space will be obtained. All facilities are well maintained and in good condition.

The table below summarizes our operating lease obligations pursuant to our non-cancelable leases, our long-term debt and our executed purchase
obligations as of March 31, 2008:



|                             |  |       |             |                 |   |             |  |             |            |  |   |           
|---------------------------- |  | ----- | ----------- | --------------- | - | ----------- |  | ----------- | ---------- |  | - | ----------
|                             |  | Total |             | Less than1 year |   | 1 to 3years |  | 4 to 5years
|Operating Leases Obligations |  | $     | 1,593,747   |                 | $ | 394,658     |  | $           | 727,802    |  | $ | 471,287   
|Long Term Debt               |  | $     | 70,056,000  |                 | $ | 4,056,000   |  | $           | 8,000,000  |  | $ | 58,000,000
|Purchase Obligations         |  | $     | 31,567,500  |                 | $ | 25,087,500  |  | $           | 3,240,000  |  | $ | 3,240,000 
|                             |  |       |             |                 |   |             |  |             |            |  |   |           
|Total                        |  | $     | 103,217,247 |                 | $ | 29,538,158  |  | $           | 11,967,802 |  | $ | 61,711,287
|                             |  |       |             |                 |   |             |  |             |            |  |   |           

The contractual obligations set forth above are recorded as liabilities in our consolidated
financial statements. The operating lease obligations include operating leases for our corporate headquarters and a testing facility. There is a provision in the corporate headquarters lease that allows for lease termination at our option without
penalty on August 31, 2009. We have subleased additional space at our corporate headquarters pursuant to a sublease that expires on July 31, 2008. The operating lease obligations also include rent payments we have agreed to make in
connection with certain geothermal lease agreements.

The long term debt obligations set forth above include payments of interest and
principal in accordance with the terms of the Convertible Notes, excluding the additional $5.0 million of Convertible Notes issued on April 1, 2008 pursuant to the exercise of the initial purchasers overallotment option.

The purchase obligations set forth above include a series of purchase and service agreements whereby a certain vendor has agreed to provide certain
products and services to us. As of March 31, 2008, we were obligated to pay the vendor approximately $25.1 million in 2008 and $1.6 million per year beginning in 2009 and continuing through 2012 as reflected in the table above.



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Recently Issued Accounting Pronouncements

SFAS 161

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement 133 (SFAS 161).The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an entitys financial position, results of operations and cash flows. The new standard also improves transparency about how and why a company uses derivative instruments and
how derivative instruments and related hedged items are accounted for under Statement 133. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. We are currently assessing the new disclosure requirements required by SFAS 161.

SFAS 160

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS
160). In SFAS 160, the FASB established accounting and reporting standards that require noncontrolling interests to be reported as a component of equity, changes in a parents ownership interest while the parent retains its
controlling interest to be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value. SFAS 160 is effective for annual periods
beginning on or after December 15, 2008. Retroactive application of SFAS 160 is prohibited. We are currently evaluating the requirements of SFAS 160 and the potential impact on our financial statements.

SFAS 141(R)

In December 2007, the FASB issued
SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). In SFAS 141(R), the FASB retained the fundamental requirements of Statement No. 141 to account for all business combinations using the
acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of
the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) is effective for annual periods beginning on or after December 15, 2008. We are currently evaluating the
requirements of SFAS 141(R) and the potential impact on our financial statements.

EITF 07-01

In December 2007, the FASB issued Emerging Issues Task Force No. 07-01, Accounting for Collaborative Arrangements Related to the Development
and Commercialization of Intellectual Property (EITF 07-01). EITF 07-01 prescribes the accounting for parties of a collaborative arrangement to present the results of activities for the party acting as the principal on a gross
basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently
applied accounting policy election. Further, EITF No. 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9,
Accounting for Consideration Given by a Vendor to a Customer. EITF No. 07-01 is effective for collaborative arrangements that exist on January 1, 2009 and application is retrospective. We are currently assessing the impact of
adopting EITF -07-01 on our financial statements.

