##### Table of Contents





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, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                              |  |                             
|-------------------------- |  | -------------------- |  | -------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x |  | Non-accelerated filer   ̈                     |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smallerreporting 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 8, 2009 was 64,482,871 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       
|Condensed Consolidated Statement of Stockholders Equity (Deficit)                            |  | 6       
|Notes to Condensed Consolidated Financial Statements                                          |  | 7       
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 37      
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 64      
|Item 4. Controls and Procedures                                                               |  | 65      
|Part II. Other Information                                                                    |  | 65      
|Item 1. Legal Proceedings                                                                     |  | 65      
|Item 1A. Risk Factors                                                                         |  | 65      
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 77      
|Item 6. Exhibits                                                                              |  | 77      
|SIGNATURES                                                                                    |  | 79      



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

RASER TECHNOLOGIES, INC. AND SUBSIDIARIES

(a development stage enterprise)

Condensed Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                   |  |               |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                   |  | March 31,2009 |             |   | December 31,2008 |  
|Assets                                                                                                                             |  |               |             |   |                  |   |             |  
|Current assets:                                                                                                                    |  |               |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                          |  | $             | 159,067     |   |                  | $ | 1,534,820   |  
|Restricted cash                                                                                                                    |  |               | 76,535      |   |                  |   | 75,704      |  
|Notes receivable, net                                                                                                              |  |               | 4,419       |   |                  |   | 144,525     |  
|Restricted marketable securities (held to maturity)                                                                                |  |               | 6,547,355   |   |                  |   | 6,521,347   |  
|Other current assets                                                                                                               |  |               | 797,195     |   |                  |   | 1,147,562   |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total current assets                                                                                                               |  |               | 7,584,571   |   |                  |   | 9,423,958   |  
|Restricted cash                                                                                                                    |  |               | 11,006,434  |   |                  |   | 20,900,135  |  
|Land                                                                                                                               |  |               | 1,811,063   |   |                  |   | 1,811,063   |  
|Geothermal property, plant and equipment                                                                                           |  |               | 98,190,985  |   |                  |   |            |  
|Power project leases and prepaid delay rentals                                                                                     |  |               | 6,718,136   |   |                  |   | 8,630,643   |  
|Geothermal well field development-in-progress                                                                                      |  |               | 727,762     |   |                  |   | 31,388,628  |  
|Power project construction-in-progress                                                                                             |  |               | 21,247,613  |   |                  |   | 74,072,394  |  
|Power project equipment, net                                                                                                       |  |               | 19,727,500  |   |                  |   | 19,727,500  |  
|Equipment, net                                                                                                                     |  |               | 651,097     |   |                  |   | 608,886     |  
|Intangible assets, net                                                                                                             |  |               | 1,526,200   |   |                  |   | 1,587,310   |  
|Deferred financing costs, net                                                                                                      |  |               | 7,427,126   |   |                  |   | 7,670,382   |  
|Power project development deposits                                                                                                 |  |               | 4,071,675   |   |                  |   | 4,196,550   |  
|Other assets                                                                                                                       |  |               | 3,847,057   |   |                  |   | 4,006,999   |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total assets                                                                                                                       |  | $             | 184,537,219 |   |                  | $ | 184,024,448 |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Liabilities and Stockholders Equity (Deficit)                                                                                     |  |               |             |   |                  |   |             |  
|Current liabilities:                                                                                                               |  |               |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                              |  | $             | 56,506,238  |   |                  | $ | 64,471,336  |  
|Line of credit, net of discount of $2,064,147                                                                                      |  |               | 6,552,761   |   |                  |   |            |  
|Short-term portion of long-term notes                                                                                              |  |               | 2,942,988   |   |                  |   | 1,831,147   |  
|Short-term warrants                                                                                                                |  |               | 30,625      |   |                  |   |            |  
|Note payable                                                                                                                       |  |               |            |   |                  |   | 945,833     |  
|Deferred revenue                                                                                                                   |  |               | 200,000     |   |                  |   | 200,000     |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total current liabilities                                                                                                          |  |               | 66,232,612  |   |                  |   | 67,448,316  |  
|Asset retirement obligation                                                                                                        |  |               | 2,533,156   |   |                  |   | 2,152,230   |  
|Long-term 7.00% senior secured note (non-recourse), net of discount of $4,790,523                                                  |  |               | 25,060,276  |   |                  |   | 25,120,464  |  
|Long-term 8.00% convertible senior notes                                                                                           |  |               | 55,000,000  |   |                  |   | 55,000,000  |  
|Warrants                                                                                                                           |  |               | 28,083,927  |   |                  |   |            |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                  |  |               | 176,909,971 |   |                  |   | 149,721,010 |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Contingencies and commitments, (see Notes A, C, J, K, M)                                                                           |  |               |             |   |                  |   |             |  
|Non-controlling interest in Thermo No. 1 subsidiary                                                                                |  |               | 26,830,760  |   |                  |   | 28,025,116  |  
|Stockholders 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, 64,855,718 and 63,519,455 shares issued and outstanding,
respectively |  |               | 648,557     |   |                  |   | 635,195     |  
|Additional paid in capital                                                                                                         |  |               | 76,326,804  |   |                  |   | 102,350,814 |  
|Accumulated deficit                                                                                                                |  |               | (30,972,177 | ) |                  |   | (30,972,177 | )
|Accumulated deficit after re-entry into development stage                                                                          |  |               | (65,206,696 | ) |                  |   | (65,735,510 | )
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total stockholders equity (deficit)                                                                                               |  |               | (19,203,512 | ) |                  |   | 6,278,322   |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  
|Total liabilities and stockholders equity (deficit)                                                                               |  | $             | 184,537,219 |   |                  | $ | 184,024,448 |  
|                                                                                                                                   |  |               |             |   |                  |   |             |  

See accompanying notes to condensed consolidated financial statements.



3



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##### Table of Contents

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 |  
|                                                        |  | 2009                         |            |   | 2008                                                                          |   |            | March 31, 2009) | 
|Revenue                                                 |  | $                            |           |   |                                                                               | $ | 130,543    |                 |  | $ | 537,092     |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Operating expense                                       |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Cost of sales                                           |  |                              |           |   |                                                                               |   | 74,112     |                 |  |   | 746,036     |  
|General and administrative                              |  |                              | 2,505,422  |   |                                                                               |   | 2,780,238  |                 |  |   | 26,127,676  |  
|Power project development                               |  |                              | 2,113,340  |   |                                                                               |   | 1,787,054  |                 |  |   | 15,101,715  |  
|Unsuccessful and impaired wells                         |  |                              |           |   |                                                                               |   |           |                 |  |   | 13,624,352  |  
|Research and development                                |  |                              | 657,728    |   |                                                                               |   | 969,183    |                 |  |   | 9,753,608   |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Total operating expenses                                |  |                              | 5,276,490  |   |                                                                               |   | 5,610,587  |                 |  |   | 65,353,387  |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Operating loss                                          |  |                              | (5,276,490 | ) |                                                                               |   | (5,480,044 | )               |  |   | (64,816,295 | )
|Interest income                                         |  |                              | 62,379     |   |                                                                               |   | 59,734     |                 |  |   | 1,430,454   |  
|Interest expense                                        |  |                              | (1,415,618 | ) |                                                                               |   | (65,512    | )               |  |   | (4,613,898  | )
|Loss on derivative instruments                          |  |                              | (942,839   | ) |                                                                               |   |           |                 |  |   | (942,839    | )
|Other                                                   |  |                              | (131,412   | ) |                                                                               |   | 75,357     |                 |  |   | (975,296    | )
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Loss before income taxes                                |  |                              | (7,703,980 | ) |                                                                               |   | (5,410,465 | )               |  |   | (69,917,874 | )
|Income tax benefit (expense)                            |  |                              |           |   |                                                                               |   |           |                 |  |   |            |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Net loss                                                |  |                              | (7,703,980 | ) |                                                                               |   | (5,410,465 | )               |  |   | (69,917,874 | )
|Non-controlling interest in the Thermo No. 1 subsidiary |  |                              | 1,030,571  |   |                                                                               |   |           |                 |  |   | (2,491,045  | )
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Net loss applicable to common stockholders              |  | $                            | (6,673,409 | ) |                                                                               | $ | (5,410,465 | )               |  | $ | (72,408,919 | )
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Loss per common share-basic and diluted                 |  | $                            | (0.10      | ) |                                                                               | $ | (0.10      | )               |  |   |             |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  
|Weighted average common shares-basic and diluted        |  |                              | 64,349,000 |   |                                                                               |   | 56,023,000 |                 |  |   |             |  
|                                                        |  |                              |            |   |                                                                               |   |            |                 |  |   |             |  

See accompanying notes to condensed consolidated financial statements.



4



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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 |  
|                                                                            |  | 2009                         |            |   | 2008                                                                          |   |             | March 31, 2009) | 
|Cash flows from operating activities:                                       |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Net loss applicable to common stockholders                                  |  | $                            | (6,673,408 | ) |                                                                               | $ | (5,410,465  | )               |  | $ | (72,408,918  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Depreciation, amortization and accretion expense                            |  |                              | 126,915    |   |                                                                               |   | 76,303      |                 |  |   | 758,986      |  
|Deferred financing costs amortization                                       |  |                              | 994,995    |   |                                                                               |   |            |                 |  |   | 1,588,388    |  
|Loss on derivative instrument                                               |  |                              | 942,839    |   |                                                                               |   |            |                 |  |   | 942,839      |  
|Impairment of abandoned patent applications                                 |  |                              | 64,856     |   |                                                                               |   |            |                 |  |   | 210,301      |  
|Impairment of power project lease acquisitions                              |  |                              |           |   |                                                                               |   |            |                 |  |   | 331,722      |  
|Unsuccessful and impaired wells                                             |  |                              |           |   |                                                                               |   |            |                 |  |   | 13,624,352   |  
|Loss (gain) on disposal of assets                                           |  |                              | 1,788      |   |                                                                               |   | 418         |                 |  |   | 35,054       |  
|Gain on completion of contract                                              |  |                              |           |   |                                                                               |   | (75,357     | )               |  |   | (75,357      | )
|Gain on extinguishment of debt                                              |  |                              | (68,588    | ) |                                                                               |   |            |                 |  |   | (68,588      | )
|Bad debt expense                                                            |  |                              | 145,403    |   |                                                                               |   | 27,200      |                 |  |   | 307,603      |  
|Common stock, stock options and warrants issued for services                |  |                              | 1,164,187  |   |                                                                               |   | 783,467     |                 |  |   | 12,169,181   |  
|Non-controlling interest in Thermo No. 1 subsidiary                         |  |                              | (1,030,571 | ) |                                                                               |   |            |                 |  |   | 2,491,045    |  
|Decrease (increase) in accounts receivable                                  |  |                              |           |   |                                                                               |   | (322,700    | )               |  |   | 3,550        |  
|Decrease (increase) in unbilled receivables                                 |  |                              |           |   |                                                                               |   | 192,157     |                 |  |   |             |  
|Decrease (increase) in other assets                                         |  |                              | 323,226    |   |                                                                               |   | (532,429    | )               |  |   | (383,928     | )
|(Decrease) increase in accounts payable and accrued liabilities             |  |                              | (4,082,255 | ) |                                                                               |   | 2,536,549   |                 |  |   | 399,431      |  
|Increase in deferred revenues                                               |  |                              |           |   |                                                                               |   |            |                 |  |   | 200,000      |  
|Decrease in asset retirement obligation                                     |  |                              |           |   |                                                                               |   | (26,453     | )               |  |   | (26,453      | )
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Net cash used in operating activities                                       |  |                              | (8,090,613 | ) |                                                                               |   | (2,751,310  | )               |  |   | (39,900,792  | )
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Cash flows from investing activities:                                       |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Purchase of marketable equity securities                                    |  |                              |           |   |                                                                               |   | (7,894,798  | )               |  |   | (8,687,174   | )
|Proceeds from marketable equity securities                                  |  |                              |           |   |                                                                               |   |            |                 |  |   | 2,262,000    |  
|Decrease in notes receivable                                                |  |                              |           |   |                                                                               |   | 350,000     |                 |  |   | 5,255,052    |  
|(Increase) decrease in deposits                                             |  |                              | 911,653    |   |                                                                               |   | (292,067    | )               |  |   | (2,499,235   | )
|(Increase) decrease in restricted cash                                      |  |                              | 9,892,870  |   |                                                                               |   |            |                 |  |   | (10,682,969  | )
|Increase in intangible assets                                               |  |                              | (10,975    | ) |                                                                               |   | (12,191     | )               |  |   | (1,267,527   | )
|Purchase of equipment                                                       |  |                              | (111,983   | ) |                                                                               |   | (63,078     | )               |  |   | (652,744     | )
|Well field development costs                                                |  |                              | (5,413,208 | ) |                                                                               |   | (1,548,829  | )               |  |   | (43,071,076  | )
|Construction costs                                                          |  |                              | (6,971,112 | ) |                                                                               |   | (3,728,055  | )               |  |   | (46,366,945  | )
|Purchase of real property                                                   |  |                              |           |   |                                                                               |   |            |                 |  |   | (1,811,063   | )
|Power project lease acquisitions                                            |  |                              | (50,000    | ) |                                                                               |   | (400,965    | )               |  |   | (6,145,079   | )
|Proceeds from sales of fixed assets                                         |  |                              |           |   |                                                                               |   |            |                 |  |   | 23,403       |  
|Project power equipment deposits                                            |  |                              | 124,875    |   |                                                                               |   | 3,562,500   |                 |  |   | (4,071,675   | )
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Net cash used in investing activities                                       |  |                              | (1,627,880 | ) |                                                                               |   | (10,027,483 | )               |  |   | (117,715,032 | )
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Cash flows from financing activities:                                       |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Proceeds from exercise of common stock warrants                             |  |                              |           |   |                                                                               |   | 9,300       |                 |  |   | 6,453,897    |  
|Proceeds from exercise of common stock options                              |  |                              |           |   |                                                                               |   | 482,875     |                 |  |   | 1,570,669    |  
|Proceeds from the issuance of 8.00% convertible senior notes                |  |                              |           |   |                                                                               |   | 50,000,000  |                 |  |   | 55,000,000   |  
|Proceeds from the issuance of 7.00% senior secured notes (non-recourse)     |  |                              |           |   |                                                                               |   |            |                 |  |   | 26,130,873   |  
|Principal payments of 7.00% senior secured notes (non-recourse)             |  |                              | (195,260   | ) |                                                                               |   |            |                 |  |   | (573,004     | )
|Purchase of forward stock purchase transaction                              |  |                              |           |   |                                                                               |   | (15,000,000 | )               |  |   | (15,000,000  | )
|Purchase of call spread option transaction                                  |  |                              |           |   |                                                                               |   | (5,850,000  | )               |  |   | (5,850,000   | )
|Proceeds from ATM equity financing                                          |  |                              |           |   |                                                                               |   |            |                 |  |   | 24,160,319   |  
|Proceeds from issuance of a note payable                                    |  |                              |           |   |                                                                               |   | 900,000     |                 |  |   | 900,000      |  
|Proceeds from the sale of common stock in private equity placement          |  |                              |           |   |                                                                               |   |            |                 |  |   | 30,572,214   |  
|Incurrence of deferred financing fees                                       |  |                              |           |   |                                                                               |   | (2,297,986  | )               |  |   | (4,172,728   | )
|Proceeds from 10.0% line of credit                                          |  |                              | 8,538,000  |   |                                                                               |   |            |                 |  |   | 8,538,000    |  
|Proceeds from non-controlling interest capital contributions                |  |                              |           |   |                                                                               |   |            |                 |  |   | 24,503,500   |  
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Net cash provided by financing activities                                   |  |                              | 8,342,740  |   |                                                                               |   | 28,244,189  |                 |  |   | 152,233,740  |  
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Net increase (decrease) in cash and cash equivalents                        |  |                              | (1,375,753 | ) |                                                                               |   | 15,465,396  |                 |  |   | (5,382,084   | )
|Cash and cash equivalents at beginning of period                            |  |                              | 1,534,820  |   |                                                                               |   | 5,912,210   |                 |  |   | 5,541,151    |  
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  
|Cash and cash equivalents at end of period                                  |  | $                            | 159,067    |   |                                                                               | $ | 21,377,606  |                 |  | $ | 159,067      |  
|                                                                            |  |                              |            |   |                                                                               |   |             |                 |  |   |              |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

RASER TECHNOLOGIES, INC. AND SUBSIDIARIES

(a development stage enterprise)

Condensed Consolidated Statement of Stockholders Equity (Deficit)

(Unaudited)



|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ------------ | - | ------- | ---------- | ---------- | ----------- | ------- |  | ----------- | ----------- | ---- |  | -------------- | ----------- | - | ----- | - | ----------- | - |  | - | ----------- | -
|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  | Deficit        |             |   |       |  
|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  | Accumulated    |             |   |       |  
|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  | after re-entry |             |   |       |  
|                                                                                                                                                                                                            |  | Convertible     |  |              |   |         |            | Additional |             |         |  |             |             | into |  |                |             |  
|                                                                                                                                                                                                            |  | preferred stock |  | Common stock |   | paid-in |            |            | Accumulated |         |  | development |             |      |  |               
|                                                                                                                                                                                                            |  | Shares          |  | Amount       |   | Shares  |            | Amount     |             | capital |  |             | deficit     |      |  | stage          |             |   | Total |  
|Balance at December 31, 2008                                                                                                                                                                                |  |                |  | $            |  |         | 63,519,455 |            | $           | 635,195 |  | $           | 102,350,814 |      |  | $              | (30,972,177 | ) |       | $ | (65,735,510 | ) |  | $ | 6,278,322   |  
|Cumulative effect for the change in Accounting principal for implementation of EITF 07-5                                                                                                                    |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   | 7,202,223   |   |  |   | 7,202,223   |  
|Employee compensatory share grants and stock options as a development stage enterprise (since October 1, 2006)                                                                                              |  |                 |  |              |   |         |            |            |             |         |  |             | 978,800     |      |  |                |             |   |       |   |             |   |  |   | 978,800     |  
|Stock Options issued as a development stage enterprise (since October 1, 2006) for:                                                                                                                         |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  
|Warrants vested and issued as a development stage enterprise (since October 1, 2006) for:                                                                                                                   |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  
|Payment of outstanding Contractor services for the construction of our Thermo No. 1 geothermal power plant at an exercise price of $5.35
per share                                                          |  |                 |  |              |   |         |            |            |             |         |  |             | 250,000     |      |  |                |             |   |       |   |             |   |  |   | 250,000     |  
|Per agreement relating to the Line of Credit receipts from January 28ththrough March 31, 2009 at an exercise price of $6.00 per share (a) with the fair market value computed on each individual grant date |  |                 |  |              |   |         |            |            |             |         |  |             | 2,653,903   |      |  |                |             |   |       |   |             |   |  |   | 2,653,903   |  
|Common stock issued as a development stage enterprise (since October 1, 2006) for:                                                                                                                          |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  
|Contractor services for public relations work performed from January 1 through January 31, 2009 with a fair market value computed on
the grant date at prices ranging from $3.74 to $3.87                   |  |                 |  |              |   |         | 4,331      |            |             | 43      |  |             | 16,457      |      |  |                |             |   |       |   |             |   |  |   | 16,500      |  
|Contractor services for the construction of our Thermo No. 1 geothermal power plant to settle debt totaling $2,000,000                                                                                      |  |                 |  |              |   |         | 574,713    |            |             | 5,747   |  |             | 1,994,254   |      |  |                |             |   |       |   |             |   |  |   | 2,000,001   |  
|Contractor services for services performed at our Lightning Dock geothermal power plant with a fair market value computed on the grant date at
a price of $3.48                                             |  |                 |  |              |   |         | 20,474     |            |             | 204     |  |             | 71,046      |      |  |                |             |   |       |   |             |   |  |   | 71,250      |  
|Payment in full of our note payable due January 5, 2009 with a fair market valued computed on the grant date at a price of
$3.35                                                                            |  |                 |  |              |   |         | 263,108    |            |             | 2,631   |  |             | 878,781     |      |  |                |             |   |       |   |             |   |  |   | 881,412     |  
|Shares issued from January 12, 2009 through March 31, 2009 as employee severance at prices ranging from $3.41 to
$4.19                                                                                      |  |                 |  |              |   |         | 24,503     |            |             | 245     |  |             | 94,391      |      |  |                |             |   |       |   |             |   |  |   | 94,636      |  
|Contractor services for public relations work performed from February 1 through February 28, 2009 with a fair market value computed
on the grant date at a price of $3.29                                   |  |                 |  |              |   |         | 912        |            |             | 9       |  |             | 2,991       |      |  |                |             |   |       |   |             |   |  |   | 3,000       |  
|Payment of outstanding Contractor services for the construction of our Thermo No. 1 geothermal power plant to settle debt totaling
$1,250,000                                                               |  |                 |  |              |   |         | 447,555    |            |             | 4,476   |  |             | 1,245,524   |      |  |                |             |   |       |   |             |   |  |   | 1,250,000   |  
|Employee share grant vesting at prices ranging from $2.65 to $3.60 per share from January 1 to March 31, 2009                                                                                               |  |                 |  |              |   |         | 667        |            |             | 7       |  |             | (7          | )    |  |                |             |   |       |   |             |   |  |   |            |  
|Reclassification of warrants from equity to liabilities due to implementation of EITF 07-5                                                                                                                  |  |                 |  |              |   |         |            |            |             |         |  |             | (34,373,934 | )    |  |                |             |   |       |   |             |   |  |   | (34,373,934 | )
|Non-controlling interest                                                                                                                                                                                    |  |                 |  |              |   |         |            |            |             |         |  |             | 163,784     |      |  |                |             |   |       |   | 1,030,571   |   |  |   | 1,194,355   |  
|Net Loss                                                                                                                                                                                                    |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   | (7,703,980  | ) |  |   | (7,703,980  | )
|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  
|Balance at March 31, 2009                                                                                                                                                                                   |  |                |  | $            |  |         | 64,855,718 |            | $           | 648,557 |  | $           | 76,326,804  |      |  | $              | (30,972,177 | ) |       | $ | (65,206,696 | ) |  | $ | (19,203,512 | )
|                                                                                                                                                                                                            |  |                 |  |              |   |         |            |            |             |         |  |             |             |      |  |                |             |   |       |   |             |   |  |   |             |  