EITF 07-03

In June 2007, the FASB issued Emerging Issues Task Force No. 07-03, Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities
(EITF 07-03). EITF 07-03 provides guidance on whether non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities should be accounted for as research
and development costs or deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-03 is effective for fiscal years beginning after December 15, 2007. Effective January 1, 2008,
we adopted EITF 07-03 which did not materially impact our financial position or results of operations.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

In addition to the risks inherent in our operations, we are exposed to financial, market, political and economic risks. The following discussion provides information regarding our exposure to the risks of changing interest rates.

As of March 31, 2008, we had approximately $21.4 million in cash and cash equivalents, including $0.1 million in restricted cash,
that were invested primarily in low risk money market accounts and certificates of deposit until needed for operating and other activities. Current money market rates are approximately 2.77%. The money market interest rates have declined over 1%
over the last six months, if interest rates continue to decline by another 1%, the amount of interest earned on our money market balance would be approximately $215,000 lower over a twelve month period. A review of our money market account indicated
that no impairment occurred during the three months ended March 31, 2008 and no write-down in fair value is considered necessary.

Concurrent with the issuance the Convertible Notes, we entered into a call spread option transaction with an affiliate of Merrill Lynch for the cost of $5.9 million. The call spread option transaction was intended to reduce the potential
dilution of our common stock upon conversion of the Convertible Notes. The Convertible Notes are convertible at any time prior to maturity at a conversion rate of 108.3658 shares per $1,000 principal amount of Convertible Notes, which represents
conversion price of $9.23 per share, subject to adjustment. The call spread option transaction allows us to receive up to 934,118 shares of our common stock at $9.23 per share from the call spread option transaction holder, equal to the amount of
our common stock related to the excess conversion value that we would deliver to the holders of the Convertible Notes upon conversion. The number of shares that we would receive pursuant to the call spread option transaction declines after the
market price exceeds $11.15 per share to reflect the aggregate market value of $10.4 million of our common stock. The call spread option transaction will terminate upon the earlier of the maturity date of the Convertible Notes or the first day all
of the Convertible Notes are no longer outstanding due to conversion or otherwise. Our ability to receive the maximum aggregate market value of shares of our common stock pursuant to the call spread option transaction is dependent upon the
performance of our stock price and the desire of holders to convert the Convertible Notes into shares of our common stock. If holders fail to convert the Convertible Notes into shares of our common stock prior to the due date in 2013, the call
spread option transaction will expire without the shares of our common stock being delivered to us.

Concurrent with the issuance of the
Convertible Notes, we entered into a forward stock purchase transaction with Merrill Lynch at a cost of $15.0 million. Pursuant to the forward stock purchase transaction we are entitled to receive from Merrill Lynch 1.95 million shares of our
common stock on or about the maturity date of the Convertible Notes to reduce the potential dilution to our common stock upon conversion of the Convertible Notes. If the stock price falls below $7.69 per share on or about the maturity date of the
Convertible Notes, the aggregate value of our common stock received would be less than the amount paid for the forward stock purchase transaction.

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, as of March 31, 2008, our
disclosure controls and procedures were, subject to the limitations noted above, effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure.



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Changes in Internal Control Over Financial Reporting

We continued to formalize documentation and perform testing of our financial processes during the period covered by this Quarterly Report on Form 10-Q. In
January 2008, we enhanced our financial reporting capabilities by converting our accounting system to an accounting software package that enables us to more efficiently account for multiple entities. During the conversion period, we implemented
certain measures to ensure that the system of internal control remained effective such as daily reconciliations of data input and the roll-forward of prior period G/L balances. No other change in our internal control over financial reporting
occurred during the first quarter of 2008 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We have applied to the United
States Patent and Trademark Office for federal trademark registration of our name, RASER, in connection with a number of goods and services including, among other things, electric motors for machines. In connection with our application no.
78/339,071, Razor USA LLC has initiated an opposition proceeding (Opposition) before the administrative body the Trademark Trial and Appeals Board (TTAB). We believe that the Opposition is without merit. Because the TTAB
cannot award money damages, we believe the Opposition does not create a presently existing material loss contingency.

We are not subject
of any other legal proceedings and we are unaware of any proceedings presently contemplated against us 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 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 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 of approximately $5.4 million for the three months ended March 31, 2008. As a result of ongoing operating losses, we had an accumulated deficit and deficit after
re-entry into development stage of approximately $56.6 million on cumulative revenues from inception of approximately $0.9 million as of March 31, 2008.