See accompanying notes to condensed consolidated financial statements.



|(a) | Under the Line of Credit, each Lender receives warrants (the Warrant) to purchase our common stock for each advance of funds made under the Line of Credit. The number of
shares underlying each Warrant is equal to 50% of the total amounts funded by the applicable Lender divided by the closing price of our common stock on the date of the advance. The Warrants will have an exercise price of $6.00 per share
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RASER TECHNOLOGIES, INC. AND 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 unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended.
Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated balance sheet as of December 31, 2008 has been derived from audited financial
statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These condensed consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) that, in the opinion of our management, are necessary to present fairly the results of our operations for the periods presented. These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2008. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2009 or any other period.

Certain reclassifications have been made in the
prior years consolidated financial statements to conform to the current year presentation, which has no impact on the net loss for any period presented.

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
our Transportation & Industrial segment did not materialize as expected, our determination that our efforts to license our technologies would take longer than originally anticipated, and a shift in our primary business focus to geothermal
power systems development, requiring us to raise additional capital and perform many development stage activities that do not immediately generate revenues. Accordingly, the 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, 2009.

We have raised additional
capital to fund our geothermal power systems development activities and our other operations. We raised $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 an additional $50.0 million from the issuance of 8.00% Convertible Senior Notes due 2013 (the Convertible Notes), which closed on March 26, 2008, and $5.0 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. On June 17, 2008, we entered into an ATM (at-the-market) Equity
Offering Sales Agreement (the Sales Agreement) with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), pursuant to which we were able to offer and sell through Merrill
Lynch, as our sales agent, from time to time, shares of our common stock with an aggregate sales price of up to $25.0 million (the ATM Program). Sales of shares under the ATM Program were made by means of ordinary brokers
transactions on the NYSE Arca exchange at market prices. Merrill Lynch received from us a commission of 2.00%, based on the gross sales price per share, for any shares sold through it as our agent under the Sales Agreement. We began selling shares
pursuant to the ATM Program during the third quarter of 2008, and we sold 732,000 shares pursuant to the ATM Program for an aggregate of $7.2 million. After deducting commissions of $0.1 million, we received net proceeds of $7.1 million from the
sale of these shares. On August 15, 2008, we entered into an amendment to the Sales Agreement pursuant to which we sold to Merrill Lynch 1,986,173 shares of our common stock in connection with a public offering of such shares at a public
offering price per share of $8.95. Merrill Lynch acted as underwriter of the offering. The net proceeds from the sale of the 1,986,173 shares, after deducting Merrill Lynchs underwriting discount of $695,161 and the offering expenses payable
by us, were approximately $17.1 million. The 1,986,173 shares, together with the 732,000 shares previously sold pursuant to the Sales Agreement, constituted all $25.0 million of the shares of common stock contemplated to be sold pursuant to the
Sales Agreement.

We expect to obtain project financing for each geothermal power project that we develop. During the third quarter of
2008, we obtained project financing for our geothermal project near Beaver, Utah, which we refer to as the Thermo No. 1 project. The project financing arrangements for the Thermo No. 1 project included approximately $31.2 million of
permanent non-recourse debt financing with a fixed annual interest rate of 7.00%. Our subsidiary, Thermo No. 1 BE-01, LLC (Thermo Subsidiary), received proceeds from



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the debt financing of approximately $26.1 million for construction of the Thermo No. 1 project after an original issue discount of approximately $5.0
million. After the effect of the original issue discount, the effective interest rate on the $26.1 million of debt financing proceeds is 9.50%. From the proceeds of the debt financing, we received approximately $14.1 million from our Thermo
Subsidiary as repayment for construction costs at the Thermo No. 1 project that were incurred by us prior to closing the project financing. In addition, pursuant to the project financing agreements, our Thermo Subsidiary received a capital
contribution of $3.7 million from Merrill Lynch L.P. Holdings Inc. the minority member of the Thermo Subsidiary (the Class A Member). In October 2008, our Thermo Subsidiary received the balance of the amount due under the financing
agreement in the form of an additional $20.8 million capital contribution from the Class A Member. See Note I. Senior Secured Note (non-recourse), Convertible Senior Notes and Line of Credit for further discussion of the financing
arrangements for the Thermo No. 1 project.

On November 13, 2008, we entered into an agreement (the Fletcher
Agreement) with Fletcher International, Ltd. (Fletcher). Pursuant to the terms of the Fletcher Agreement, on November 14, 2008, Fletcher purchased 2,000,000 shares of our common stock at a fixed price of $5.00 per share and,
on December 12, 2008, purchased 2,360,417 shares of our common stock for $4.23654 per share, which is a price per share equal to $10,000,000 divided by 110% of the average of the daily volume-weighted average price on the NYSE Arca exchange for
the common stock for the ten business days ending on and including December 11, 2008. The gross proceeds from the closing of the November 14, 2008 and December 12, 2008 private placement transactions were $20 million, before deducting
fees and commissions. In connection with our $20.0 million equity financing with Fletcher, we issued warrants to Fletcher to acquire shares of our common stock in an aggregate value of up to $20.0 million (not to exceed 7,458,532 shares of our
common stock) at an exercise price per share equal to the lesser of (a) $6.00 per share or (b) the 40 day volume weighted-average price, less $.60 per share, subject to certain adjustments.

On January 27, 2009, we entered into an Unsecured Line of Credit Agreement and Promissory Note (the Line of Credit), among Radion
Energy, LLC (Radion), Ocean Fund, LLC (Ocean Fund), Primary Colors, LLC (Primary Colors) and R. Thomas Bailey, an individual (collectively, the LOC Lenders). Pursuant to the Line of Credit, we may
borrow up to $15.0 million, subject to the final approval of each advance by the LOC Lenders. Radion is controlled by the Chairman of our Board of Directors, Kraig Higginson. The commitment amounts under the Line of Credit from each of the LOC
Lenders are as follows: $7.2 million from Radion; $5.3 million from Ocean Fund; $2.0 million from Primary Colors; and $500,000 from Mr. Bailey. We obtained the Line of Credit in order to provide working capital for general corporate purposes.
We expect that borrowings under the Line of Credit will be repaid primarily with proceeds from other financing arrangements we intend to secure in connection with the development of our geothermal power projects. Under the Line of Credit, advances
are subject to the final approval of the LOC Lenders, and amounts borrowed under the Line of Credit accrue interest at the rate of 10% per annum. Unless the LOC Lenders agree to a later date, the Line of Credit will mature and amounts borrowed
must be repaid by November 15, 2009 or earlier if certain financing arrangements for the development of our geothermal power projects are completed and placed in service. Under the Line of Credit, each LOC Lender receives warrants (the
LOC Warrants) to purchase our common stock for each advance of funds made under the Line of Credit. The number of shares underlying each LOC Warrant is equal to 50% of the total amounts funded by the applicable LOC Lender divided by the
closing price of our common stock on the date of the advance. The LOC Warrants have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million of the Line of Credit, and the LOC Lenders had received LOC Warrants to
purchase approximately 1,140,872 shares of our common stock. As of May 8, 2009, our total borrowings under the Line of Credit were $11.0 million, and the LOC Lenders have received LOC Warrants to purchase approximately 1,453,045 shares of our
common stock.

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 consolidated financial statements, as of March 31, 2009, we had cash and cash equivalents on hand of $0.2 million and accounts payable and accrued
liabilities of $56.5 million. Cash used in operations totaled approximately $8.1 million for the quarter ended March 31, 2009 and the accumulated deficit and deficit accumulated after re-entry into development stage totaled $96.2 million. We
have incurred substantial losses since inception, and we are not operating at cash breakeven.

As a development stage company, our ability
to secure liquidity in the form of additional financing or otherwise is crucial for the execution of our plans and our ability to continue as a going concern. Our current cash balance, together with cash anticipated to be provided by operations,
will not be sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the foreseeable future. During 2008 and the first part of 2009, economic conditions have weakened significantly and global
financial markets have experienced a significant liquidity crisis. The current economic environment makes it challenging for us to access the liquidity that we need, on terms acceptable to us, to successfully pursue such development plans and
operations. Although we have access to the Deposit Refund (described further below under Note D. Power Project Construction-in-Progress) and the Line of Credit established in January 2009 (described further below under Note I.
Senior Secured Note (non-recourse), Convertible Senior Notes and Line of Credit), there are certain conditions to our ability to access these funds. For example, the lenders party to the Line of Credit have no obligation to make advances
to us. Further, the Line of Credit was established primarily



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for general corporate purposes and the maximum amount available under the Line of Credit is not sufficient to satisfy a meaningful portion of our financing
needs for the foreseeable future. Funds from the Deposit Refund may only be used for expenses associated with the Thermo No. 1 plant and are only available if certain other conditions are met. The cost of raising capital in the debt and equity
capital markets has increased substantially while the availability of funds from those markets generally has diminished significantly. Also, as a result of concerns about the stability of financial markets generally and the solvency of
counterparties specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt
at maturity on terms that are similar to existing debt, and reduced, or in some cases ceased, to provide funding to borrowers. If we are unable to secure adequate funds on a timely basis on terms acceptable to us, we will be unable to satisfy our
existing obligations, or execute our plans. In such case, we would be required to curtail or cease operations, liquidate or sell assets, modify our current plans for plant construction, well field development and other development activities, or
extend the time frame over which these activities will take place, or pursue other actions that could adversely affect future operations.

Despite these conditions, we intend to continue to seek financing arrangements to fund our development activities, which may include the issuance of debt, preferred stock, equity or a combination of these instruments. We also continue to
evaluate a variety of alternatives to finance the development of our geothermal power projects. These alternatives include project financing and tax equity financing under the Merrill Lynch Commitment Letter (described in more detail below),
government funding from grants, loan guarantees or private activity bonds, joint ventures, the sale of one or more of our projects or interests therein, entry into prepaid power purchase agreements with utilities or municipalities, or a merger
and/or other transaction, a consequence of which could include the sale or issuance of stock to third parties. The amount and timing of our future capital needs will depend on many factors, including the timing of our development efforts,
opportunities for strategic transactions, and the amount and timing of any cash flows we are able to generate. We cannot be certain that funding will be available to us on reasonable terms or at all.

Derivative Financial Instruments

During the normal
course of business, from time to time, we issue warrants and options to vendors as consideration to perform services or settle outstanding debt. We may also issue warrants as part of a debt or equity placement offering. We do not enter into any
derivative contracts for speculative purposes.

We recognize all derivatives as assets or liabilities measured at fair value with changes
in fair value of derivatives reflected as current period income or loss unless the derivatives qualify as hedges of future cash flows and are accounted for as such. As a result of the Companys adoption of Emerging Issues Task Force Issue No.
07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock (EITF 07-5), effective January 1, 2009 certain warrants are now accounted for as derivatives. See Note J.
Warrants and Note O. Fair Value Measurements.

New Accounting Pronouncements Effective January 1, 2009

SFAS 161

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 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 No. 133. It is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. We adopted SFAS 161 effective January 1, 2009 and addressed the relevant disclosures accordingly.

SFAS 160 and EITF Topic D-99

In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS 160). In SFAS 160, the FASB established accounting and reporting standards that require non-controlling 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 non-controlling 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 adopted SFAS 160 effective
January 1, 2009 which primarily resulted in moving the presentation of non-controlling interest to the Stockholders equity section of our condensed consolidated balance sheets.

In connection with the adoption of SFAS 160, we also adopted the recent revisions of EITF Topic D-98, Classification and Measurement of Redeemable
Securities, (Topic D-98). The revisions to Topic D-98 require that securities with redemption features that are not solely within the control of the company should be classified outside of permanent equity as temporary equity. We
adopted the revisions to Topic D-98 effective January 1, 2009. As a result of the adoption, we classified non-controlling interest as temporary equity outside of the permanent equity section.

EITF 07-1

In December 2007, the FASB issued EITF
No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 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



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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 07-1 clarified 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 07-1 is effective for collaborative arrangements that exist on January 1, 2009 and application is retrospective. We adopted EITF 07-1 effective January 1, 2009 and the adoption had no material effect
on our financial position or results of operations.

EITF 07-5

In June 2008, the FASB ratified EITF No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 provides that an
entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instruments contingent exercise and settlement provisions. It also
clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We adopted EITF 07-5
effective January 1, 2009 and the adoption resulted in our warrants with anti-dilutive provisions being classified as derivatives in accordance with FASB Statement No. 133. For further discussion of the adoption of EITF 07-05, please refer
to Note J. Warrants and Note O. Fair Value Measurements below.

No other new accounting pronouncement that will
take effect with respect to 2009 or any interim period during 2009 had or is expected to have a material impact on our condensed consolidated financial statements.

Concentration of Credit Risk

We maintain a portion of our available unrestricted cash in deposit accounts in two banks in
Utah. At times, cash balances in these accounts may exceed federally insured limits. From time to time, we invest a portion of our unrestricted cash in an AIM Funds money market account, which is not affiliated with the banks where we maintain our
deposit accounts. The money market account earns interest based on a variable rate. At March 31, 2009, our balance in the money market account was $10,700 and the interest rate applicable to the money market account was 0.42% per annum.
The average interest rate applicable to the money market account during the quarter ended March 31, 2009 was 0.44% per annum.

Cash from our checking account is swept nightly into an interest bearing account. At March 31, 2009, we had a balance of $0.1 million in this sweep account and the interest rate applicable to the sweep account was 1.05% per annum.

Project financing proceeds received by our subsidiaries are subject to the terms and conditions of those arrangements. On August 31,
2008, we finalized the project financing arrangements for the Thermo No. 1 project and entered into various definitive agreements (the Thermo Financing Agreements), including a non-recourse senior secured note, that provided debt
financing and tax equity capital for the Thermo No. 1 project totaling $50.6 million. Pursuant to the Thermo Financing Agreements, the funds received can only be used for the purposes permitted by the Thermo Financing Agreements. Any funds not
specifically allocated are restricted and can be used only by our Thermo Subsidiary for certain operating expenses. An independent administrative agent has been appointed to administer all of the Thermo Subsidiarys cash deposits and
disbursements. The independent administrative agent has deposited the cash into a money market fund, managed by JP Morgan Fund, which earns interest at a variable rate. We invest our restricted cash balances in a money market fund. At March 31,
2009, we had a balance of $11.0 million invested in this money market fund and the interest rate applicable to the fund during the quarter ended March 31, 2009 decreased from 1.53% to 0.44% per annum. We reviewed the underlying investments
included in the money market accounts described above and concluded that the money market accounts are properly classified as cash equivalents for financial statement purposes. Due to the nature of the investments included in these money market
accounts, we consider it reasonable to expect that the fair market values of these investments will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash on short notice. We have not experienced losses
in our money market accounts, and we believe that we are not exposed to any significant credit risks relating to our money market accounts.

Concurrent with the issuance of our Convertible Notes, we entered into a Pledge and Escrow Agreement that required us to utilize approximately $8.7 million of the 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. As of March 31, 2009, the remaining portfolio of U.S. Treasury Strips that were placed in escrow approximates $6.5 million. The effective
interest rates applicable to these U.S. Treasury Strips range from 1.36% to 1.72 % per annum. Since these U.S. Treasury Strips are backed by the United States government, we believe that we are not exposed to any significant credit risk
relating to these government securities.

On June 4, 2008, we loaned a former merger candidate $0.1 million and entered into a secured
promissory note, bearing interest at a rate of 10% per annum, that did not accrue interest until after January 27, 2009. During the first quarter of 2009, we determined that this promissory note was likely to be uncollectible and we
expensed the full amount of the note and all accrued interest. However, we intend to pursue collection of this note. At March 31, 2009, we were not exposed to additional credit risk with respect to this note because we had written off the
entire balance.



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During the quarter ended March 31, 2009, we generated electricity and provided it to the local
utility, Rocky Mountain Power. We did not recognize any revenue from this activity.

B. Restricted 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.

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, 2009 the marketable securities are as follows:



|                        |  |                 |           |      |   |             |  |              |  |   |          
|----------------------- |  | --------------- | --------- | ---- | - | ----------- |  | ------------ |  | - | ---------
|Maturity                |  | PrincipalAmount |           | Cost |   | Coupon Date |  | CouponAmount
|March 31, 2009          |  | $               | 2,000,000 |      | $ | 1,967,720   |  | 04/01/09     |  | $ | 2,000,000
|March 31, 2009          |  |                 | 200,000   |      |   | 197,320     |  | 04/01/09     |  |   | 200,000  
|September 30, 2009      |  |                 | 2,000,000 |      |   | 1,951,280   |  | 10/01/09     |  |   | 2,000,000
|September 30, 2009      |  |                 | 200,000   |      |   | 195,860     |  | 10/01/09     |  |   | 200,000  
|March 15, 2010          |  |                 | 2,000,000 |      |   | 1,933,080   |  | 04/01/10     |  |   | 2,000,000
|March 15, 2010          |  |                 | 200,000   |      |   | 194,420     |  | 04/01/10     |  |   | 200,000  
|                        |  |                 |           |      |   |             |  |              |  |   |          
|                        |  |                 |           |      |   | 6,439,680   |  |              |  |   |          
|Discount amortization   |  |                 |           |      |   | 107,675     |  |              |  |   |          
|                        |  |                 |           |      |   |             |  |              |  |   |          
|Total at March 31, 2009 |  |                 |           |      | $ | 6,547,355   |  |              |  |   |          
|                        |  |                 |           |      |   |             |  |              |  |   |          

Interest payments on the Convertible Notes totaling $2,200,000 were due and paid on April 1, 2009.



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C. Geothermal Well Field Development-in-Progress

Once we have obtained sufficient third-party evaluation and analysis supporting the conclusion, with a high degree of confidence, that our leased
geothermal property contains adequate renewable geothermal resources to continually produce electricity, we begin drilling production and reinjection wells for use at the geothermal power plant we intend to build. Depending on the depth of the well
and conditions encountered, it typically takes approximately 25 to 90 days to drill a production or reinjection well. Once drilled, the determination of whether the well can be used in the production of electricity can take another six months or
more and is normally based upon several factors such as: (1) the results of testing the heat and volume flow of the geothermal liquids, (2) the combined production capacity of the geothermal power plant, (3) the combined electricity
producing capacity of the other production wells, and (4) the required total quantity of reinjection wells for the project. The costs of the wells for which the determination of the viability for use as a production or reinjection well is
pending are capitalized with those wells that have already been determined for use as production or reinjection wells. The capitalized costs for pending wells and wells that have been determined to be used in the production of electricity are
classified on the balance sheet as either Geothermal well field development-in-progress or as Geothermal property, plant and equipment for plants that are already placed in service. Since our Thermo No. 1 geothermal power
plant was placed into service in the first quarter of 2009, we reclassified these pending well costs as Geothermal property, plant and equipment accordingly. When management determines that it is probable that a well will not be used in
the production of electricity by the respective geothermal power plant, the previously capitalized costs of that well are expensed in the period in which the wells are determined to be unusable.

At our Thermo No. 1 project, as of March 31, 2009, we had completed the drilling of five wells that had been identified as production wells,
two wells that had been identified as reinjection wells, one well that is expected to be utilized as a cold water well for the cooling towers, and two wells that we have determined to be non-commercial wells. These two non-commercial wells were
expensed. We recently finished drilling an additional well that we expect to use as a production well, pending the completion of testing. No additional wells were being drilled at March 31, 2009, however, we plan to drill another production
well during the second quarter of 2009 for utilization by the Thermo No. 1 project.

As of March 31, 2009, we had drilled one
well at the Truckee project. We determined this well was impaired during the fourth quarter of 2008.

The following table is a roll forward
of the capitalized well costs for pending wells at the Thermo No. 1 and Truckee projects for the quarter ending March 31, 2009:



|                                                                                          |  |                      |           |                 |   |  
|----------------------------------------------------------------------------------------- |  | -------------------- | --------- | --------------- | - | -
|                                                                                          |  | Thermo No. 1 Project |           | Truckee Project
|Balance at December 31, 2008                                                              |  | $                    | 1,898,677 |                 | $ | 
|2009 Activity:                                                                            |  |                      |           |                 |   |  
|Additions to capitalized well costs for pending wells                                     |  |                      | 1,052,862 |                 |   | 
|Wells charged to expense                                                                  |  |                      |          |                 |   | 
|Reclassification of capitalized well costs from pending wells to wells used in production |  |                      |          |                 |   | 
|                                                                                          |  |                      |           |                 |   |  
|Balance at March 31, 2009                                                                 |  | $                    | 2,951,539 |                 | $ | 

The costs to drill production and reinjection wells include tangible and intangible drilling
costs. Tangible drilling costs include tangible materials that remain as part of the well after drilling is complete such as casing, pipes, wellheads, pumps, rings and drilling pads. Intangible drilling costs include tangible and intangible
materials that do not remain as part of the well after the drilling is complete such as permit preparation, drilling rig rental, salaries and expenses incurred by drilling personnel, lubricants, drilling mud, cement and other materials used in the
drilling process, drill bits, freight to deliver the products, down-hole retrieval costs, sample testing, rental equipment, survey costs, excavation cost, drainage cost, and other expenditures incurred analyzing the drilling process. Internal costs
that are directly identified with development of a specific well field are also capitalized when incurred.

Once the related geothermal
power plant is placed in service, the drilling costs are reclassified as Geothermal property, plant and equipment and depreciated over the useful life of the related geothermal power plant, estimated at 35 years.



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We have either obtained or are in the process of obtaining permits for the development of eight
geothermal projects located in Utah, Nevada, New Mexico and Oregon. During the first quarter of 2009, we continued drilling at our Thermo No. 1 project well field in Utah. We also began the permitting process to develop well fields at the
Devils Canyon and Trail Canyon project sites in Nevada, the Thermo No. 2 and Thermo No. 3 project sites in Utah, the Lightning Dock project site in New Mexico and the Klamath Falls project site in Oregon. Construction of the cooling
towers, transmission lines and setting of the power generating units at the Thermo No. 1 geothermal power plant was completed in October 2008. The Thermo No. 1 power plant began generating and transmitting nominal quantities of
test electricity in December 2008. In April 2009, we began selling electricity generated by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with
Anaheim. When a geothermal power plant is placed in service, the drilling costs associated with the well field for the plant are reclassified as Geothermal property, plant and equipment. Since our Thermo No. 1 geothermal power plant was
placed into service in the first quarter of 2009, we reclassified these drilling costs as Geothermal property, plant and equipment accordingly.

The following table sets forth our capitalized drilling and permitting costs for projects to develop geothermal power plants that had not yet been placed in service by geographical area and by project as of
March 31, 2009:



|                                       |  |                                         |         |                        |   |                       |  |   |        
|-------------------------------------- |  | --------------------------------------- | ------- | ---------------------- | - | --------------------- |  | - | -------
|State                                  |  | Intangible Drillingand Permitting Costs |         | Tangible DrillingCosts |   | TotalCapitalizedCosts
|Nevada                                 |  |                                         |         |                        |   |                       |  |   |        
|Truckee project                        |  | $                                       |        |                        | $ |                      |  | $ |       
|Devils Canyon project                 |  |                                         | 93,272  |                        |   |                      |  |   | 93,272 
|Trail Canyon project                   |  |                                         | 149,069 |                        |   |                      |  |   | 149,069
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Total Nevada                           |  | $                                       | 242,341 |                        | $ |                      |  | $ | 242,341
|New Mexico                             |  |                                         |         |                        |   |                       |  |   |        
|Lightning Dock project                 |  | $                                       | 302,861 |                        | $ |                      |  | $ | 302,861
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Total New Mexico                       |  | $                                       | 302,861 |                        | $ |                      |  | $ | 302,861
|Utah                                   |  |                                         |         |                        |   |                       |  |   |        
|Thermo No. 2 and Thermo No. 3 projects |  |                                         | 31,603  |                        |   |                      |  |   | 31,603 
|Other projects                         |  |                                         | 75,567  |                        |   |                      |  |   | 75,567 
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Total Utah                             |  | $                                       | 107,170 |                        | $ |                      |  | $ | 107,170
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Oregon                                 |  |                                         |         |                        |   |                       |  |   |        
|Klamath Falls project                  |  | $                                       | 74,390  |                        | $ |                      |  | $ | 74,390 
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Total Oregon                           |  | $                                       | 74,390  |                        | $ |                      |  | $ | 74,390 
|                                       |  |                                         |         |                        |   |                       |  |   |        
|Total                                  |  | $                                       | 726,762 |                        | $ |                      |  | $ | 726,762
|                                       |  |                                         |         |                        |   |                       |  |   |        

The following table sets forth our capitalized drilling and permitting costs for projects to
develop geothermal power plants that had not yet been placed in service by geographical area and by project as of December 31, 2008:



|                                       |  |                                         |            |                        |   |                       |  |   |           
|-------------------------------------- |  | --------------------------------------- | ---------- | ---------------------- | - | --------------------- |  | - | ----------
|State                                  |  | Intangible Drillingand Permitting Costs |            | Tangible DrillingCosts |   | TotalCapitalizedCosts
|Nevada                                 |  |                                         |            |                        |   |                       |  |   |           
|Truckee project                        |  | $                                       |           |                        | $ |                      |  | $ |          
|Devils Canyon project                 |  |                                         | 77,138     |                        |   |                      |  |   | 77,138    
|Trail Canyon project                   |  |                                         | 139,806    |                        |   |                      |  |   | 139,806   
|                                       |  |                                         |            |                        |   |                       |  |   |           
|Total Nevada                           |  | $                                       | 216,944    |                        | $ |                      |  | $ | 216,944   
|New Mexico                             |  |                                         |            |                        |   |                       |  |   |           
|Lightning Dock project                 |  | $                                       | 283,484    |                        | $ |                      |  | $ | 283,484   
|                                       |  |                                         |            |                        |   |                       |  |   |           
|Total New Mexico                       |  | $                                       | 283,484    |                        | $ |                      |  | $ | 283,484   
|Utah                                   |  |                                         |            |                        |   |                       |  |   |           
|Thermo No. 1 project                   |  | $                                       | 25,990,273 |                        | $ | 4,750,987             |  | $ | 30,741,260
|Thermo No. 2 and Thermo No. 3 projects |  |                                         | 5,322      |                        |   |                      |  |   | 5,322     
|Other projects                         |  |                                         | 66,059     |                        |   |                      |  |   | 66,059    
|                                       |  |                                         |            |                        |   |                       |  |   |           
|Total Utah                             |  | $                                       | 26,061,654 |                        | $ | 4,750,987             |  | $ | 30,812,641
|                                       |  |                                         |            |                        |   |                       |  |   |           



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|                      |  |                                         |            |                        |   |                       |  |   |           
|--------------------- |  | --------------------------------------- | ---------- | ---------------------- | - | --------------------- |  | - | ----------
|State                 |  | Intangible Drillingand Permitting Costs |            | Tangible DrillingCosts |   | TotalCapitalizedCosts
|Oregon                |  |                                         |            |                        |   |                       |  |   |           
|Klamath Falls project |  | $                                       | 75,559     |                        | $ |                      |  | $ | 75,559    
|                      |  |                                         |            |                        |   |                       |  |   |           
|Total Oregon          |  | $                                       | 75,559     |                        | $ |                      |  | $ | 75,559    
|                      |  |                                         |            |                        |   |                       |  |   |           
|Total                 |  | $                                       | 26,637,641 |                        | $ | 4,750,987             |  | $ | 31,388,628
|                      |  |                                         |            |                        |   |                       |  |   |           

Intangible costs are normally higher than tangible drilling costs because tangible costs are
limited to tangible materials such as pipe and well casings that become part of the well when the well is completed. Capitalized interest costs included in Geothermal well field development-in-progress totaled $4,700 for the quarter
ended March 31, 2009 and $652,900 for the year ended December 31, 2008.

D. Power Project Construction-in-Progress

The construction of the geothermal power plant, the related transmission lines, and the required substation takes place nearly concurrently with the
drilling of the production and re-injection wells. An independent engineering firm prepares the basic blue print design for each geothermal power plant project. The blueprints are customized for each plant prior to beginning construction. Depending
on the contractual agreement with the entity financing the project, we either (i) act as the engineering, procurement and construction (EPC) contractor for the project and hire a third-party general contractor and several
subcontractors to complete the construction of the power plant, installation of power generating units, cooling towers and other electrical equipment, or (ii) hire an EPC contractor for the project. The construction of the power plant and
related transmission lines are accumulated and capitalized over the construction period. Once the geothermal power plant is placed in service, the related construction costs will be reclassified as Geothermal property, plant and
equipment. Since our Thermo No. 1 geothermal power plant was placed into service in the first quarter of 2009, we reclassified these construction costs as Geothermal property, plant and equipment accordingly.

In 2007, we began purchasing PureCycle geothermal power generating units from UTC Power Corporation (UTCP), a subsidiary of United
Technologies, Inc., for use in connection with the construction of our geothermal power plant at the Thermo No. 1 project. The agreements relating to the purchase of the power generating units were subsequently assigned to Pratt &
Whitney Power Systems, Inc. (PWPS), another subsidiary of United Technologies, Inc. As of March 31, 2009, pursuant to purchase agreements with a manufacturer, we had taken delivery of 163 power generating units for use in the
geothermal power plants we are developing. Fifty of these generating units have been installed at the Thermo No. 1 project. The Thermo No. 1 power generating units are capitalized in Geothermal property, plant and equipment on
our condensed consolidated balance sheet. In addition, 48 power generating units have been delivered to and are being stored at the Lightning Dock project pending installation at that project. These Lightning Dock power generating units are
capitalized as Power project construction-in-progress on our consolidated balance sheet. We have also taken delivery of 27 power generating units that are being stored on the Thermo No. 1 project site and 38 power generating units
that are being stored at independent storage facilities in New York and Pennsylvania, none of which have yet been assigned to a specific project. These 65 power generating units that have not yet been assigned to a specific project are recorded as
Power project equipment, net on our consolidated balance sheets totaling $19.7 million. We did not receive any additional units during the quarter ended March 31, 2009. Once the power generating units are assigned to a project for
the purpose of beginning construction at the project site, the applicable costs of the power generating units will be reclassified from Power project equipment, net to Power project construction-in-progress.

On April 9, 2009, we entered into an agreement (the PWPS Agreement) with Trail Canyon Geothermal No. 1 SV-02, LLC (Trail
Canyon), Raser Power Systems, LLC and PWPS pursuant to which we and PWPS agreed to terminate certain agreements that had been assigned to PWPS from UTCP relating to power generating units (collectively, the Terminated Agreements).
Under the terms and conditions of the PWPS Agreement, the Company agreed to transfer title to PWPS of 113 power generating units previously delivered or held for delivery for us, free and clear of all liens and encumbrances. We and PWPS also agreed
that, until the earlier of April 9, 2012 and the date on which we have installed 200 power generating units (in addition to the power generating units installed at our Thermo No. 1 project site), PWPS will be the exclusive provider of
heat-to-electricity equipment used for any merchant power plant project developed by us or any of our affiliates so long as PWPS can meet the needs of the particular project. PWPS agreed that it would maintain 50 power generating units in inventory
throughout 2009 that would be allocated to us and that we would receive preferential pricing until April 9, 2011. Pursuant to the Terminated Agreements, we had previously paid to UTCP non-refundable deposits totaling $8,855,250. As part of the
PWPS Agreement, $1,500,000 of these deposits were retained by PWPS as a restructuring charge. PWPS agreed to refund the remaining $7,355,250 of deposits (the Deposit Refund), subject to the satisfaction of certain conditions. The purpose
of the Deposit Refund is to help facilitate payment for certain work necessary for the completion of the Thermo No. 1 geothermal power plant, including the payment of certain existing accounts payable. Accordingly, PWPS is only required to
distribute portions of the Deposit Refund if we (1) provide reasonable documentation to PWPS evidencing the work performed at the Thermo No. 1 project site by a third party vendor; (2) provide reasonable documentation to PWPS



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evidencing the payment of such third party vendor; and (3) represent that the amount of the Deposit Refund to be paid is related solely to the Thermo
No. 1 project site and is necessary to keep the project moving forward. The Deposit Refund may be released to Raser in installments at times and in the amounts determined at the sole reasonable discretion of PWPS. Any difference between the
Deposit Refund and the amounts paid to third party vendors will be held by PWPS until the Thermo No. 1 geothermal power plant achieves successful performance testing and PWPS is paid in full for the unbilled portion of amounts owed under
certain agreements. While the Thermo No. 1 geothermal power plant is currently operational, it is not currently operating at full capacity. We expect to incur additional construction and drilling during 2009 to facilitate the ability of the
Thermo No. 1 geothermal power plant to operate at or near full capacity. The PWPS Agreement will facilitate the payment of a portion of these costs, including existing accounts payable for work that has already been performed.

Notwithstanding the PWPS Agreement, our agreements with PWPS relating to the purchase of the power generating units for the Thermo No. 1 plant and
the associated services agreement remain in full force and effect.

Construction of the cooling towers, transmission lines and setting of
the power generating units at the Thermo No. 1 geothermal power plant was completed in October 2008. The Thermo No. 1 power plant began generating and transmitting nominal quantities of test electricity in December 2008. In
April 2009, we began selling electricity generated by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with Anaheim. When a geothermal power plant is placed in
service, the drilling costs associated with the well field for the plant are reclassified as Geothermal property, plant and equipment. Since our Thermo No. 1 geothermal power plant was placed into service in the first quarter of 2009, we
reclassified these drilling costs as Geothermal property, plant and equipment accordingly.

The Thermo No. 1 project
construction-in-progress costs included costs to construct transmission lines and connecting substations. In order to connect a geothermal power plant to the existing power lines, we must construct transmission lines from the plant to the local
utility interconnection point. We also must construct a substation at or near the facility that will increase the voltage from the generation facility to match local utility transmission voltages. We completed construction of approximately 6.5 miles
of transmission lines for the Thermo No. 1 project in July 2008 and are in the process of completing the construction of the associated substation and other interconnection lines with the plant. We capitalized approximately $4.4 million of
costs associated with the construction of these transmission lines and substation. As of March 31, 2009, we have completed the construction of transmission lines for our Thermo No. 1 project.

As of March 31, 2009, pursuant to certain vendor purchase commitments, we had taken delivery at our Lightning Dock project site of equipment to
construct our cooling towers, water pumps and pipes to transport geothermal water from the wellheads to the power generating units and other electronic equipment that will be used to operate the geothermal power plant at the Lightning Dock project
site. This equipment is capitalized as Power project construction-in-progress on our consolidated balance sheets, as detailed below. Under the PWPS Agreement, we agreed to terminate certain agreements relating to the purchase of power
generating units and related services, as discussed above in more detail.

Power project construction-in-progress consisted of
the following at March 31, 2009 and December 31, 2008 (by project):



|                                            |  |                |            |                   |   |           
|------------------------------------------- |  | -------------- | ---------- | ----------------- | - | ----------
|                                            |  | March 31, 2009 |            | December 31, 2008
|Thermo No. 1 project:                       |  |                |            |                   |   |           
|Power plant construction-in-progress        |  | $              |           |                   | $ | 49,722,241
|Transmission lines construction-in-progress |  |                |           |                   |   | 3,831,789 
|Accumulated depreciation                    |  |                |           |                   |   |          
|                                            |  |                |            |                   |   |           
|Total Thermo No. 1 project                  |  |                |           |                   |   | 53,554,030
|                                            |  |                |            |                   |   |           
|Lightning Dock project:                     |  |                |            |                   |   |           
|Power plant construction-in-progress        |  | $              | 18,857,591 |                   | $ | 18,146,538
|Transmission lines construction-in-progress |  |                |           |                   |   |          
|Accumulated depreciation                    |  |                |           |                   |   |          
|                                            |  |                |            |                   |   |           
|Total Lightning Dock project                |  |                | 18,857,591 |                   |   | 18,146,538
|                                            |  |                |            |                   |   |           
|Other projects:                             |  |                |            |                   |   |           
|Power plant construction-in-progress        |  | $              | 2,380,293  |                   | $ | 2,371,826 
|Transmission lines construction-in-progress |  |                | 9,729      |                   |   |          
|Accumulated depreciation                    |  |                |           |                   |   |          
|                                            |  |                |            |                   |   |           
|Total other projects                        |  |                | 2,390,022  |                   |   | 2,371,826 
|                                            |  |                |            |                   |   |           
|Net power project construction-in-progress  |  | $              | 21,247,613 |                   | $ | 74,072,394
|                                            |  |                |            |                   |   |           



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Capitalized interest included in construction in progress totaled $59,000 for the quarter ended
March 31, 2009 and $368,300 for the year ending December 31, 2008. Amounts capitalized as Power project construction-in-progress will not be depreciated until the applicable geothermal power plant is placed in service.