Under our current growth plan, we do not expect that our revenues will be sufficient to cover our expenses for the foreseeable future. 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:



| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into additional equity tax 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 the projects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | finance and complete the development of multiple geothermal power plants;
| | - |  | -------------------------------------------------------------------------



| |  |  | manage construction, drilling and operating costs associated with the geothermal power plants we intend to develop;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | successfully license commercial applications of our SymetronTMtechnologies;
| | - |  | ---------------------------------------------------------------------------



| |  |  | enforce and protect our intellectual property while avoiding infringement claims;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | comply with applicable governmental regulations; and
| | - |  | ----------------------------------------------------



| |  |  | attract and retain qualified personnel.
| | - |  | ---------------------------------------

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.

As of March 31, 2008, we had cash and cash equivalents on hand of $21.4 million. Cash used in operations was approximately
$2.8 million for the three months ended March 31, 2008.



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If we are unable to generate revenue or secure additional financing when needed, we will be forced to
reduce expenditures to continue as a going concern. 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 Symetron technologies.

The amount and timing of our future capital needs depend on many factors, including the timing of our development efforts, opportunities for strategic
transactions, and the amount and timing of any revenues we are able to generate. Given our current business strategy, however, we will need to secure additional financing in order to execute our plans and continue our operations.

Our Commitment Letter with Merrill Lynch sets forth certain general terms relating to the structure and financing of up to 155 MW of geothermal power
plants we intend to develop and includes a financing commitment from Merrill Lynch with respect to a 10.5 MW plant we intend to develop in Nevada. The funding of the commitment for the Nevada plant remains subject to certain conditions. If Merrill
Lynch elects to provide or arrange a financing commitment with respect to any additional projects, such financing commitment will be subject to satisfactory due diligence, the execution of a separate commitment letter relating to such project and
certain other conditions. Even if we are able to obtain funding for the development of projects pursuant to the Commitment Letter, we will need additional financing to cover general operating expenses and certain development expenses that are not
covered by the Commitment Letter.

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 purchase 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 secure additional financing by incurring indebtedness. 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.

Prior to the completion of the private placement
of our 8.00% Convertible Senior Notes due 2013, our independent registered public accounting firms report on our 2007 financial statements questioned our ability to continue as a going concern.

As originally issued on March 11, 2008, our independent registered public accounting firms report on our financial statements as of and for the
two year period ended December 31, 2007 expressed doubt about our ability to continue as a going concern. Their report included an explanatory paragraph stating that there was 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 2008.

On
March 26, 2008, we received approximately $48.0 million in net proceeds from the private placement of $50,000,000 aggregate principal amount of our 8.00% Convertible Senior Notes due 2013 and $4.8 million additional net proceeds on
April 1, 2008 pursuant to the exercise of the initial purchasers overallotment option. As a result of the private placement, our independent registered public accounting firm reissued their report with respect to our financial statements
on April 1, 2008 to remove the explanatory paragraph.

In addition to the private placement described above, 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. If we are unable to secure
additional financing when necessary, future reports issued by our independent registered public accounting firm could include a going concern qualification. Inclusion of a going concern qualification in a future report issued
by our independent accountants could have a negative impact on our ability to obtain financing and may adversely impact our stock price.



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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 fluctuated from a low of $7.30 per share to a high of $17.09 per share during the
three months ended March 31, 2008. Our stock price is likely to experience significant volatility in the future as a result of numerous factors outside of our control. 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.

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.

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. Our success in developing a particular geothermal project is contingent
upon, among other things, locating 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. Generally, we must also incur significant expenses for preliminary engineering, permitting, legal fees and other expenses before we can even determine whether a project is feasible. Project financing is not typically
available for these preliminary activities.

We may be unable to obtain the financing we need to develop geothermal power projects.

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. Our attempts to secure the necessary 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 continued success of current 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.