Note E. Geothermal Property, Plant and Equipment

After identifying the Thermo prospect area, we began acquiring geothermal rights and entered into several lease agreements with the State of Utah School and Institutional Trust Lands Administration (SITLA)
and private landowners for geothermal rights in the Thermo area. In the fourth quarter of 2007, we began drilling our first production well in the Thermo No. 1 project. Construction of the cooling towers, transmission lines and setting of the power
generating units at the Thermo No. 1 geothermal power plant was completed in October 2008. The Thermo No. 1 power plant began generating and transmitting nominal quantities of test electricity in December 2008. As a result of placing the
Thermo No. 1 power plant in service during the first quarter of 2009, we reclassified our related power project lease acquisition costs from the Power project leases and prepaid delay rentals account, well field drilling costs from the
Geothermal well field development-in-progress account and power plant construction and transmission equipment costs from the Power project construction-in-progress account to the Geothermal property, plant and
equipment account in accordance with our company policy.

In April 2009, we began selling electricity generated by the Thermo No. 1
geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with the City of Anaheim. Accordingly, we began to amortize the capitalized costs related to the power plant over the estimated useful
life of the Thermo No. 1 geothermal power plant in the second quarter of 2009. The useful life of our power plants is estimated to be 35 years.

The table below sets forth the capitalized costs relating to our geothermal property, plant and equipment as of March 31, 2009:



|                                             |  |                |           
|-------------------------------------------- |  | -------------- | ----------
|                                             |  | March 31, 2009
|Thermo No. 1 Geothermal Power Plant:         |  |                |           
|Power project lease acquisitions             |  | $              | 2,320,601 
|Well field drilling costs                    |  |                | 36,074,138
|Power plant                                  |  |                | 55,425,690
|Transmission equipment                       |  |                | 4,370,556 
|Accumulated depreciation                     |  |                |          
|                                             |  |                |           
|Net geothermal property, plant and equipment |  | $              | 98,190,985
|                                             |  |                |           

We capitalized the present value of our asset retirement obligation totaling $2.3 million that we
assumed for plugging our wells and decommissioning our geothermal power plant at the end of its estimated useful life. This asset retirement obligation is included in the carrying cost of the leased properties and amortized when the geothermal power
plant is placed in service over its estimated useful life of 35 years. We began amortizing these costs beginning in the second quarter of 2009. Royalties are payable to the landowners based on a percentage of electrical sales from the plant.

As of March 31, 2009, we had completed the drilling of five wells that had been identified as production wells, two wells that had been
identified as reinjection wells and one well that is expected to be utilized as a cold water well for the cooling towers. We recently finished drilling an additional well that we expect to use as a production well, pending the completion of testing.
The capitalized costs of all these wells were reclassified as Geothermal property, plant and equipment during the first quarter of 2009 and we began amortizing the costs of the well field over the estimated useful life of the power plant
of 35 years beginning in the second quarter of 2009. No additional wells were being drilled at March 31, 2009, however, we plan to drill another production well during the second quarter of 2009 for utilization by the Thermo No. 1 geothermal power
plant.

In 2007, we began purchasing UTPC power generating units. We installed fifty of these power generating units at the Thermo No. 1
geothermal power plant. The capitalized construction costs relating to the installation of these fifty power generating units, the installation of piping from the wells to the power generating units, construction of the cooling towers and other
construction related costs are amortized over the estimated useful life of the power plant of 35 years. We began amortizing these costs beginning in the second quarter of 2009.

Transmission equipment costs include the construction of transmission lines and connecting substations. In order to connect a geothermal power plant to
the existing power lines, we must construct transmission lines from the plant to the local utility interconnection point. We also must generally construct a substation at or near the facility that will increase the voltage from the generation
facility to match local utility transmission voltages. We completed construction of approximately 6.5 miles of transmission lines for the Thermo No. 1 project in July 2008 and are in the process of completing the construction of the associated
substation and other interconnection lines with the plant. We capitalized approximately $4.4 million of costs associated with the construction of these transmission lines and substation. As of March 31, 2009, we have completed the construction of
transmission lines for our Thermo No. 1 project. The capitalized transmission costs were reclassified as Geothermal property, plant and equipment and are amortized over the useful life of the power plant of 35 years. We began amortizing
these costs beginning in the second quarter of 2009.

Capitalized interest included in the costs of the Thermo No. 1 geothermal property,
plant and equipment totaled $1,142,360 for the quarter ended March 31, 2009.

F. Deferred Financing Fees

Deferred financing fees consisted of the following at March 31, 2009 and December 31, 2008:



|                                                                                                                |  |                |           |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                |  | March 31, 2009 |           |   | December 31, 2008 |  
|Deferred financing fees for placement of 8.00% convertible senior notes                                         |  | $              | 2,573,048 |   |                   | $ | 2,572,728 |  
|Accumulated amortization                                                                                        |  |                | (463,642  | ) |                   |   | (383,063  | )
|                                                                                                                |  |                |           |   |                   |   |           |  
|Net deferred financing fees for 8.00% convertible senior notes                                                  |  |                | 2,109,406 |   |                   |   | 2,189,665 |  
|                                                                                                                |  |                |           |   |                   |   |           |  
|Deferred financing fees for fair value of Merrill Lynch warrants vested upon closing Thermo No. 1 financing     |  | $              | 3,999,334 |   |                   | $ | 3,999,334 |  
|Accumulated amortization                                                                                        |  |                | (201,144  | ) |                   |   | (89,526   | )
|                                                                                                                |  |                |           |   |                   |   |           |  
|Net deferred financing fees for fair value of Merrill Lynch warrants vested upon closing Thermo No. 1 financing |  |                | 3,798,190 |   |                   |   | 3,909,808 |  
|                                                                                                                |  |                |           |   |                   |   |           |  
|Deferred financing fees for closing Thermo No. 1 financing                                                      |  | $              | 1,600,000 |   |                   | $ | 1,600,000 |  
|Accumulated amortization                                                                                        |  |                | (80,470   | ) |                   |   | (29,091   | )
|                                                                                                                |  |                |           |   |                   |   |           |  
|Net deferred financing fees for the Thermo No. 1 financing                                                      |  |                | 1,519,530 |   |                   |   | 1,570,909 |  
|                                                                                                                |  |                |           |   |                   |   |           |  
|Net deferred financing fees                                                                                     |  | $              | 7,427,126 |   |                   | $ | 7,670,382 |  
|                                                                                                                |  |                |           |   |                   |   |           |  

Refer to Note I. Senior Secured Note (non-recourse), Convertible Senior Notes and Line of
Credit for further discussion of the deferred financing fees associated with the Convertible Notes, the Thermo No. 1 project financing agreements and the warrants issued in connection with the Line of Credit. Also refer to Note J.
Warrants for further discussion of the fair value of the warrants that vested upon entering into the Thermo No. 1 project financing arrangements.

G. Note Payable

On February 15, 2008, we executed a promissory note, pursuant to which we agreed to pay to Lightening
Dock Geothermal, Inc. (LDG) $900,000 in principal plus $50,000 in interest on or before January 5, 2009. The promissory note was secured by our interest in the United States Bureau of Land Management (BLM) lease we
purchased as part of our Lightning Dock project. On January 27, 2009, we settled the promissory note payable by issuing LDG 263,108 shares of our common stock, which had a fair market value of $881,412 based on the closing market price of $3.35
per share on such date. LDG agreed to accept these shares as payment in full of all outstanding principal and interest on the promissory note.

H. Asset
Retirement Obligation

The following table sets forth a reconciliation of beginning and ending aggregate carrying amount of asset
retirement obligation for the years presented below:



|                                     |  |                |           |                   |   |           |  
|------------------------------------ |  | -------------- | --------- | ----------------- | - | --------- | -
|                                     |  | March 31, 2009 |           | December 31, 2008 |  
|Balance at beginning of period       |  | $              | 2,152,230 |                   | $ | 86,193    |  
|Actual cost incurred to retire asset |  |                |          |                   |   | (26,453   | )
|Changes in price estimates           |  |                | 290,550   |                   |   | (10,338   | )
|Liabilities incurred                 |  |                | 47,544    |                   |   | 2,101,675 |  
|Accretion expense                    |  |                | 42,832    |                   |   | 1,153     |  
|                                     |  |                |           |                   |   |           |  
|Total asset retirement obligation    |  | $              | 2,533,156 |                   | $ | 2,152,230 |  
|                                     |  |                |           |                   |   |           |  

Pursuant to the purchase of the BLM lease for our Lightning Dock project 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 $86,193. In February 2008, we plugged and abandoned 11
of the well sites at a cost of $26,453. No additional wells were required to be plugged and abandoned through the quarter ended March 31, 2009.



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We completed the major construction of the cooling towers and transmission lines and installed the power
generating units at our Thermo No. 1 project in October 2008. The Thermo No. 1 power plant began generating and transmitting nominal quantities of test electricity in December 2008. In April 2009, we began selling electricity
generated by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with Anaheim. We expect the Thermo No. 1 geothermal power plant to become operational at or near
full capacity by early in the third quarter of 2009. In connection with the construction of the Thermo No. 1 geothermal power plant, we have a future obligation to dismantle the geothermal power plant, plug and abandon the ten production-sized
wells and restore the property to its original state at the end of the power plants useful life, which is estimated at 35 years.

During the first quarter of 2009, we estimated that an additional $290,550 should be recorded as Asset retirement obligation to reflect previously underestimated cement costs to plug each well. In addition, we also completed one
additional well during the first quarter of 2009 and recorded the asset retirement liability accordingly. Therefore, the aggregate present value of the estimated asset retirement liabilities for the Thermo No. 1 geothermal power plant and the
liabilities associated with the wells totals approximately $2.3 million at March 31, 2009.

Asset retirement liabilities for other
projects were estimated at $0.2 million and $0.1 million at March 31, 2009 and December 31, 2008, respectively.

In connection
with our asset retirement obligation, we have posted $50,000 of drilling bonds with the Nevada Department of Minerals, $50,000 of drilling bonds with the Utah Division of Water Rights and $25,000 of drilling bonds with the Oregon Department of
Geology & Mineral Industries. The purpose of these bonds is to ensure that we comply with the local plug and abandonment requirements associated with our drilling activities.

I. Senior Secured Note (non-recourse), Convertible Senior Notes and Line of Credit

On
January 27, 2009, we entered into the Line of Credit with the LOC Lenders. Pursuant to the Line of Credit, we may borrow up to $15.0 million, subject to the final approval of each advance by the LOC Lenders. Radion, one of the LOC Lenders, is
controlled by the Chairman of our Board of Directors, Kraig Higginson. The commitment amounts under the Line of Credit from each of the LOC Lenders are as follows: $7.2 million from Radion; $5.3 million from Ocean Fund; $2.0 million from Primary
Colors; and $500,000 from Mr. Bailey. Under the Line of Credit, advances are subject to the final approval of the LOC Lenders, and amounts borrowed under the Line of Credit accrue interest at the rate of 10% per annum. Unless the LOC
Lenders agree to a later date, the Line of Credit will mature and amounts borrowed must be repaid by November 15, 2009 or earlier if certain financing arrangements for the development of our geothermal power projects are completed and placed in
service. Under the Line of Credit, each LOC Lender receives LOC Warrants for each advance of funds made under the Line of Credit. The number of shares underlying each LOC Warrant is equal to 50% of the total amounts funded by the applicable LOC
Lender divided by the closing price of our common stock on the date of the advance. The LOC Warrants will have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million under the Line of Credit, all of which
remained outstanding. Accordingly, as of March 31, 2009, the LOC Lenders had received LOC Warrants to purchase approximately 1,140,872 shares of our common stock at a strike price of $6.00 per share as a result of the amount borrowed.

On August 31, 2008, we finalized the project financing arrangements for the Thermo No. 1 project and entered into the Thermo
Financing Agreements, including a non-recourse senior secured note that provides debt financing and tax equity capital for the Thermo No. 1 project. According to the Thermo Financing Agreements, the project financing arrangements for the Thermo
No. 1 project included approximately $31.1 million of permanent non-recourse debt financing for the Thermo No. 1 project with a fixed annual interest rate of 7.00% over 18 years. Our Thermo Subsidiary received proceeds from the debt
financing of approximately $26.1 million for construction of the Thermo No. 1 project after an original issue discount of approximately $5.0 million. After the effect of the original issue discount, the effective interest rate on the $26.1
million of debt financing proceeds is 9.50%. Pursuant to the Thermo Financing Agreements, the debt financing for the Thermo No. 1 project is held by our Thermo Subsidiary, which is responsible for debt service, all maintenance and operations
expenses, and the payment of various fees and distributions to us and Merrill Lynch. Accordingly, if our Thermo Subsidiary defaulted on the loan, there would be no recourse to us to pay the unpaid balance. As of March 31, 2009, we had made
total principal payments of $573,004 and total interest payments of $1,084,518 on the 7.00% senior secured note.

On March 26, 2008,
we sold $50.0 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. 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 were offered through the Initial Purchaser only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The net
proceeds from the sale of



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the Convertible Notes, after deducting financing fees of $2.2 million, totaled $52.8 million. The $2.2 million of financing fees was capitalized as a
deferred financing fee and is being amortized as additional interest expense over the five-year term of the Convertible Notes (see Note F. Deferred Financing Fees above). On April 1, 2009, we paid the second semi-annual interest
payment totaling $2.2 million to the current holders 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 5,960,121 shares of our
common stock. As of March 31, 2009, 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.

The table set forth below represents scheduled payments under our senior secured note (non-recourse), the Convertible Notes and the Line of Credit as of
March 31, 2009:



|                                                     |  |        |           |        |   |         |  |        |           |        |   |            |  |       |            |  |   |            |  |   |           
|---------------------------------------------------- |  | ------ | --------- | ------ | - | ------- |  | ------ | --------- | ------ | - | ---------- |  | ----- | ---------- |  | - | ---------- |  | - | ----------
|                                                     |  | Year 1 |           | Year 2 |   | Year 3  |  | Year 4 |           | Year 5 |   | Thereafter |  | Total
|Long-term 7.00% senior secured (non-recourse note),* |  | $      | 751,289   |        | $ | 862,641 |  | $      | 1,000,678 |        | $ | 1,110,627  |  | $     | 1,110,655  |  | $ | 25,766,198 |  | $ | 30,602,088
|Long-term 8.00% Convertible Notes                    |  |        |          |        |   |        |  |        |          |        |   |           |  |       | 55,000,000 |  |   |           |  |   | 55,000,000
|Line of credit **                                    |  |        | 8,538,000 |        |   |        |  |        |          |        |   |           |  |       |           |  |   |           |  |   | 8,538,000 
|                                                     |  |        |           |        |   |         |  |        |           |        |   |            |  |       |            |  |   |            |  |   |           
|Total long-term debt obligations                     |  | $      | 9,289,289 |        | $ | 862,641 |  | $      | 1,000,678 |        | $ | 1,110,627  |  | $     | 56,110,655 |  | $ | 25,766,198 |  | $ | 94,140,088



|* | Scheduled payments represent payments on the face value of the note without regard to the recorded discount of $4,790,523.
|- | --------------------------------------------------------------------------------------------------------------------------



|** | Scheduled payments represent payments on the face value of the note without regard to the recorded discount of $2,064,147.
|-- | --------------------------------------------------------------------------------------------------------------------------

J. Warrants

Derivative Liability Warrants

Effective January 1, 2009, we adopted the provisions of EITF 07-5, which applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and to any freestanding financial instruments that are potentially settled in an entitys
own common stock. As a result of adopting EITF 07-5, certain of our issued and outstanding warrants previously treated as equity pursuant to the derivative treatment exemption are no longer considered exempt. Accordingly, effective January 1,
2009, we reclassified the fair value of the warrants described below, which have exercise price reset features, from equity to liability status as if these warrants were treated as a derivative liability since the date they were issued.

2008 Private Placement Warrants

As part of the
$20.0 million private placement to Fletcher in November of 2008, we issued to Fletcher warrants to acquire shares of our common stock in an aggregate value of up to $20.0 million. The number of shares issued pursuant to these warrants may not exceed
7,458,532 shares of our common stock. The warrants have a strike price per share equal to the lesser of (i) six dollars ($6.00) or (ii) a price equal to the average of the daily market prices of our common stock for the forty
(40) business days ending on the third business day prior to the exercise of the warrants, less $0.60, subject to certain adjustments (see Fletcher Warrants Price Reset Feature below). At March 31, 2009, based upon the
closing market price of our common stock on that date, the warrants would have been exercisable for a total of 6,219,830 shares of our common stock. The term of the warrants expire on November 14, 2018 and would generate proceeds totaling $20.0
million, if all of the warrants were exercised. As of March 31, 2009, none of the warrants issued to Fletcher had been exercised.

2008 Private
Placement Warrants Price Reset Feature

As described above, the warrants issued to Fletcher in November of 2008 would have been
exercisable for a total of 6,219,830 shares of our common stock at March 31, 2009. The warrants contain an exercise price reset feature that may be triggered upon certain events, such as the issuance of shares of common stock at a price below
the maximum warrant exercise price. If triggered, the exercise price reset feature results in a downward adjustment to the maximum warrant exercise price (currently $6.00 per share) to an amount equal to the average of the then current maximum
exercise price and the lowest price at which shares are issued on the date when the event occurred. As of March 31, 2009, no events had occurred to trigger a price reset with respect to these warrants.



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Contingent Warrants

On January 16, 2008, we granted to Merrill Lynch warrants to acquire 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 expire on January 16, 2015 and would generate proceeds totaling $48.6 million if all of the warrants vest and are exercised. On August 31, 2008, warrants to acquire 1,350,000 shares of our common stock vested in connection with
the closing of the project financing arrangements for the Thermo No. 1 project. These warrants are immediately exercisable and have a current exercise price of $13.13. 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, the performance criteria related to the vesting of the warrants has been completed. Since the vesting of warrants was a
result of closing the project financing, we allocated the fair value between the net proceeds of the debt and the amount of equity contribution in our Thermo Subsidiary. We used a binomial lattice option-pricing model to calculate the fair value of
the vested warrants. Accordingly, the fair value of the vested warrants allocated to the issuance of debt totaled $3,999,334 and the fair value of the vested warrants allocated to the equity contribution in our Thermo Subsidiary totaled $3,749,728.

With respect to the vesting of the 1,350,000 warrants on the closing date of the Merrill Lynch financing, the assumptions used in the
binomial lattice option-pricing model were as follows:



|                            |  |      |  
|--------------------------- |  | ---- | -
|Risk-free interest rate     |  | 3.39 | %
|Expected dividend yield     |  | 0.0  | %
|Volatility                  |  | 91   | %
|Time to maturity (in years) |  | 7.0  |  

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.

However, since the performance criteria related to the vesting of the remaining unvested warrants has not been completed, we have not recognized the fair
value of the unvested warrants as deferred financing costs. The fair value of any of the remaining unvested warrants that vest in the future will be capitalized and recorded as deferred financing costs when the warrants vest.



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The number of unvested 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 (as adjusted through March 31, 2009) applicable to each portion of warrants to vest in accordance with the schedule:



|                                                                                                                                                                                                                                                                                                                                                                   |  |               |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | -----
|Vesting Schedule                                                                                                                                                                                                                                                                                                                                                   |  | ExercisePrice
|Concurrent with the closing of the funding with respect to the Thermo No. 1 project, warrants vested and became exercisable for the
purchase of 1,350,000 shares of common stock                                                                                                                                                                                   |  | $             | 13.13
|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 |  | $             | 13.13
|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 |  | $             | 13.13
|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  |  | $             | 16.73
|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                                                                                |  | $             | 16.73

The applicable exercise prices set forth above will be subject to further reductions to the extent
we sell shares of our common stock at an effective price per share less than the exercise prices applicable to the warrants at the time such shares are issued.