Other than
certain excluded financings, the Commitment Letter gives Merrill Lynch the exclusive right to provide or arrange financing for up to 100 MW of substantially similar geothermal power plants we intend to develop. Other than certain excluded
financings, Merrill Lynch also has a right of first refusal with respect to the financing of an additional 55 MW of geothermal power plants we intend to develop. While Merrill Lynch has provided us with a financing commitment, subject to the
satisfaction of certain conditions, for a 10.5 MW plant in Nevada, Merrill Lynch is not obligated to provide us with a financing commitment for any other project unless it elects to do so. Any determination on the part of Merrill Lynch to provide
any such financing commitment is subject to the satisfaction of certain conditions precedent and various other factors, including but not limited to, satisfactory completion of due diligence, the absence of any material adverse change in our
business, liabilities, operations, condition (financial or otherwise) or prospects, the execution of acceptable definitive documentation, receipt of customary legal opinions acceptable to Merrill Lynch, satisfactory market conditions and necessary
approvals. Accordingly, there can be no assurance that Merrill Lynch will provide us with any financing commitments at any time either pursuant to the Commitment Letter or otherwise. Further, Merrill Lynchs rights under the Commitment Letter,
including its right to generally match alternative financing proposals, may make it difficult for us to obtain financing proposals from other sources.



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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
intends to develop 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, primarily Statement of Financial Accounting Standards Board Interpretation Number 46R Consolidation of Variable Interest Entities (Revised December 2003)  an interpretation of ARB No. 51(FIN 46R), 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, net loss or loss per share.

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

The geothermal power projects that we plan to develop 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.

The structure of federal and state energy regulation currently is subject to 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 operating performance of geothermal power plants may be adversely affected by changes in certain laws and regulations, including tax laws.

The federal government currently encourages production of electricity from geothermal resources through certain tax subsidies. Assuming the available tax
credits remain in place as currently in effect, each geothermal power project will be permitted to claim for federal tax purposes either an investment tax credit for approximately 10% of the cost of each new geothermal power plant or
production tax credits of $20.00 (plus an annual adjustment for an inflation factor) per megawatt hour for the first ten years of electricity output. Currently, production tax credits can only be claimed on new plants placed into service
before December 31, 2008. The availability of production tax credits for new plants put into service after 2008 will depend on whether Congress acts to make tax credits available for such plants and the President elects to sign into law the
action taken by Congress.

The owners of a geothermal power project are also permitted to deduct most of the cost of the power plant as
depreciation over five years on an accelerated basis. The fact that the deductions are accelerated means that more of the cost is deducted in the first few years than during the remainder of the depreciation period.

The tax incentives associated with a geothermal power plant are generally only beneficial to a party with sufficient taxable income. A party with
sufficient taxable income can use the tax incentives to reduce their overall tax liability. Due to the nature and timing of the tax incentives, it is likely that the tax incentives available for the geothermal power plants we intend to develop will
exceed the taxable income produced by such power plants for 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 the financial services industry may be willing to finance the development of a geothermal power plant for the right to receive the benefit of the tax
incentives, which it could then use to reduce the tax liability associated with its regular operations.

The value of the tax incentives
can be transferred in a variety of methods. For instance, investment and production tax credits can be transferred through tax leases in connection with financing arrangements associated with the development of the power plant.

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 current tax subsidies 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.



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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.

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, uncontrolled
releases of pressure and temperature decline, 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) of the geothermal resource, the useful life (commercially exploitable life) of the resource and operational factors relating to the extraction
of geothermal fluids. 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 the geothermal power plants our Power Systems segment intends to develop will depend on the continued availability of adequate
geothermal resources. 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 a degradation in our
geothermal resources, our insurance coverage may not be adequate to cover losses sustained as a result thereof.

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

Our Power Systems segment intends to utilize certain heat transfer technologies in the geothermal power projects we intend to develop. These heat transfer
technologies were developed by UTC Power Corporation, or UTCP, a United Technologies Corporation company. UTCP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.

UTCPs heat transfer technologies have a limited operating
history and have only been deployed in a limited number of geothermal power projects. As a result, we cannot be certain that UTCPs heat transfer technologies can be successfully implemented in the geothermal power projects we intend to
develop. If we are not able to successfully utilize UTCPs heat transfer technologies in the geothermal power projects we intend to develop and we are unable to utilize appropriate substitute technologies, we may be unable to develop these
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.