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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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.

Contingent Warrant Price Reset Feature

The contingent 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 provisions included in the warrants, the issuance of the Convertible Notes, the issuance of common stock during the third and fourth quarter of 2008, and the issuance of the LOC Warrants in connection with the Line
of Credit, 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 $13.13 to $16.73.

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. Upon the occurrence of such events, the exercise price of the warrants will be appropriately adjusted.

The above warrants that are
classified as a derivative liability do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire. In
addition these warrants do not trade in an active securities market, and as such, we estimate the fair value of these warrants using either a Binomial Lattice valuation model or the Black-Scholes option pricing model, when ever appropriate. The fair
values of these warrants were computed using the following assumptions:



|                            |  |                |   |  |                 |  
|--------------------------- |  | -------------- | - |  | --------------- | -
|                            |  | March 31, 2009 |   |  | January 1, 2009 |  
|Risk-free interest rate     |  | 0.43  2.67    | % |  | 0.32  2.23     | %
|Expected dividend yield     |  | 0.0            | % |  | 0.0             | %
|Volatility                  |  | 105  106      | % |  | 105 106        | %
|Time to maturity (in years) |  | 0.50  10.0    |   |  | 0.75  10.0     |  



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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. We currently have no reason to believe future
volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants.

As a result of the adoption of EITF 07-5, effective January 1, 2009, we reclassified from Additional paid-in capital, as a cumulative
effect adjustment, $7.2 million to decrease the beginning accumulated deficit and accumulated deficit after re-entry into the development stage and $27.2 million to a long-term warrant liability to recognize the fair value of such warrants
on such date. The effect of adopting EITF 07-5 was a decrease in the prior year net loss per share from $(0.79) per share to $(0.67) per share. The fair value of these warrants increased to $28.1 million as of March 31, 2009. As such, we
recognized a loss totaling $0.9 million from the change in fair value of these warrants for the three months ended March 31, 2009.

Detachable Warrants

2009 Line of Credit Warrants

On January 27, 2009, we entered into the Line of Credit with the LOC Lenders. Pursuant to the Line of Credit, each of the LOC Lenders is entitled to
receive warrants to acquire our common stock for each advance of funds made under the Line of Credit. The number of shares underlying each warrant is equal to 50% of the total amounts funded by the applicable LOC Lender divided by the closing price
of our common stock on the date of the advance. The warrants will have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million under the Line of Credit, all of which remained outstanding. Accordingly, as of
March 31, 2009, the LOC Lenders had received warrants to acquire approximately 1,140,872 shares of our common stock at a strike price of $6.00 per share as a result of the amount borrowed. Since these warrants were issued based upon the amount
that we borrowed from our Line of Credit, we allocated the total proceeds from the Line of Credit to the debt and the warrants. The amount of proceeds allocated to the warrants was recorded as a discount which will be accreted up to the face value
of the Line of Credit over the life of the loan. At March 31, 2009, the amortized discount relating to the warrants totaled $2.1 million. For further discussion of the Line of Credit refer to Note I. Secured Note (non-recourse),
Convertible Senior Notes and Line of Credit above.

There is no anti-dilution or pricing reset feature associated with the Line of
Credit warrants. The terms of the Line of Credit warrants include piggy-back registration rights, which entitle the LOC Lenders to register the sale of shares issuable upon exercise of the Line of Credit warrants if we register the sale
of other shares of our common stock pursuant to a subsequent registration statement, subject to certain exceptions. There are no liquidated damages associated with these piggy-back registration rights. As of March 31, 2009, none of
the Line of Credit warrants had been exercised.

Equity Warrants

Contractor Warrants

On March 11, 2009, in order to settle an outstanding payable totaling
$250,000, our Board of Directors approved the issuance of warrants to acquire 122,603 shares of our common stock to a service provider for construction services provided for our Thermo No. 1 geothermal power plant. The warrants have an exercise
price of $5.35 per share and expire on March 11, 2014. Using the Black-Scholes pricing model, we determined that the fair value of the warrants on the date of issuance approximated the amount of liabilities that were settled totaling $250,000.
Accordingly, no gain or loss on extinguishment of debt was recorded. As of March 31, 2009, these warrants had not been exercised.

There is no anti-dilution or pricing reset feature associated with the contractor warrants. The terms of the contractor warrants include piggy-back registration rights, which entitle the service provider to register the sale of
shares issuable upon exercise of the contractor warrants if we register the sale of other shares of our common stock pursuant to a subsequent registration statement, subject to certain exceptions. There are no liquidated damages associated with
these piggy-back registration rights. As of March 31, 2009, none of the contractor warrants had been exercised.



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The following table summarizes the warrants outstanding and exercisable at March 31, 2009:



|                      |  |                   |                 |                     |   |                      |  |                           |                  |                        |   |                   |  |   |                 
|--------------------- |  | ----------------- | --------------- | ------------------- | - | -------------------- |  | ------------------------- | ---------------- | ---------------------- | - | ----------------- |  | - | ----------------
|                      |  | Series B Warrants |                 | Contractor Warrants |   | Contingent Warrants  |  | PrivatePlacement Warrants |                  | Line ofCredit Warrants
|Grant dates           |  |                   | September 2004  |                     |   | Oct. 2007- Mar. 2009 |  |                           | January 2008     |                        |   | November 2008     |  |   | January 2009    
|Exercise price        |  | $                 | 4.24            |                     | $ | 5.35 -12.06          |  | $                         | 13.13 -16.73     |                        | $ | 6.00 to 2.68      |  | $ | 6.00            
|Expiration date       |  |                   | October 5, 2009 |                     |   | Oct. 2011-Mar. 2014  |  |                           | January 15, 2015 |                        |   | November 14, 2018 |  |   | January 27, 2019
|Warrants outstanding  |  |                   | 25,243          |                     |   | 137,603              |  |                           | 3,700,000        |                        |   | 6,219,830         |  |   | 1,410,872       
|Warrants exercisable  |  |                   | 25,243          |                     |   | 137,603              |  |                           | 1,350,000        |                        |   | 6,219,830         |  |   | 1,410,872       
|Proceeds if exercised |  | $                 | 107,030         |                     | $ | 836,826              |  | $                         | 17,874,000       |                        | $ | 20,000,000        |  | $ | 8,465,232       

K. Contingencies and Commitments

Contingent Options and Share Grants

On June 18, 2007, we entered into a 10-year geothermal
lease agreement to obtain the exclusive right to drill for, extract, produce, remove, utilize, sell and dispose of all forms of thermal energy on certain property in Nevada that we originally leased on December 22, 2006. The new lease was
obtained in order to more fully secure our interest in the property. As part of the consideration for the new lease, we agreed to grant the property owner 25,000 restricted shares of our common stock if we successfully place a geothermal power plant
in operation upon the leased property. At the end of each quarter, management assesses the likelihood that the restricted shares will be issued. At the end of each quarter since June 18, 2007, management has concluded that the issuance of the
shares remained reasonably possible in accordance with the definition in SFAS No. 5, Accounting for Contingencies. Accordingly, we have not recognized any equity compensation related to this contingency during any such
quarterly period.

On October 22, 2007, the Compensation Committee granted options to purchase 10,000 shares of our common stock to a
key employee in our Power Systems segment. Vesting of these options is contingent upon successfully placing one geothermal power plant in service under his supervision. The option exercise price is $11.87 per share, which was the closing market
price on the grant date. If a geothermal power plant is not placed in service under the employees supervision, he will forfeit the unvested contingent options. At the end of each quarter, management assesses the likelihood that a geothermal
power plant would be placed in service under the employees supervision. At the end of each quarter since October 22, 2007, management has concluded that this contingency should be considered reasonably possible in accordance
with the definition in SFAS No. 5. Accordingly, we have not recognized any equity compensation related to this contingency during any such quarterly period.

On May 24, 2007, we entered into a geothermal project alliance agreement, pursuant to which a service provider agreed to provide engineering advice to us relating to geothermal drilling and geothermal power plant
construction. As part of the consideration for the agreement, we agreed to grant 5,000 shares of common stock to the service provider upon issuance of a certificate of completion with respect to each of three specific projects. During the second
quarter of 2008, management assessed the likelihood of completing the contingent requirements for the issuance of these shares and concluded that the completion of the first geothermal power plant was considered probable in accordance
with the definition in SFAS No. 5. Accordingly, we recognized equity compensation expense of $29,100 through the quarter ended March 31, 2009. For the other two specific projects, management assessed the likelihood of completing the
contingent requirements for the issuance of shares and concluded that it remained reasonably possible in accordance with the definition in SFAS No. 5. Accordingly, we have not recognized equity compensation with respect to the share
issuances that are contingent on the other two projects during any period.

On May 31, 2007, we granted options to purchase 50,000
shares of our common stock to a key executive in our Power Systems segment. Vesting of these options is contingent upon successfully placing each of our first three geothermal power plants in service. The options will vest with respect to one third
of the shares each time one of our first three geothermal power plants is successfully placed in service. The option exercise price is $7.20 per share, which was the closing market price on the grant date. Failure to successfully place any of the
first three geothermal power plants in service will result in the forfeiture of one third of the unvested contingent options. During the second quarter of 2008, management assessed the likelihood of completing the contingent requirements and
concluded that the completion of the first geothermal power plant was considered probable in accordance with the definition in SFAS No. 5. Accordingly, we recognized equity compensation expense of $80,844 for the year ended
December 31, 2008 and $12,756 for the quarter ended March 31, 2009. For the other two specific projects, management assessed the likelihood of completing the contingent requirements for the vesting of the options and concluded that the
completion of the contingent requirements remained reasonably possible in accordance with the definition in SFAS No. 5. Accordingly, we have not recognized equity compensation with respect to the vesting of the options that are
contingent on the other two projects during any period.



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On January 14, 2008, the Compensation Committee granted options to purchase 100,000 shares of our
common stock to a key employee in our Power Systems segment. Vesting of these options is contingent upon successfully achieving certain sales levels. The option exercise 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 December 31, 2008, management assessed the likelihood of completing the contingent requirements in accordance
with the definition in SFAS No. 5 and concluded that the completion of the contingent requirements was reasonably possible. Accordingly, we did not recognize equity compensation during any such quarterly period.

On December 5, 2008, the Board of Directors granted options to purchase 50,000 shares of our common stock to a service provider. The option exercise
price is $4.00 per share, which exceeded the closing market price of our common stock of $3.55 on the day of the grant. Vesting of these options is contingent upon the successful completion of a strategic transaction that provides net cash proceeds
to us in an amount greater than or equal to $50.0 million. At December 31, 2008, management assessed the likelihood of completing the contingent requirements in accordance with the definition in SFAS No. 5 and concluded that the completion
of the contingent requirements was reasonably possible. Accordingly, we did not recognize equity compensation during any such quarterly period.

Guarantees

On August 31 2008, we finalized the project financing arrangements for the Thermo No. 1 project and
entered into the Thermo Financing Agreements. The Thermo Financing Agreements included an equity capital contribution agreement (the ECCA) between our Thermo Subsidiary and the Class A Member. Pursuant to the ECCA, our Thermo
Subsidiary agreed to fund any drilling costs in excess of the original drilling account escrow of $5.7 million established to complete the well field drilling of the Thermo No. 1 project (the Drilling Escrow Top Up). In conjunction
with independent geothermal engineers, we have performed monthly reviews of our estimated cost to complete the well field for production. Through March 8, 2009, we have contributed an additional $8.9 million to the drilling account escrow for
completion of the well field.

The Thermo Agreements include a guaranty agreement dated August 31, 2008 among our Thermo Subsidiary,
the Class A Member, and us. Under the guaranty agreement, we guarantee the full payment of the Drilling Escrow Top Up. Our liability under this agreement will continue until the guaranteed obligation is satisfied in full. We expect to complete
our drilling at the Thermo No. 1 project during the second quarter of 2009; however, the maximum potential future payments may be unlimited if our wells cannot produce enough electricity so that the Thermo No. 1 geothermal power plant can
achieve full capacity.

The Thermo Financing Agreements, also include an engineering, procurement and construction agreement (the EPC
Agreement) with our Thermo Subsidiary. Pursuant to the EPC Agreement, we agreed to oversee the engineering, procurement and construction of the geothermal power plant for the Thermo No. 1 project. In addition, we guaranteed the completion
of the geothermal power plant construction and the payment of all services performed by the subcontractors. We expect to make the payments to the subcontractors, including cost overruns, if any, in the ordinary course of business. All intercompany
transactions related to the EPC Agreement are eliminated in consolidation of the financial statements. Our liability under this agreement will continue until the guaranteed obligation is satisfied in full. We expect to complete our construction
phase at the Thermo No. 1 project during the second quarter of 2009.

In connection with the Thermo Financing Agreements, we also
entered into an amended and restated purchase contract (the Amended and Restated Purchase Contract) with UTCP relating to the purchase of generating units for the Thermo No. 1 project. The agreements relating to the purchase of the
power generating units have since been assigned from UTCP to PWPS, as discussed under Note D. Power Project Construction-In-Progress. Under the terms of the Amended and Restated Purchase Contract, PWPS is required to allow us to retain a
certain portion of the purchase price of the generating units pending the successful completion of the Thermo No. 1 project. If the Thermo No. 1 project is not successfully completed as a result of a problem with the generating units, then
we will keep the retained portion of the purchase price as a liquidated damages payment. If the Thermo No. 1 project is not successfully completed as a result of any other reason, we will reimburse PWPS for any liquidated damages paid by PWPS.
To secure payment of our obligations to reimburse PWPS under the Amended and Restated Purchase Contract, we provided a security interest to PWPS in five patents relating to our Transportation & Industrial segment. We believe that the
likelihood that we will be obligated to reimburse PWPS for liquidated damages under the Amended and Restated Purchase Contract is remote. Accordingly, we estimate the maximum potential obligation and the related fair value of the
obligation under the Amended and Restated Purchase Contract to be immaterial at this time. Therefore, no liability was recorded at March 31, 2009.

The Thermo Financing Agreements also contain a conditional redemption provision whereby the Thermo No. 1 geothermal power plant must achieve Final Completion by June 15, 2009. Final Completion is
achieved when the facility successfully completes a 10-day prove-out to verify its operating capacity. If the Thermo No. 1 geothermal power plant fails to achieve certain levels of production, either the Class A Member or the debt holder
could exercise its rights to require us to make a buy-down payment to the debt holder and the Class A Member. The buy-down payment is based upon a calculation that effectively gives the debt holder and the Class A Member the same economic
return as if the facility were operating at full capacity. Any amounts payable under the buy-down provision to the debt holder or the Class A Member would be disbursed from cash in an escrowed account maintained at our Thermo Subsidiary
totaling $5.0 million and amounts held back from the purchase price of the PWPS generating units under



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the terms of the Purchase Contract between the Thermo Subsidiary and PWPS totaling $4.3 million. If the buy-down payment is greater than these amounts, we
would have to make up the difference out of general corporate funds. This conditional redemption provision was extended to September 15, 2009 in order to achieve an optimal ramp up in production. We believe that the Thermo No. 1 geothermal
power plant will be operating at or near full capacity prior to September 15, 2009 and that no buy-down will be required.

We have
previously entered into a license and sublicense agreement for heat transfer technologies through our wholly owned subsidiary, 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 agreement and is binding on any successors. The maximum potential amount of future payments under this guarantee cannot be estimated, but payment obligations will be limited to the actual royalties payable arising from developed
projects that utilize the heat-transfer license.

As of March 31, 2009, we did not have any letters of credit or repurchase
obligations.

L. Non-controlling Interest

On August 31, 2008 and in conjunction with the Thermo No. 1 project financing, our Thermo Subsidiary issued new member units to the Class A Member, which contributed $24.5 million in exchange for an equity interest. We
received $3.7 million of the total contribution on September 8, 2008 and the remaining balance of $20.8 million was received on October 20, 2008.

The Thermo Financing Agreements provide for the allocation of 99% of profits and losses to the Class A Member until the Class A Member earns a target internal rate of return of 15%. 100% of the intangible
drilling costs are allocated directly to us. Upon reaching the target internal rate of return, the Class A Members allocation of profits and losses will automatically be reduced to 5.00%.

Because we maintain a 75% voting interest in the Thermo Subsidiary, we will continue to consolidate 100% of the assets and liabilities of the Thermo
Subsidiary. The Class A Members interest in the Thermo Subsidiary is reflected as Non-controlling interest in our consolidated balance sheet and statement of operations.

The Thermo Financing Agreements also contain certain complex liquidation preference provisions which require certain distributions to each of the members
of the Thermo Subsidiary in the event that a liquidation would occur. According to the Thermo Financing Agreements, upon liquidation of the Thermo Subsidiary and, after payment of all outstanding debt, any remaining funds would be distributions
distributed in the following manner: (i) first, to both the Class A Member and the Company in the amount of the agreed upon initial capital contributions for tax purposes, (ii) second, to the Class A Member so that any shortfall
in achieving its target internal rate of return of 15% would be achieved, and (iii) third, to both the Class A Member and the Company with an allocation of 5% to the Class A Member and 95% to the Company. To determine the
non-controlling interest, we utilize a hypothetical liquidation at book value methodology at each balance sheet date. For the period ending March 31, 2009, we have modified our hypothetical liquidation at book value methodology to include the
recast-financial-statements approach. Under the hypothetical liquidation methodology, we utilize the recast-financial-statements approach which captures the initial relevant fair values of the assets and liabilities and follows generally accepted
accounting principles for any additional transactions. We believe that the recast-financial-statements approach closely reflects the Class A Members claim on the Thermo Subsidiarys book value at each balance sheet date because the
tax equity financing documents with the Class A Member contain a liquidation preference. According to the recast-financial-statements approach, upon the initial sale of the membership interests, the assets and liabilities are hypothetically
liquidated at the recast book value at the end of each period and the portions of the Class A Members claim relating to liquidation preferences are recorded as gains or losses. Because we have modified our hypothetical liquidation at book
value methodology for the period ending March 31, 2009, certain differences result in the Non-controlling interest balance at March 31, 2009 as compared to the balance at December 31, 2008 and September 30, 2008. We
are treating these differences as a correction of an error, and such differences resulting from the modification to our methodology are discussed in more detail below.

Effective January 1, 2009, we adopted SFAS 160, Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB No. 51. In SFAS 160, the FASB established accounting and
reporting standards that require non-controlling interests to be reported as a component of equity. Changes in a parents ownership interest while the parent retains its controlling interest are to be accounted for as equity transactions.
Operating gains or losses attributable to non-controlling interests are excluded from the net profit and loss calculation but included in the earnings and loss per share computations.



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Non-controlling interest totaled $26.8 million and $28.0 million at March 31, 2009 and
December 31, 2008, respectively. Changes in non-controlling interest during the first quarter of 2009 are set forth below:



|                                                                      |  |                             |            |  
|--------------------------------------------------------------------- |  | --------------------------- | ---------- | -
|Non-controlling Interest                                              |  | Quarter endedMarch 31, 2009 |           
|Balance at January 1, 2009                                            |  | $                           | 28,025,116 |  
|Correction of error from prior period                                 |  |                             | (2,079,402 | )
|Non-controlling interest from operations and liquidation preferences  |  |                             | 1,048,831  |  
|Non-controlling interest from additional parent capital contributions |  |                             | (163,785   | )
|                                                                      |  |                             |            |  
|Balance at March 31, 2009                                             |  | $                           | 26,830,760 |  
|                                                                      |  |                             |            |  

From time to time, we are required to pay operating expenses on behalf of the Thermo Subsidiary,
which result in decreases to the non-controlling interest.