The geothermal power projects our Power Systems segment intends to develop will be 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.



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The geothermal power projects our Power Systems segment intends to develop 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 our
Power Systems segment intends to develop 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 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.

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

A significant part of our long-term business strategy for our Transportation and Industrial
Technology 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. If we are
unable to successfully license our intellectual property or technology to these businesses or others, our Transportation and Industrial Technology segment may be unable to generate revenues under its current business model. If we are unable to
generate license revenues, we may be required to develop a new long-term business strategy for the Transportation and Industrial Technology segment or discontinue operating this business segment.

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
(CAFE), Renewable Portfolio Standards (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 and Industrial Technology segment.

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

The success of our
Transportation and Industrial Technology 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 six issued U.S. patents, six
pending U.S. patent applications, five pending international patent applications and four pending foreign 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 U.S. and five trademark registrations internationally. We have also applied for five additional trademark registrations in the U.S. and seven additional trademark registrations internationally which may never be granted.



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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.

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 licensor may also seek to terminate our license.

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 and Industrial Technology segment could
incur significant expenses if products built with our technology contain defects.

If our Transportation and Industrial Technology
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 substantial 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.



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We believe our Transportation and Industrial Technology 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 and Industrial Technology 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 interest. 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.

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 (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.

No material weaknesses were identified in connection with the audit of our 2007 financial statements. However, weaknesses or deficiencies could be
identified in the future. If we fail to adequately address any deficiencies, it could have a material adverse effect on our business, results of operations and financial condition. Ultimately, if not corrected, any 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 delisting by the NYSE Arca exchange 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.



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If we fail to comply with the NYSE Arca exchange listing standards and maintain our listing on the NYSE Arca
exchange, our business could be materially harmed and our stock price could decline.

Our shares of common stock are listed on the
NYSE Arca exchange. Pursuant to the Sarbanes-Oxley Act of 2002, national securities exchanges, including the NYSE Arca exchange, have adopted more stringent listing requirements. Although we have been approved to list shares of common stock on the
NYSE Arca exchange, we may not be able to maintain our compliance with all of the listing standards of the NYSE Group. Any failure by us to maintain our listing on the NYSE Arca exchange could materially harm our business, cause our stock price to
decline, and make it more difficult for our stockholders to sell their shares.

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 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. In recent years we have experienced turnover in several key positions.

Our future
success also depends on our ability to attract, train, retain and motivate highly skilled technical and sales personnel. Since our Company has 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.

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. If
our officers, directors or employees sell 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 35.7 million
shares were free of restrictive legend as of March 31, 2008, up from approximately 20.2 million as of March 31, 2007. The occurrence of such sales, or the perception that such sales could occur, may cause our stock price to decline.

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

U.S. 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, 2007, we were not required to record liabilities relating to uncertainties in our income tax positions until a determination was made by the IRS disallowing the deductions. However, beginning January 1, 2007 we are
required to determine whether it is more-likely-than-not that a tax position is sustainable and measure the tax position to recognize in the financial statements in accordance with recent accounting pronouncements.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

On January 4, 2008, we issued 22,217 restricted shares of our common stock to ICPE, Inc. pursuant to a settlement of an outstanding invoice for professional services relating to design and engineering services for a geothermal power
plant that we intend to construct. The 22,217 shares represented the fair value of the outstanding invoice on the date of the grant. The fair value of these shares based on the closing price of our common stock on the grant date totaled $318,814

On January 4, 2008, we issued 3,565 restricted shares of our common stock to Hamilton Environmental, Inc. pursuant to a settlement of
an outstanding invoice for professional services related to obtaining the proper permits that enable us to drill for geothermal resources. The 3,565 shares represented the fair value of the outstanding invoice on the date of the grant. The fair
value of these shares based on the closing price of our common stock on the grant date totaled $51,158.

On February 1, 2008, we
issued 45,732 restricted shares of our common stock to ICPE, Inc. pursuant to a settlement of an outstanding invoice for professional services relating to design and engineering services for a geothermal power plant that we intend to construct. The
45,732 shares represented the fair value of the outstanding invoice on the date of the grant. The fair value of these shares based on the closing price of our common stock on the grant date totaled $450,000.