In accordance with FASB Emerging Issues Task Force Topic D-98,
Classification and Measurement of Redeemable Securities, we classified Non-controlling interest outside of permanent equity because the Thermo Financing Agreements contain a conditional redemption provision that is based upon
the occurrence of an event that is not solely within our control (see Note K. Contingencies and Commitments above). Upon satisfaction of the conditional redemption provision, the Non-controlling interest will be classified as
permanent equity.

As discussed above, the Non-controlling interest decreased during the first quarter of 2009 by $2.1 million
due to a correction of an error from a prior period that resulted from modifying our hypothetical liquidation at book value computation to include a basis adjustment that arises under the recast-financial-statement approach. The
Non-controlling interest calculation at March 31, 2009 was computed utilizing the modified methodology for the period covering August 31, 2008 to March 31, 2009. As a result of modifying our hypothetical liquidation at
book value methodology, our loss per share for the first quarter of 2009 decreased by $0.03 per share. If we had used the modified hypothetical liquidation at book value methodology in connection with our prior year financial statements for the year
ended December 31, 2008, then the following changes would have occurred:



|                                                                                  |  |                                         |             |   |                                                 |   |             |            |  |   |          
|--------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | ----------------------------------------------- | - | ----------- | ---------- |  | - | ---------
|                                                                                  |  | December 31,2008(as previouslyreported) |             |   | December 31,2008(effect ofchange incomputation) |   |             | Difference
|Non-controlling interest                                                          |  | $                                       | 28,025,116  |   |                                                 | $ | 25,945,714  |            |  | $ | 2,079,402
|Net loss applicable to common stockholder                                         |  |                                         | (45,485,034 | ) |                                                 |   | (43,405,632 | )          |  | $ | 2,079,402
|Accumulated deficit and accumulated deficit after re-entry into development stage |  |                                         | (96,707,687 | ) |                                                 |   | (94,628,285 | )          |  | $ | 2,079,402
|Net loss per share:                                                               |  |                                         |             |   |                                                 |   |             |            |  |   |          
|Basic                                                                             |  |                                         | (0.79       | ) |                                                 |   | (0.75       | )          |  |   | 0.04     
|Diluted                                                                           |  | $                                       | (0.79       | ) |                                                 | $ | (0.75       | )          |  | $ | 0.04     

We believe that this prior period adjustment listed above did not materially impact the 2008
consolidated financial statements for the year ended December 31, 2008 or for any interim period.

M. Common Stock

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, 2009, we were authorized to issue up to 9,693,173 shares of common stock pursuant to the Plan.

Three members of our Board of Directors also participate in an additional compensation plan for our outside directors. The standard equity package under
the this 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 that
had not previously participated in this plan could elect to participate in the new plan by making an election within 30 days of the Annual Meeting of Stockholders. Any director who elects to adopt this plan retains all options vested up to that
point under previous compensation arrangements and forfeits all unvested options. Three directors were granted 9,500 shares on May 28, 2008, the date of the Annual Meeting of Stockholders, to be delivered on May 28, 2009, one year after
the 2008 Annual Meeting of Stockholders. If any such director resigns prior to the delivery date, the shares will be forfeited and not delivered.



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For performance-based equity compensation, management assesses the likelihood that the event will
successfully occur and computes the fair value of the instrument at each quarterly balance sheet date. When the performance is assessed as probable, expense is recognized on a pro rata basis over the estimated service period. When the
performance is assessed as either reasonably possible or remote, no expense is recognized.

We issue shares of
common stock, options to purchase shares of common stock, and warrants containing underlying shares of our common stock as payment for services or purchase of assets to certain service providers, contractors and other non-employees. 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, stock, options or warrants issued for services is valued based on the fair value
of the stock on the earlier of the date of a performance commitment agreement or the date when performance is completed. Expense is recognized over the requisite service period of the stock award.

Stock issued for the purchase of assets is also valued based on the fair value of the stock on the date the stock is issued or required to be issued per
the purchase agreement, or the fair value of the assets acquired, whichever is more readily determinable. The assets are recorded based on the more readily determinable fair value of the stock issued or the assets acquired.

Options and warrants granted to employees and contractors are valued by applying the fair value based method to stock-based compensation in each period
utilizing the Black-Scholes option pricing model, a generally accepted valuation model for determining the fair value of options. The maximum term of each option is ten years. With respect to stock options granted and warrants issued during the
quarters ended March 31, 2009 and 2008, the assumptions used in the Black-Scholes option-pricing model computations were as follows:



|                                  |  |                             |   |  |             |  
|--------------------------------- |  | --------------------------- | - |  | ----------- | -
|                                  |  | Three Months EndedMarch 31, |  
|                                  |  | 2009                        |   |  | 2008        |  
|Risk-free interest rate           |  | 1.76  2.41                 | % |  | 2.61  3.41 | %
|Expected dividend yield           |  | 0.0                         | % |  | 0.0         | %
|Volatility                        |  | 106                         | % |  | 97  99     | %
|Expected exercise life (in years) |  | 6.5                         |   |  | 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 since filing of our initial S-8 registration statement for our Amended and Restated 2004 Long Term Incentive Plan on March 3,
2005. On September 10, 2008, the Compensation Committee of our Board of Directors modified the post employment exercise terms of our outstanding inventive plan based options to extend the term of expiration of vested options after termination
of employment from 90 days to a period determined based upon length of employment. Employees working between zero and two years may exercise vested options up to one year after termination of employment. For each year of employment in excess of two
years, the employee may exercise vested options up to the same number of years that the employee was employed, rounded down to the nearest year. Because of this modification and other factors we evaluated, we increased the expected life from 6.0
years to 6.5 years.

Employee and Director Share Grants and Option Grants

We granted 24,504 shares of our common stock to nine terminated employees as part of their severance package and no shares to directors during the three
months ended March 31, 2009. No shares were granted to employees and directors during the first quarter of 2008. We granted to our employees and directors options to purchase an aggregate of 63,000 and 72,000 shares of common stock in the three
months ended March 31, 2009 and 2008, respectively. During the three months ended March 31, 2009 and 2008, no vested options were forfeited or expired. During the three months ended March 31, 2009, 50,850 unvested options were
forfeited by employees. No unvested options were forfeited by employees during the quarter ended March 31, 2008.

Third Party Share Grants

On January 8, 2009, in settlement of an outstanding invoice totaling $9,002, we issued 2,326 unrestricted shares of our common stock
to a consultant for our Plug-in Hybrid Electric Vehicle (PHEV) collaborative arrangement. The fair value of the unrestricted shares on the grant date approximated the amount outstanding on the invoice.



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On January 12, 2009, in partial settlement of an outstanding invoice, we issued 574,713 unrestricted
shares of our common stock to a service provider for the construction of our Thermo No. 1 geothermal power plant. The fair value of the unrestricted shares on the grant date approximated the partial settlement totaling $2,000,000.

On January 12, 2009, we issued 20,474 unrestricted shares of our common stock to a service provider for consulting services relating to the
development of our Lightning Dock geothermal power plant. The fair value of the unrestricted shares on the grant date approximated $71,250. The fair value has been properly recorded as consulting expense.

On January 27, 2009, in settlement of our outstanding note payable to a former merger candidate totaling $950,000, we issued 263,108 unrestricted
shares of our common stock. The fair value of the unrestricted shares on the grant date totaled $881,412 resulting in a gain on extinguishment of debt of $68,588.

On January 30, 2009, in settlement of an outstanding invoice totaling $7,500, we issued 2,005 unrestricted shares of our common stock to a consultant for our PHEV collaborative arrangement. The fair value of the
unrestricted shares on the grant date approximated the amount outstanding on the invoice.

On February 27, 2009, in settlement of an
outstanding invoice totaling $3,000, we issued 912 unrestricted shares of our common stock to a consultant for our PHEV collaborative arrangement. The fair value of the unrestricted shares on the grant date approximated the amount outstanding on the
invoice.

On March 11, 2009, in partial settlement of an outstanding invoice, we issued 70,197 restricted shares and 377,358
unrestricted shares of our common stock to a service provider for the construction of transmission lines for our Thermo No. 1 geothermal power plant. The fair value of the shares on the grant date approximated the partial settlement totaling
$1,250,000. In conjunction with this issuance, we also granted an additional 377,359 shares that were issued on April 22, 2009 to settle an additional $1,000,000 of the outstanding invoice.

Third Party Option and Warrant Grants

Stock options
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.

No options were issued to third parties during three months ended March 31, 2009 and 2008, respectively.

As discussed under Note I. Secured Note (non-recourse), Convertible Senior Notes and Line of Credit above, each LOC Lender is entitled to
receive LOC Warrants to purchase our common stock for each advance of funds made under the Line of Credit. The number of shares underlying each LOC Warrant is equal to 50% of the total amounts funded by the applicable LOC Lender divided by the
closing price of our common stock on the date of the advance. The LOC Warrants will have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million under the Line of Credit, all of which remained outstanding.
Accordingly, as of March 31, 2009 the LOC Lenders had received LOC Warrants to purchase approximately 1,140,872 shares of our common stock at a strike price of $6.00 per share as a result of the amount borrowed.

See discussion of contingently vesting warrants and non-contingently vesting warrants issued during 2009 and 2008 in Note J. Warrants above.

The activity for stock options and warrants during the first three months of 2009 is summarized as follows:



|                                |  |                               |   |  |                                |      |                          |   |          
|------------------------------- |  | ----------------------------- | - |  | ------------------------------ | ---- | ------------------------ | - | ---------
|                                |  | Number of Optionsand Warrants |   |  | Weighted AverageExercise Price |      | Aggregate IntrinsicValue
|Outstanding at January 1, 2009: |  | 14,552,558                    |   |  | $                              | 8.57 |                          |   |          
|Granted                         |  | 1,326,475                     |   |  |                                | 5.80 |                          |   |          
|Exercised                       |  |                              |   |  |                                |     |                          |   |          
|Expired or forfeited            |  | (50,850                       | ) |  |                                | 7.63 |                          |   |          
|                                |  |                               |   |  |                                |      |                          |   |          
|Outstanding at March 31, 2009:  |  | 15,828,183                    |   |  | $                              | 6.77 |                          | $ | 4,872,767
|                                |  |                               |   |  |                                |      |                          |   |          
|Exercisable at March 31, 2009:  |  | 12,036,478                    |   |  | $                              | 5.01 |                          | $ | 4,807,347
|                                |  |                               |   |  |                                |      |                          |   |          



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During the three months ended March 31, 2009 and 2008, we issued zero and 102,500 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, 2009 and 2008 was approximately
zero and $446,738, respectively. The total intrinsic value of warrants exercised in the three months ended March 31, 2009 and 2008 was approximately zero and $23,900, respectively. The cash received from exercises of options during the three
months ended March 31, 2009 and 2008 was approximately zero and $482,875, respectively. The cash received from exercises of warrants during the three months ended March 31, 2009 and 2008 was approximately zero and $9,300, respectively.

The following tables summarize certain stock option and warrant information at March 31, 2009:

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          |  | 9,018,678  |  | 9.01                             |  | $                              | 2.97  |                | $ | 4,872,767
|$ 6.00  $11.00         |  | 2,273,622  |  | 8.92                             |  |                                | 7.16  |                |   |         
|$11.01  $17.20         |  | 4,502,550  |  | 6.10                             |  |                                | 14.06 |                |   |         
|$18.25  $25.95         |  | 33,333     |  | 6.05                             |  |                                | 25.95 |                |   |         
|                        |  |            |  |                                  |  |                                |       |                |   |          
|Total                   |  | 15,828,183 |  | 8.16                             |  | $                              | 6.77  |                | $ | 4,872,767
|                        |  |            |  |                                  |  |                                |       |                |   |          

Outstanding Options and Warrants Fully Vested and Exercisable



|                        |  |            |  |                                  |  |                                |       |                |   |          
|----------------------- |  | ---------- |  | -------------------------------- |  | ------------------------------ | ----- | -------------- | - | ---------
|Range of exercise price |  | Number     |  | Weighted averagecontractual life |  | Weighted averageexercise price |       | Intrinsicvalue
|$ 3.00  $5.75          |  | 8,618,473  |  | 9.07                             |  | $                              | 2.89  |                | $ | 4,807,347
|$ 6.00  $11.00         |  | 1,636,472  |  | 9.13                             |  |                                | 6.62  |                |   |         
|$11.01  $17.20         |  | 1,748,200  |  | 6.05                             |  |                                | 13.59 |                |   |         
|$25.95                  |  | 33,333     |  | 6.05                             |  |                                | 25.95 |                |   |         
|                        |  |            |  |                                  |  |                                |       |                |   |          
|Total                   |  | 12,036,478 |  | 8.63                             |  | $                              | 5.01  |                | $ | 4,807,347
|                        |  |            |  |                                  |  |                                |       |                |   |          

The following table summarizes the non-vested stock options at March 31, 2009:

Non-Vested Option Grants



|                              |  |                   |   |  |                                             |     
|----------------------------- |  | ----------------- | - |  | ------------------------------------------- | ----
|                              |  | Number of Options |   |  | Weighted averageper option fairmarket value
|Non-vested at January 1, 2009 |  | 1,624,204         |   |  | $                                           | 7.34
|Granted                       |  | 63,000            |   |  |                                             | 2.53
|Vested                        |  | (194,649          | ) |  |                                             | 5.94
|Forfeited                     |  | (50,850           | ) |  |                                             | 6.19
|                              |  |                   |   |  |                                             |     
|Non-vested at March 31, 2009: |  | 1,441,705         |   |  | $                                           | 7.36
|                              |  |                   |   |  |                                             |     



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The following table summarizes the non-vested stock awards at March 31, 2009:

Non-Vested Share Awards



|                                |  |                  |   |  |                                            |      
|------------------------------- |  | ---------------- | - |  | ------------------------------------------ | -----
|                                |  | Number of Shares |   |  | Weighted averageper share fairmarket value
|Outstanding at January 1, 2009: |  | 30,084           |   |  | $                                          | 10.07
|Granted                         |  | 1,712,956        |   |  |                                            | 3.10 
|Vested                          |  | (1,336,264       | ) |  |                                            | 3.24 
|Forfeited                       |  | (500             | ) |  |                                            | 6.60 
|                                |  |                  |   |  |                                            |      
|Outstanding at March 31, 2009:  |  | 406,276          |   |  | $                                          | 3.18 
|                                |  |                  |   |  |                                            |      

As of March 31, 2009, there was $9,097,668 and $1,054,396 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 1.84 years. As of March 31, 2009, the following table summarizes the unrecognized
compensation expense expected to be recognized in future periods.



|                   |  |                                          |           
|------------------ |  | ---------------------------------------- | ----------
|                   |  | Stock-basedcompensationexpense (pre-tax)
|Remainder of 2009: |  | $                                        | 3,741,533 
|2010               |  |                                          | 3,282,986 
|2011               |  |                                          | 1,621,825 
|2012               |  |                                          | 1,165,165 
|2013               |  |                                          | 334,750   
|2014               |  |                                          | 5,805     
|                   |  |                                          |           
|Total:             |  | $                                        | 10,152,064
|                   |  |                                          |           

Call Spread Option Transaction

Concurrent with the issuance of 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 and EITF 07-5, Determining Whether
an Instrument (or embedded feature) is Indexed to an Entity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 consolidated balance sheets
for the year ended December 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.

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, and EITF 07-5, Determining Whether an Instrument (or embedded feature) is Indexed to an
Entity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 on the consolidated balance sheets for the December 31, 2008 and
we will not recognize subsequent changes in fair value.



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Contingent Options and Share Grants

Refer to discussion of contingent options and share grants in Note K. Contingencies and Commitments above.

2008 Private Placement Registration Rights Agreement

In connection with our $20.0 million private placement to Fletcher on
November 14, 2008 described above, Fletcher was granted registration rights that required us to register the resale of the common stock purchased in the private placement and acquired upon exercise of related warrants. We were obligated to file
a registration statement with the SEC registering the resale of such shares of common stock no later than November 14, 2008, and to use our best efforts to cause the registration statement to be declared effective by December 29, 2008. We
are also obligated to use our best efforts to keep the registration statement continuously effective.

Fletchers registration rights
provide for liquidated damages for failure of the registration statement to become effective within the designated timeframe or failure to maintain effectiveness of the registration statement. The liquidated damages are equal to one percent of the
$20.0 million received per month (i.e., $200,000 per month) up to a maximum of $2.0 million in the aggregate. As of May 9, 2009, the registration statement had not been declared effective by the SEC due to an ongoing review of our
periodic reports by the staff of the SEC. Accordingly, we have assessed the likelihood that the registration statement will be declared effective prior to incurring the maximum liquidated damages of $2.0 million. We have recorded an additional
liability for $200,000 in the first quarter of 2009 to accrue for the liquidated damages through May 31, 2009, which now total $1,000,000. Management believes that the SEC staffs review of our periodic reports will be completed and that
the registration statement will be declared effective prior to May 31, 2009, which would avoid additional liquidated damages. However, there can be no assurance about the timeframe within which the SEC staff will finish its review or whether
the SEC staff will have additional comments based on our disclosure in this report. The incurrence of any additional liquidated damages will exert further pressure on our liquidity requirements and could have a material adverse affect on our
development plans and future operations.

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 are exercised or expired. Merrill
Lynch agreed to permit us to defer our obligation to register the resale of the warrants that vested in connection with the funding of the Thermo No. 1 project until such registration is requested by Merrill Lynch. We do not believe the recent
merger of Merrill Lynchs parent with Bank of America Corporation has altered our understanding or Merrill Lynchs understanding of our outstanding obligations under the registration rights agreement with Merrill Lynch. Management
currently believes that the likelihood we will fail to register the shares in accordance with the registration rights agreement or fail to cause the registration statement to remain continuously effective is remote as defined in SFAS
No. 5 Accounting for Contingencies. Accordingly, no accrued liability is deemed necessary.

Series B Registration Rights Agreement

The Series B preferred stock securities purchase agreement and related agreements provide the purchasers of the Series B preferred stock
and the related Series B warrants with certain rights to register shares of common stock pursuant to a registration rights agreement. We are also obligated to cause the registration statement to remain continuously effective until all Series B
preferred shares and Series B warrants are exercised or expired. In September 2004, all of the outstanding Series B preferred shares and certain of the Series B warrants were converted into shares of common stock under the original registration
statement filed on September 20, 2005. We did not maintain a continuously effective registration for the common shares issuable upon exercise of Series B warrants as required by our agreements, resulting in liquidated damages and interest
totaling $31,000 and $96,000 for the years ended December 31, 2007 and 2006, respectively. We filed a registration statement on Form S-3 with the SEC that became effective on June 8, 2007. In July 2007, we paid the liquidated damages
amount owed in-full to the purchasers.

We are currently in compliance with the requirements of the registration rights agreement and, as
such, management believes that the likelihood that these shares will fail to remain continuously effective is remote as defined in SFAS No. 5 Accounting for Contingencies. Accordingly, no additional accrued liability is
deemed necessary.

N. 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



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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, 2009:



|                            |  |                |  |                   
|--------------------------- |  | -------------- |  | ------------------
|                            |  | In the Money |  | Out of the Money
|Warrants granted            |  | 7,458,532      |  | 4,881,462         
|Vested employee options     |  | 642,250        |  | 1,151,978         
|Unvested employee options   |  | 48,000         |  | 1,343,705         
|Vested contractor options   |  | 95,000         |  | 35,000            
|Unvested contractor options |  | 50,000         |  |                  

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, 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            

Unvested and fully-vested and undelivered stock grants totaling 406,276 and 41,684 were
outstanding on March 31, 2009 and 2008, 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.

O. Fair Value Measurements

We adopted SFAS No. 157, Fair Value Measurements, (SFAS 157) as of January 1, 2008, for financial instruments measured
at fair value on a recurring basis. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

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 157 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:



| |  |  | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar
instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations
derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Warrants

We adopted EITF 07-5 effective January 1, 2009. The adoption of EITF 07-5s requirements can affect the accounting for
warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (down round provisions). For example, warrants with such provisions will no longer be recorded in equity. Down round
provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a
lower exercise price. We evaluated whether warrants to acquire shares of our common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be
issued under the respective warrant agreements based on a variable that is not an input to the fair value of a fixed-for-fixed option. Accordingly, we determined that the following warrants contained such provisions, thereby concluding
they were not indexed to our common stock:



| |  |  | Series B warrants, exercisable for 25,243 shares of our common stock, that expire October 5, 2009
| | - |  | -------------------------------------------------------------------------------------------------



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| |  |  | Contingent vesting warrants issued to Merrill Lynch, exercisable for 1,350,000 shares of our common stock, that expire January 16, 2015
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants issued to Fletcher to acquire shares of our common stock in an aggregate value of up to $20.0 million that may not exceed 7,458,532 shares of our common
stock, exercisable at March 31, 2009 for 6,219,830 shares of our common stock, that expire November 14, 2018.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For further discussion of these financial instruments, refer to Note J. Warrants and Note M. Common Stock.

In accordance with EITF 07-5, the Company, beginning on January 1, 2009, recognizes these warrants as liabilities and the call spread transaction as an asset at their respective fair values on each reporting date. The cumulative effect
of the change in accounting for these warrants of $7.2 million was recognized as an adjustment to the opening balance of accumulated deficit at January 1, 2009. The cumulative effect adjustment was the difference between the amounts recognized
in the consolidated balance sheet before initial adoption of EITF 07-5 and the amounts recognized in the consolidated balance sheet upon the initial application of EITF 07-5. The amounts recognized in the consolidated balance sheet as a result of
the initial application of EITF 07-5 on January 1, 2009 were determined based on the amounts that would have been recognized if EITF 07-5 had been applied from the issuance date of the warrants. We measured the fair value of these warrants as
of March 31, 2009, and recorded a $0.9 million charge to record the liabilities associated with these warrants at their respective fair values as of March 31, 2009. We determined the fair values of these securities using the Binomial
Lattice and Black Scholes valuation models when appropriate.

We measure certain financial instruments at fair value on a recurring basis.
Financial assets measured at fair value on a recurring basis are as follows at March 31, 2009:



|                                               |  |         |            |         |   |         |  |       |            |  |   |           
|---------------------------------------------- |  | ------- | ---------- | ------- | - | ------- |  | ----- | ---------- |  | - | ----------
|                                               |  | Level 1 |            | Level 2 |   | Level 3 |  | Total
|Cash and cash equivalents                      |  | $       | 159,067    |         | $ | 0       |  | $     | 0          |  | $ | 159,067   
|Restricted cash                                |  |         | 11,006,434 |         |   | 76,535  |  |       | 0          |  |   | 11,082,969
|                                               |  |         |            |         |   |         |  |       |            |  |   |           
|Total assets                                   |  | $       | 11,165,501 |         | $ | 76,535  |  | $     | 0          |  | $ | 11,242,036
|Series B warrants                              |  | $       | 0          |         | $ | 0       |  | $     | 30,625     |  | $ | 30,625    
|Merrill Lynch 2008 contingent vesting warrants |  |         | 0          |         |   | 0       |  |       | 3,687,442  |  |   | 3,687,442 
|Fletcher 2008 warrants                         |  |         | 0          |         |   | 0       |  |       | 24,396,485 |  |   | 24,396,485
|                                               |  |         |            |         |   |         |  |       |            |  |   |           
|Total liabilities                              |  | $       | 0          |         | $ | 0       |  | $     | 28,114,552 |  | $ | 28,114,552

Cash and cash equivalents and restricted cash measured using Level 1 inputs consist primarily of
money market accounts that are traded on active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical instruments.

Restricted cash measured using Level 2 inputs consist of certificates of deposit. Valuations are generally obtained from third party pricing services for
or comparable instruments (and validated through back testing to trade data or confirmation that the pricing services significant inputs are observable) or determined through use of valuation methodologies using observable market inputs such
as market interest rates.

We determined the fair value of the Merrill Lynch 2008 contingent vesting warrants and the Fletcher 2008
warrants using a Binomial Lattice valuation model that considered their down round provisions that reduce the exercise price if we issues new warrants or equity at a lower price. The model considered the historical volatility of our stock price. See
discussion of variable inputs to the valuations of these warrants in Note J. Warrants above.

Recurring Level 3 Activity, Reconciliation and
Basis for Valuation

The table below provides a reconciliation of the beginning and ending balances for the major classes of assets and
liabilities measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses for the quarter for all financial assets and liabilities categorized as Level 3 as of March 31, 2009.



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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands):



|                                                                |  |       |           
|--------------------------------------------------------------- |  | ----- | ----------
|                                                                |  | Total
|Assets:                                                         |  |       |           
|Balance as of January 1, 2009                                   |  | $     |          
|Total realized and unrealized gains (losses)                    |  |       |          
|                                                                |  |       |           
|Balance as of March 31, 2009                                    |  | $     |          
|Liabilities:                                                    |  |       |           
|Balance as of January 1, 2009                                   |  | $     | 27,171,713
|Increase in fair value of derivative warrants (unrealized loss) |  |       | 942,839   
|                                                                |  |       |           
|Balance as of March 31, 2009                                    |  | $     | 28,114,552

P. 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.

Accordingly, the presentation below comprises financial information relating to our segments for the
three months ended March 31, 2009 and 2008, respectively:



|                                                 |  |                            |           |   |               |   |             |                    |  |   |            |   |  |   |             |  
|------------------------------------------------ |  | -------------------------- | --------- | - | ------------- | - | ----------- | ------------------ |  | - | ---------- | - |  | - | ----------- | -
|As of and for the Quarter Ended March 31, 2009   |  | Transportation &Industrial |           |   | Power Systems |   |             | Corporate andOther |  |   | Total      |  
|Revenues                                         |  | $                          |          |   |               | $ |            |                    |  | $ |           |   |  | $ |            |  
|Segment Operating Loss                           |  |                            | (727,090  | ) |               |   | (2,113,340  | )                  |  |   | (2,436,060 | ) |  |   | (5,276,490  | )
|Depreciation, Amortization and Accretion         |  |                            | 54,311    |   |               |   | 49,222      |                    |  |   | 23,382     |   |  |   | 126,915     |  
|Interest Expense                                 |  |                            |          |   |               |   | 403,614     |                    |  |   | 1,012,004  |   |  |   | 1,415,618   |  
|Fixed Asset Purchases                            |  |                            |          |   |               |   | 47,584      |                    |  |   | 64,399     |   |  |   | 111,893     |  
|Geothermal Well Field Drilling Purchases         |  |                            |          |   |               |   | 5,413,208   |                    |  |   |           |   |  |   | 5,413,208   |  
|Power Project Construction-in-Progress Purchases |  |                            |          |   |               |   | 6,971,112   |                    |  |   |           |   |  |   | 6,971,112   |  
|Power Project Equipment Purchases                |  |                            |          |   |               |   |            |                    |  |   |           |   |  |   |            |  
|Total Assets                                     |  | $                          | 628,532   |   |               | $ | 174,406,637 |                    |  | $ | 9,502,050  |   |  | $ | 184,537,219 |  
|                                                 |  |                            |           |  
|As of and for the Quarter Ended March 31, 2008   |  | Transportation &Industrial |           |   | Power Systems |   |             | Corporate andOther |  |   | Total      |  
|Revenues                                         |  | $                          | 130,543   |   |               | $ |            |                    |  | $ |           |   |  | $ | 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      |  
|Interest Expense                                 |  |                            |          |   |               |   | 8,333       |                    |  |   | 57,179     |   |  |   | 65,512      |  
|Fixed Asset Purchases                            |  |                            | 24,960    |   |               |   | 9,356       |                    |  |   | 28,762     |   |  |   | 63,078      |  
|Geothermal Well Field Drilling Purchases         |  |                            |          |   |               |   | 4,348,560   |                    |  |   |           |   |  |   | 4,348,560   |  
|Power Project Construction-in-Progress Purchases |  |                            |          |   |               |   | 773,265     |                    |  |   |           |   |  |   | 773,265     |  
|Power Project Equipment Purchases                |  |                            |          |   |               |   | 6,980,500   |                    |  |   |           |   |  |   | 6,980,500   |  
|Total Assets                                     |  | $                          | 1,041,080 |   |               | $ | 24,799,036  |                    |  | $ | 32,996,243 |   |  | $ | 58,836,359  |  

Q. Income Taxes

In accordance with the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), we must 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. As
of March 31, 2009, we determined that no liability should be accrued for uncertain tax positions.



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There has been no significant change in the unrecognized tax benefit during the year ended
December 31, 2008 and for the three months ended March 31, 2009.

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, 2009, we had no accrued interest or penalties related to uncertain tax positions. Our federal income tax returns for the 2008 and
2007 tax years remain open to examination, and income tax returns for other taxing jurisdictions to which we are subject remain open for the 2004-2007 tax years.

R. Supplemental Cash Information

For the three months ended March 31, 2009



| |  |  | We paid $538,954 for interest and $400 for income taxes.
| | - |  | --------------------------------------------------------



| |  |  | We recorded three non-cash payments totaling $19,500 for 5,243 shares of our common stock issued to settle three outstanding invoices from a service provider for
consulting relating to our PHEV project. The non-cash payment was equal to the fair market value of the shares on the date the shares were granted.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $150,000 non-cash payment for 34,483 shares of our common stock issued to settle an outstanding invoice from a service provider for construction of
our Thermo No. 1 geothermal power plant. The non-cash payment was equal to the fair market value of the shares on the date the shares were granted.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $2,000,000 non-cash payment for 574,713 shares of our common stock issued to settle an outstanding invoice from a service provider for construction of
our Thermo No. 1 geothermal power plant. The non-cash payment approximated the fair market value of the shares on the date the shares were granted.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded a $950,000 non-cash payment for 263,108 shares of our common stock issued to settle a promissory note with a former merger candidate that was settled on
January 27, 2009. The non-cash payment resulted in a gain on extinguishment of debt totaling $68.588.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded three non-cash payment totaling $1,500,000 for 70,197 restricted shares of our common stock, 377,358 unrestricted shares of our common stock, and
122,603 warrants to acquire shares of our common stock issued to settle an outstanding invoice from a service provider for construction of our Thermo No. 1 geothermal power plant. The non-cash payment was approximated the fair market value of
the shares on the date the shares were granted.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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S. Recently Issued Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4), FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP FAS 115-2 and FAS 124-2), and FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 157-4 provides
additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have significantly decreased, and also includes
guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve
the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28,
Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. These FSPs shall be effective for interim and annual reporting periods ending after June 15,
2009. The impact of adopting these pronouncements during the quarter ended June 30, 2009, will be increased financial statement disclosure surrounding the fair value of our financial debt instruments that were previously disclosed annually.

T. Subsequent Events

On
April 22, 2009, we delivered 377,359 unrestricted shares of our common stock that were granted on March 11, 2009 to settle an outstanding liability totaling $1,000,000 to a service provider of construction services relating to our Thermo
No. 1 geothermal power plant. On April 22, 2009, we also delivered another 249,377 unrestricted shares of our common stock to settle an additional outstanding liability totaling $1,000,000 to the same service provider of construction
services relating to our Thermo No. 1 geothermal power plant. The fair value on the grant date approximated the amount to settle the outstanding liability.

As of May 8, 2009, we had borrowed $11.0 million under the Line of Credit. For further discussion of the Line of Credit refer to Note I. Secured Note (non-recourse), Convertible Senior Notes and Line of
Credit above. Accordingly, as of May 8, 2009, the LOC Lenders have received approximately 1,453,045 warrants to purchase our common stock at a strike price of $6.00 per share as a result of the amount borrowed.

As discussed in Note D. Power Project Construction-In Progress, we entered into the PWPS Agreement on April 9, 2009 to, among other
things, terminate various agreements with PWPS relating to power generating units and transfer title to PWPS of 113 power generating units subject to the PWPS Agreement, free and clear of all liens and encumbrances, which were previously delivered
to us at our Thermo No. 1 project site and the Lightning Dock project site and which were being held for us at PWPS manufacturing facilities. As of March 31, 2009, we had received 113 power generating units that we agreed to transfer the
title to PWPS. At March 31, 2009, the cost of these power generating units that were included in Power project construction-in-progress totaled $14.6 million and the cost of these power generating units that were included in
Power project equipment, net totaled $19.7 million. Furthermore, at March 31, 2009, accrued liabilities relating to these power generating units totaled $26.4 million (net of applied deposits) and Power project development
deposits (unapplied deposits) totaled $4.1 million. The effect of this title transfer to PWPS will reverse the cost of the power generating units included in Power project construction-in-progress and Power project equipment,
net, and the related accrued liabilities (net of the deposits applied) and Power project development deposits (unapplied deposits) during the second quarter of 2009. The restructuring fee of $1.5 million contemplated by the PWPS
Agreement will also be expensed in the second quarter of 2009.



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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set
forth in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues
or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions or dispositions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology
such as believes, expects, may, will, should, anticipates or intends or the negative of such terms or other comparable terminology, or by discussions of strategy. We
may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

All forward-looking statements, including without limitation managements examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that managements expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the
date made or to reflect the occurrence of unanticipated events.

There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in Part II Item 1A. Risk Factors and
elsewhere in this report.

Unless the context requires otherwise, all references in this annual report to Raser, the
Company, we, us, our company, Raser Technologies or our refer to Raser Technologies, Inc. and its consolidated subsidiaries.

Overview

Our Company

We are an environmental energy technology company focused on geothermal power development and technology licensing. We operate two business segments:
Power Systems and Transportation & Industrial. Our Power Systems segment develops clean, renewable geothermal electric power plants and bottom-cycling operations. Our Transportation & Industrial segment focuses on using our
Symetron family of technologies to improve the efficiency of electric motors, generators and power electronic drives used in electric and hybrid electric vehicle propulsion systems. Through these two business segments, we are employing a
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 electric and hybrid-electric vehicle technologies and products.

We are
incorporated in Delaware. We are the successor to Raser Technologies, Inc., a Utah corporation, which was formerly known as Wasatch Web Advisors, Inc. Wasatch Web Advisors acquired 100% of our predecessor corporation in a reverse acquisition
transaction in October of 2003. Prior to that transaction, our predecessor corporation was a privately-held company.

We have initiated the
development of eight geothermal projects in our Power Systems segment to date, and we are currently in the development stage of drilling wells and constructing geothermal power plants to further develop viable geothermal resources. We have
accumulated a large portfolio of geothermal interests in four western continental states and a geothermal concession in Indonesia. These geothermal interests are important to our ability to develop geothermal power plants. We continue to accumulate
additional interests in geothermal resources for potential future projects. 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, any of which may be challenging given the deepening economic recession. If substantial losses continue, or if we are unable to raise sufficient
additional capital on reasonable terms, liquidity concerns may require us to curtail or cease operations, liquidate or sell assets or pursue other actions that could adversely affect future operations.



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Liquidity, Capital Requirements and Market Conditions

As a development stage company, our ability to secure liquidity in the form of additional financing or otherwise is crucial for the execution of our plans
and our ability to continue as a going concern. Our current cash balance, together with cash anticipated to be provided by operations, will not be sufficient to satisfy our anticipated cash requirements for normal operations, accounts payable and
capital expenditures for the foreseeable future. Obligations that may exert further pressure on our liquidity situation include the obligation to repay amounts borrowed under our Line of Credit, which are due in November 2009, and additional
liquidated damages payable to Fletcher International, Ltd. if the staff of the Securities and Exchange Commission (the SEC) does not complete its review of our periodic reports and the registration statement that we have filed for
Fletchers benefit is not declared effective before the end of May of 2009. During 2008 and the first part of 2009, economic conditions have weakened significantly and global financial markets have experienced a significant liquidity crisis.
The current economic environment makes it challenging for us to access the liquidity that we need, on terms acceptable to us, to successfully pursue such development plans and operations. Although we have access to the Deposit Refund (described
further below under Recent Developments) and the Line of Credit established in January 2009 (described further below under Liquidity and Capital ResourcesRecent Financing Activities), there are certain
conditions to our ability to access these funds. For example, the lenders party to the Line of Credit have no obligation to make advances to us. Further, the Line of Credit was established primarily for general corporate purposes and the maximum
amount available under the Line of Credit is not sufficient to satisfy a meaningful portion of our financing needs for the foreseeable future. Funds from the Deposit Refund may only be used for expenses associated with the Thermo No. 1 plant
and are only available if certain other conditions are met. The cost of raising capital in the debt and equity capital markets has increased substantially while the availability of funds from those markets generally has diminished significantly.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors
have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity on terms that are similar to existing debt, and reduced, or in some cases ceased, to provide funding to borrowers. If we are unable to
secure adequate funds on a timely basis on terms acceptable to us, we would be unable to satisfy our existing obligations, or to execute our plans. In such case, we would be required to curtail or cease operations, liquidate or sell assets, modify
our current plans for plant construction, well field development and other development activities, or extend the time frame over which these activities will take place, or pursue other actions that could adversely affect future operations. Despite
these conditions, we intend to continue to seek financing arrangements to fund our development activities, which may include the issuance of debt, preferred stock, equity or a combination of these instruments. We also continue to evaluate a variety
of alternatives to finance the development of our geothermal power projects. These alternatives could include project financing and tax equity financing under our Commitment Letter with Merrill Lynch, government funding from grants, loan guarantees
or private activity bonds, joint ventures, the sale of one or more of our projects or interests therein, entry into prepaid power purchase agreements with utilities or municipalities, or a merger and/or other transaction, a consequence of which
could include the sale or issuance of stock to third parties. The amount and timing of our future capital needs will depend on many factors, including the timing of our development efforts, opportunities for strategic transactions, and the amount
and timing of any cash flows we are able to generate. We cannot be certain that funding will be available to us on reasonable terms or at all. Nevertheless, we have made or are in the process of making applications for funding under several stimulus
programs established by the American Recovery and Reinvestment Act of 2009 (the Recovery Act) and other pre-existing programs. For example, we:



| |  |  | Have applied for a loan guarantee under a Department of Energy (DOE) program for energy projects utilizing innovative technologies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Are preparing an application for another DOE loan guarantee program under the Recovery Act;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Will submit an application for the DOEs Advanced Technology Vehicle Manufacturing Loan Program in the second quarter of 2009;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Are preparing an application for plug-in hybrid vehicle grants under the Recovery Act; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Will apply for certain geothermal-specific programs created by the Recovery Act when the regulations related to said programs are released by the DOE.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

Overview of Our Business

We have initiated the development of eight geothermal projects in our Power Systems segment to date, the current status for each of which is described in detail below under Current Geothermal Power Projects. We completed
the major construction of the cooling towers and transmission lines and installed the power generating units at our first 10 megawatt (MW) geothermal power plant, located in Beaver County, Utah, in October 2008. We refer to this project
as the Thermo No. 1 project or the Thermo No. 1 geothermal power plant. We expect the Thermo No. 1 geothermal power plant to become operational at or near full capacity early in the third quarter of 2009. In April 2009, we began
selling electricity generated by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with Anaheim.



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We have either obtained or are in the process of obtaining permits for the development of seven other
geothermal power projects we have initiated in the United States. These projects are located in Utah, Nevada, New Mexico and Oregon. We believe that the geothermal resource for each of these projects has the potential to provide at least enough
geothermal energy for a commercial power plant of approximately 10 to 11 MW of net electrical power. However, we expect that some of the project sites that we intend to develop, have potential resources to generate significantly more than 10 MW of
net electrical power. For example, the Thermo No. 1 project area appears to have the potential to support many additional plants similar in design to the Thermo No. 1 geothermal power plant. Therefore, we are evaluating opportunities to
build additional plants near the Thermo No. 1 project. We expect that other project sites we have selected to develop could also prove to have resources that could support multiple plants. We intend to seek to maximize the full power generating
potential of all the sites we select for project development. Continued development of each of our current geothermal power projects beyond initial permitting is dependent on additional financing.