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We believe that the offer and sale of the shares of common stock described above were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) under the Securities Act and Rule 506 of Regulation D under the Securities Act.

On March 26, 2008, we sold $50 million aggregate principal amount of our 8.00% Convertible Notes which are due in 2013 pursuant to the terms of a purchase agreement between Merrill Lynch, Pierce, Fenner &
Smith Incorporated as the initial purchaser and us. We granted the initial purchaser of the Convertible Notes a 30-day overallotment option to purchase up to an additional $5.0 million aggregate principal amount of the Convertible Notes. On
April 1, 2008, we sold an additional $5.0 million aggregate principal amount of the Convertible Notes pursuant to the exercise of the initial purchasers overallotment option. The Convertible Notes are convertible into shares of our common
stock, at the option of the holder, at an initial conversion rate of 108.3658 shares per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $9.23 per share, subject to adjustment.
The net proceeds from the sale of the $55 million aggregate principal amount of Convertible Notes, after deducting the initial purchasers discount of $2.2 million, totaled $52.8 million. In connection with the issuance of the Convertible
Notes, we entered into a pledge and escrow agreement with the initial purchaser that required us to use approximately $8.7 million of the proceeds from the issuance of the Convertible Notes to purchase low-risk government securities that were
pledged to secure the first four interest payments on the Convertible Notes. Concurrently, with the pricing of the Convertible Notes, we entered into a call spread option transaction and a confirmation of our forward stock purchase transaction with
an affiliate of the initial purchaser of the Convertible Notes. We used approximately $15.0 million of the net proceeds from the offering to repurchase shares of our common stock pursuant to the forward stock purchase transaction and approximately
$5.9 million of net proceeds to fund the call spread option transaction. We intend to use the remaining net proceeds from the offering for general corporate purposes and to continue well field and other development activities for the geothermal
power plants we intend to develop. The Convertible Notes were offered through the initial purchaser only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. Six qualified institutional buyers
purchased the Convertible Notes.

We believe that the offer and sale of the Convertible Notes to the initial purchaser was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) under the Securities Act and Rule 506 of Regulation D under the Securities Act.



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                                     
|4.1           |  | Common Stock Purchase Warrant, dated January 16, 2008 (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed January 23, 2008)                                                                                                                                                   
|              | 
|4.2           |  | Registration Rights Agreement, dated as of January 16, 2008, between Raser Technologies, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2
to our current report on Form 8-K filed January 23, 2008)                                                    
|              | 
|4.3           |  | Indenture, dated as of March 26, 2008, between Raser Technologies, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed March 27, 2008)                                                                                                          
|              | 
|4.4           |  | Registration Rights Agreement, dated March 26, 2008, between Raser Technologies, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2 to our
current report on Form 8-K filed March 27, 2008)                                                              
|              | 
|10.1          |  | Commitment Letter, dated January 16, 2008, among Raser Technologies, Inc., Truckee Geothermal No. 1 SV-01, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by
reference to Exhibit 10.1 to our current report on Form 8-K filed January 23, 2008)                                  
|              | 
|10.2          |  | Renewable Power Purchase and Sale Agreement, dated March 10, 2008, between the City of Anaheim and Thermo No. 1 BE-01, LLC (incorporated by reference to Exhibit 10.1 to our current report of
Form 8-k filed March 19, 2008).                                                                              
|              | 
|10.3          |  | Renewable Power Purchase and Sale Agreement, dated March 10, 2008, between the City of Anaheim and Harmony Geothermal No. 1 IR-01, LLC (incorporated by reference to Exhibit 10.2 to our current
report of Form 8-k filed March 19, 2008)                                                                   
|              | 
|10.4          |  | Purchase Agreement, dated March 19, 2008, by and between Raser Technologies, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference
to Exhibit 10.1 to our current report on Form 8-K filed March 25, 2008)                                            
|              | 
|10.5          |  | Call Spread Option Transaction, dated March 19, 2008, between Merrill Lynch Financial Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Raser Technologies, Inc.
(incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed March 25, 2008)                    
|              | 
|10.6          |  | Confirmation of Forward Stock Purchase Transaction, dated March 19, 2008, between Merrill Lynch Financial Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Raser
Technologies, Inc. (incorporated by reference to Exhibit 10.3 to our current report on Form 8-K filed March 25, 2008)
|              | 
|10.7          |  | Pledge and Escrow Agreement, dated as of March 26, 2008, among Raser Technologies, Inc., The Bank of New York, as escrow agent, and The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed March 27, 2008)                                     



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|      |  |                                                                                                                                                                                                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8 |  | Purchase Contract, dated April 3, 2008, between UTC Power Corporation and Raser Technologies, Inc. (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed
April 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                                                                                             



| | Confidential treatment has been requested for portions of this exhibit.
|- | -----------------------------------------------------------------------

|* | To be filed herewith.
|- | ---------------------



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.



|             |  |  |  |                                      
|------------ |  |  |  | -------------------------------------
|             |  |  |  | RASER TECHNOLOGIES, INC. (Registrant)
|             |  | 
|May 12, 2008 |  |  |  | /s/ Brent M. Cook                    
|(Date)       |  |  |  | Brent M. Cook,                       
|             |  |  |  | Chief Executive Officer and Director 
|             |  | 
|May 12, 2008 |  |  |  | /s/ Martin F. Petersen               
|(Date)       |  |  |  | Martin F. Petersen,                  
|             |  |  |  | Chief Financial Officer              



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EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                                                                                                                                     
|               | 
|4.1            |  | Common Stock Purchase Warrant, dated January 16, 2008 (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed January 23, 2008)                                                                                                                                                   
|               | 
|4.2            |  | Registration Rights Agreement, dated as of January 16, 2008, between Raser Technologies, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2
to our current report on Form 8-K filed January 23, 2008)                                                    
|               | 
|4.3            |  | Indenture, dated as of March 26, 2008, between Raser Technologies, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed March 27, 2008)                                                                                                          
|               | 
|4.4            |  | Registration Rights Agreement, dated March 26, 2008, between Raser Technologies, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2 to our
current report on Form 8-K filed March 27, 2008)                                                              
|               | 
|10.1           |  | Commitment Letter, dated January 16, 2008, among Raser Technologies, Inc., Truckee Geothermal No. 1 SV-01, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by
reference to Exhibit 10.1 to our current report on Form 8-K filed January 23, 2008)                                  
|               | 
|10.2           |  | Renewable Power Purchase and Sale Agreement, dated March 10, 2008, between the City of Anaheim and Thermo No. 1 BE-01, LLC (incorporated by reference to Exhibit 10.1 to our current report of
Form 8-k filed March 19, 2008).                                                                              
|               | 
|10.3           |  | Renewable Power Purchase and Sale Agreement, dated March 10, 2008, between the City of Anaheim and Harmony Geothermal No. 1 IR-01, LLC (incorporated by reference to Exhibit 10.2 to our current
report of Form 8-k filed March 19, 2008)                                                                   
|               | 
|10.4           |  | Purchase Agreement, dated March 19, 2008, by and between Raser Technologies, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference
to Exhibit 10.1 to our current report on Form 8-K filed March 25, 2008)                                            
|               | 
|10.5           |  | Call Spread Option Transaction, dated March 19, 2008, between Merrill Lynch Financial Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Raser Technologies, Inc.
(incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed March 25, 2008)                    
|               | 
|10.6           |  | Confirmation of Forward Stock Purchase Transaction, dated March 19, 2008, between Merrill Lynch Financial Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Raser
Technologies, Inc. (incorporated by reference to Exhibit 10.3 to our current report on Form 8-K filed March 25, 2008)
|               | 
|10.7           |  | Pledge and Escrow Agreement, dated as of March 26, 2008, among Raser Technologies, Inc., The Bank of New York, as escrow agent, and The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed March 27, 2008)                                     
|               | 
|10.8          |  | Purchase Contract, dated April 3, 2008, between UTC Power Corporation and Raser Technologies, Inc. (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed April 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                                                                                                                                                                                                     



| | Confidential treatment has been requested for portions of this exhibit.
|- | -----------------------------------------------------------------------

|* | To be filed herewith.
|- | ---------------------



47