With the completion of the major construction items of the Thermo No. 1 geothermal power plant, we believe we have demonstrated our ability to
quickly develop geothermal power projects using our rapid deployment business model. We believe the demand for clean, renewable energy will continue to increase, and we believe we are well positioned to play a meaningful role in providing clean,
renewable power to consumers. Not everything has been in keeping with our original timeframes and cost expectations. Some of our projects have experienced longer development timelines or higher costs than originally planned. Moreover, the current
economic conditions in the United States and around the world make it more difficult to secure the financing and complete the other various steps necessary to develop our projects. Nevertheless, we intend to continue to focus on the rapid deployment
of our geothermal power projects.

Our Transportation & Industrial segment continues to focus on commercializing our electric
motor, generator and drive technologies, such as our series plug-in hybrid vehicle (PHEV) with range extender technologies, into applications. In 2008, we began work to integrate a Symetron traction motor, generator and controller
drive in a Hummer H3 demonstration vehicle expected to achieve 100 mpg equivalent to demonstrate the benefits of our plug-in electric drive system in SUV and light truck applications. Our plug-in electric drive system is designed to allow light
trucks and SUVs to achieve the equivalent of over 100 mpg in typical local daily driving with near zero emissions, by using electricity instead of petroleum as the primary fuel. We introduced the H3 demonstration vehicle at the SAE International
World Congress in Detroit in April 2009. Pacific Gas & Electric of California agreed in February 2008 to initially purchase two demonstration vehicles. The SUV demonstration vehicle was built in cooperation with a leading global OEM. During
2007 and early 2008, we entered into other agreements and collaborative arrangements with large manufacturers to explore additional potential applications of our motor and drive technologies, including a collaborative arrangement with Hyundai Heavy
Industries (HHI) of Korea and a license agreement with Wilson Automotive of Canada.

Recent Developments

In 2007 and 2008 we entered into a number of agreements with UTC Power Corporation (UTCP), a subsidiary of United Technologies, Inc., for the
purchase of PureCycle geothermal power generating units to be used in connection with the construction of our geothermal power plant at the Thermo No. 1 project and for future projects. These agreements were subsequently assigned to
Pratt & Whitney Power Systems, Inc. (PWPS), another subsidiary of United Technologies, Inc. In April 2009, we entered into an agreement (the PWPS Agreement) with Trail Canyon Geothermal No. 1 SV-02, LLC
(Trail Canyon), Raser Power Systems, LLC and PWPS pursuant to which we and PWPS agreed to terminate certain agreements with UTCP relating to power generating units (collectively, the Terminated Agreements). Under the PWPS
Agreement, we agreed to transfer title to PWPS of 113 power generating units previously delivered or held for delivery for us pursuant to the PWPS Agreement, free and clear of all liens and encumbrances. We and PWPS also agreed that, until the
earlier of April 9, 2012 and the date on which we have installed 200 power generating units (in addition to the power generating units installed at our Thermo No. 1 project site), PWPS will be the exclusive provider of heat-to-electricity
equipment used for any merchant power plant project developed by us or any of our affiliates so long as PWPS can meet the needs of the particular project. PWPS agreed that it would maintain 50 power generating units in inventory throughout 2009 that
would be allocated to us and that we would receive preferential pricing until April 9, 2011. Pursuant to the Terminated Agreements, we had previously paid to UTCP non-refundable deposits totaling $8,855,250. As part of the PWPS Agreement,
$1,500,000 of these deposits were retained by PWPS as a restructuring charge. PWPS agreed to refund the remaining $7,355,250 of deposits (the Deposit Refund), subject to the satisfaction of certain conditions. The purpose of the Deposit
Refund is to help facilitate payment for certain work necessary for the completion of the Thermo No. 1 geothermal power plant, including the payment of certain existing accounts payable. Accordingly, PWPS is only required to distribute portions
of the Deposit Refund if we (1) provide reasonable documentation to PWPS evidencing the work performed at the Thermo No. 1 project site by a third party vendor; (2) provide reasonable documentation to PWPS evidencing the payment of
such third party vendor; and (3) represent that the amount of the Deposit Refund to be paid is related solely to the Thermo No. 1 project site and is necessary to keep the project moving forward. The Deposit Refund may be released to Raser
in installments at times and in the amounts determined at the sole reasonable discretion of PWPS. Any difference between the Deposit Refund and the amounts paid to third party vendors will be held by PWPS until the Thermo No. 1 geothermal power
plant achieves successful performance testing and PWPS is paid in full for the unbilled portion of amounts owed under certain agreements between UTCP and the Company. While the Thermo No. 1 geothermal power plant is operational, it is not
currently operating at full capacity. We expect to incur additional construction and drilling during 2009 to facilitate the ability of the Thermo No. 1 geothermal power plant to operate at or near full capacity. The PWPS Agreement will



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facilitate the payment of a portion of these costs, including existing accounts payable for work that has already been performed. Notwithstanding the PWPS
Agreement, our agreements with PWPS relating to the purchase of the 50 power generating units for the Thermo No. 1 plant and the associated service agreement related to the ongoing maintenance of those 50 units remain in full force and effect.

During the fourth quarter of 2008, we retained Calyon Securities (USA) Inc. (Calyon) to explore potential strategic
relationships that could provide additional options for funding, implementing and accelerating our development efforts. The potential for significant additional power production from the geothermal resource that we identified and evaluated as part
of our Thermo No. 1 project has generated a number of inquiries from potential financial partners wishing to explore a purchase, joint venture or other transaction in connection with the further development of this large resource. We engaged
Calyon to help us evaluate the proposals and negotiate any potential funding, development, or asset sale structures that we believe would enhance our ability to complete our objectives. We continue to work with Calyon to advance this process, but
have been slowed by issues related to well-field development.

Operating History

Consistent with our limited operating history, we have generated limited revenues or cash flows from operations. While our Power Systems segment has begun
to generate nominal revenue from the operation of our Thermo No. 1 geothermal power plant, we do not expect to generate material revenues or cash flows from this segment until we develop additional plants and place them in service. To date, our
Transportation & Industrial segment has generated only a limited amount of revenue from research and development subcontracts administered through contractors for certain government agencies. Future revenues from our
Transportation & Industrial segment will depend on our ability to commercialize our Symetron technologies, and we cannot predict when those efforts will be successful, if at all.

Limited historical information exists 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. To date, all of our
revenues have been derived from domestic sources. Our business and prospects should be considered in light of the risks, expenses, cash requirements, challenges and uncertainties that exist in an early stage company seeking to develop new
technologies and products in competitive and rapidly evolving markets.

Current Geothermal Power Projects

We have initiated the development of eight geothermal projects in our Power Systems segment to date. In April 2009, we began selling electricity generated
by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power purchase agreement we previously entered into with Anaheim, and we have either obtained or are in the process of obtaining permits for the development of the
other seven geothermal power projects we have initiated. The current status of development for each of these eight projects is described below. Other than certain permitting activities and engineering work currently being performed, the continued
development of each of our projects other than the Thermo No. 1 Plant is dependent on additional financing. While we would expect to seek traditional project financing or other project-specific financing arrangements for plant construction at
these projects, we anticipate that we will need to fund well field development activities from general corporate funds, which would typically be obtained through financing at the parent company level, if available. Due to uncertainties associated
with the current economic environment, we cannot be certain that financing will be available to us on reasonable terms or at all. As a result, the timing for continued development at each of our projects other than the Thermo No. 1 Plant is
highly uncertain.



| |  |  | Thermo No. 1 Plant (Utah)We completed major construction of the cooling towers and transmission lines and installed the power generating units at the
Thermo No. 1 geothermal power plant, located in Beaver County, Utah, in the fourth quarter of 2008. In April 2009, we began selling electricity generated by the Thermo No. 1 geothermal power plant to the City of Anaheim pursuant to a power
purchase agreement we previously entered into with Anaheim. We expect the Thermo No. 1 geothermal power plant to become operational at or near full capacity early in the third quarter of 2009. We have obtained all necessary permits to develop
and operate the plant.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2007, with the help of external consulting geologists, we began evaluating preliminary geologic
studies of possible geothermal resources near Beaver, Utah referred to as the Thermo Known Geothermal Resource Area (the Thermo KGRA). The area in and around the Thermo KGRA was targeted initially because multiple geologic studies had
been performed over many years in the area, and because a geothermal well had been drilled in the area that reached a temperature of 345 degrees Fahrenheit. Our consulting geologists reviewed numerous studies on the area, including gravity, ground
magnetic, telluric-magnetotelluric and self-potential surveys. They also reviewed data from dozens of thermal-gradient wells that have been drilled in and around the Thermo KGRA. After analyzing all of the available data, our consulting geologists
concluded that the Thermo area was a high-prospect area and likely suitable for at least a 10 MW geothermal power plant.



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After identifying the Thermo prospect area, we began acquiring the exclusive geothermal rights to land
located in the Thermo prospect area. Beginning in April 2007, we entered into several lease agreements with the State of Utah School and Institutional Trust Lands Administration (the State) for geothermal rights in the Thermo area
totaling approximately 5,500 acres. The initial term of the geothermal leases is 10 years, subject to extension for as long as we are actively pursuing or generating electricity from geothermal resources from the leased lands. Annual delay rental
payments on the State leases are $1.00 per acre and are due on each anniversary date until production begins. If a geothermal power plant is constructed which utilizes geothermal resources covered by the leases, royalties are paid based on a
percentage of electrical sales from the plant. The leases provide for rights to the geothermal resource and rights to utilize the surface as necessary for the development of the geothermal rights.

Additionally, in September, 2007, we entered into a lease agreement with a private landowner to obtain the geothermal rights on approximately 11,000 acres
of land located in the Thermo area. Through this lease, we acquired a 75% undivided interest in the geothermal rights on the properties. We are in the process of acquiring the remaining 25% undivided interest via a lease with another private entity,
which we expect to finalize in the first quarter of 2009. The expenses associated with the negotiation, document preparation, due diligence and other acquisition related activities were capitalized as part of the land acquisition. The initial term
of the lease with a 75% undivided interest is ten years. Cumulative annual delay rental payments on the lease with a 75% undivided interest are $1.00 per acre and are due on each respective anniversary date until production has begun. If a
geothermal power plant is constructed which utilizes geothermal resources covered by the lease, royalties are owed to the landowner based on a percentage of electrical sales from the plant. The lease provide for rights to the geothermal resource and
rights to utilize the surface as necessary for the development of the geothermal rights. We expect the lease on the remaining 25% undivided interest to have a five year initial term with other provisions similar to the 75% lease.

While the leases mentioned above cover most of the area we consider to be the heart of the Thermo geothermal resource, we have signed additional
agreements with private landowners and the State in the vicinity of the Thermo area covering an additional approximately 35,000 acres. We anticipate that we will dedicate a small portion (likely less than 1,000 acres) of our leased acreage for each
individual 10-11 MW project we develop. We expect that a parcel of approximately 640800 acres will be ultimately dedicated to the Thermo No. 1 geothermal power plant.

Based upon available studies and on the evaluation completed by internal and external geologic consultants (a Resource Evaluation) as well as
a basic economic analysis, in October of 2007 we obtained a high degree of confidence supporting the conclusion that the Thermo No. 1 site contained a commercially viable geothermal resource to continually produce electricity without any
substantial degradation in the heat resource. Our high degree of confidence was based specifically upon geophysical, geochemistry and other studies and data collected, summarized and prepared for us by an independent geological consultant in a
report entitled An Evaluation of the Thermo Hot Springs Geothermal Resource in September of 2007 and by the Energy and Geoscience Institute (EGI). EGI reviewed its findings and recommendations with us in several meetings in the
third and fourth quarters of 2007 but did not produce a formal written report until March of 2008. These reports relied on data collected over several years in the highly-studied Thermo area, including geochemical surveys, geologic structures and
anomalies, hot spring data, self-potential, telluric-magnetotelluric and other surveys, and information from a deep exploratory well drilled in the late 1970s. Both the independent geological consultant and EGI concluded that the Thermo
resource could likely support at least one of our power plants. Therefore, in November 2007, prior to the completion of EGIs final Resource Evaluation report, we omitted drilling slim holes and began drilling larger diameter production and
reinjection wells for the production of electricity. Shortly thereafter, we received the written Resource Evaluation report. We continued drilling and after completing the drilling of several wells, we commissioned an independent geothermal engineer
to issue an additional report on the wells and the overall resource. The report, issued in August of 2008, concluded that parts of our Thermo leasehold are underlain by a relatively large geothermal reservoir and that the resource underlying the
proposed project site could support a 10 MW project. The report also concluded that the overall Thermo resource could likely support well over 200 MW of power generation. The reservoir is contained within relatively thin intervals in Paleozoic rock
(predominantly limestone, dolomite and quartzite).

On March 10, 2008, prior to obtaining the geothermal engineers report, we
executed a renewable power purchase and sale agreement (the Thermo PPA) with the City of Anaheim, California. Subject to certain conditions, the Thermo PPA provides for the delivery by the Thermo No. 1 plant of up to 11 megawatts of
geothermal renewable power for 20 years. Subject to certain exceptions, we are required to begin delivering electricity from the power plant no later than May 15, 2009. The Thermo PPA provides for a selling price of $78 per megawatt hour with a
two percent per annum increase over the term of the Thermo PPA. Under the Thermo PPA, the City of Anaheim will also pay for the wheeling costs, or cost for transmission, of the electricity from the Thermo No. 1 power plant to the
City of Anaheim.

In May 2008, concurrent with the drilling of the wells, we began construction of the Thermo No. 1 geothermal power
plant and began receiving the 50 modular power generating units. We were able to obtain the financing to complete the construction of the Thermo No. 1 geothermal power plant with the related equipment, transmission lines, substations and
pipelines from the well heads to the power generating units from Merrill Lynch. For further discussion of the financing arrangement, please refer to the discussion under Liquidity and Capital ResourcesOur Commitment Letter with
Merrill Lynch below.



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We completed the major construction of the cooling towers, transmission lines and setting of the power
generating units at the Thermo No. 1 geothermal power plant in October of 2008. Commissioning testing of the power generating units was completed in the first quarter of 2009 using two production wells and one reinjection well that we had
connected to the plant. Once a plant has been placed in service, we reclassify the cost of the related leases, wells, transmission lines and substations and construction in progress as Geothermal property, plant and equipment on the
balance sheet. Since our Thermo No. 1 geothermal power plant was placed into service in the first quarter of 2009, we reclassified these costs as Geothermal property, plant and equipment accordingly.



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At March 31, 2009, the total capitalized costs of the Thermo No. 1 project were $98.2 million,
consisting of $59.8 million in plant construction and transmission line and interconnection costs, $36.1 million in well field development costs, and $2.3 million in land and lease acquisition and other costs. These costs will be amortized over the
estimated useful life of the geothermal power plant, which is expected to be approximately 35 years. Amortization of the Thermo No. 1 geothermal power plant will begin in the second quarter of 2009. We have assessed the additional construction
and drilling costs that we expect to incur so that the power plant will be able to operate at or near full capacity to be approximately $11.0 million. We expect the Thermo No. 1 geothermal power plant to become operational at or near full
capacity early in the third quarter of 2009.

We have drilled five production wells and two reinjection wells that we expect to utilize for
the plant when it is operating at full capacity. We recently finished drilling an additional well that we expect to use as a production well, and we plan to drill another production well for the Thermo No. 1 project. We believe that one of
these additional wells may eventually be transferred to and used as a production well for Thermo No. 2. This decision is dependent upon the performance of the existing wells and the testing of the recently completed well.

The expected production wells have demonstrated flow temperatures in commercially productive ranges of approximately 230 degrees Fahrenheit to 300 degrees
Fahrenheit. The Thermo wells have shown a tendency to heat up over time and we expect the production wells for the Thermo No. 1 project to deliver temperatures in the 250 degrees Fahrenheit to 300 degrees Fahrenheit range. The geothermal
resources utilized by the plant are believed to be renewable so long as the plant is operated at or below the maximum level studies indicate that the resource will support, all of the geothermal fluids are recycled without losses, and the
hydrological balance of the geothermal resource is properly maintained.

In addition to the wells described above, we have drilled two wells
that we, in consultation with our drilling and geothermal consultants, have determined to be non-commercial wells at this time. The first of these two wells is the first well that we drilled on the site. This well exhibited positive early testing
and appeared to be a good production well. However, the well became partially obstructed during the final stages of the drilling process. Shortly thereafter, we terminated our relationship with our original drilling contractor and hired a new
contractor to re-drill the well. The re-drilled well again exhibited strong signs of being a good production well but again encountered problems during the final stages of drilling, and became partially obstructed. Even with the obstruction, the
well still exhibited signs of being useful for commercial production. In the fourth quarter of 2008, however, acting on the advice of our consultants, we determined that it would be better to abandon the well and drill an entirely new well adjacent
to this abandoned well. The new well is the recently completed well mentioned above and we are currently evaluating the viability of this well.

The other well we have determined to be a non-commercial well at this time, but we believe that we may be able to stimulate this well in the future through a variety of commonly-used well stimulation techniques.

We are also currently evaluating the expansion of the Thermo No. 1 plant by including a bottom-cycling operation in which the discharged geothermal
water from the main plant is cascaded through a second set of power generating units, extracting more heat to generate additional power. The expanded project is referred to as the Thermo No. 1A project. The economics of the Thermo No. 1A
project would benefit from the transmission infrastructure, cooling towers and established well field already in place at the Thermo No. 1 plant. The Thermo No. 1A project may be able to generate up to an additional 5 MW of power. We
expect that, if feasible, Thermo No. 1A will enhance the economics of Thermo No. 1 because of project cost savings from eliminating drilling, transmission upgrades, and cooling tower costs.

We have experienced certain delays and cost overruns on the Thermo No. 1 project. The Thermo No. 1 geothermal power plant is the first ever
large-scale commercial application of the PWPS power generating units and the first plant built under our rapid-deployment approach so such delays and overruns are not entirely unexpected. The key drivers of the delays and cost overruns are as
follows:

Well Field Development:



| |  |  | Increased costs to broaden previous well field plans.
| | - |  | -----------------------------------------------------



| |  |  | Complications encountered by drilling contractors.
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| |  |  | High demand for drilling services and related materials due to the rapid increase in the price of oil.
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Construction:



| |  |  | Wider than necessary step-outs for injection wells, which increased piping costs, due to concerns of lenders.
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| |  |  | Additional costs related to establishing the greater Thermo area.
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| |  |  | High demand for steel, concrete and other commodities caused prices to increase.
| | - |  | --------------------------------------------------------------------------------



| |  |  | Accelerated construction schedule required overtime and other additional costs.
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Equipment:



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



| |  |  | In anticipation of future plants, we built a larger transmission infrastructure.
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The Thermo No. 1 geothermal power plant is accessible by road suitable for unrestricted ground transportation. The plant is interconnected to a power
line along Thermo Road owned by Rocky Mountain Power.



| |  |  | Lightning Dock Plant (New Mexico): We are in the process of obtaining the final, necessary permits for the Lightning Dock plant. Numerous exploratory
wells and two production wells were drilled prior to our acquiring the site. We broke ground at the site and have begun taking delivery of the PWPS generating units that will be used in the Lightning Dock plant. We have received 48 PWPS power
generating units and most of the essential major equipment needed for construction of the geothermal project. The purchase contract related to these generating units was, however, terminated under the PWPS Agreement and title to the units was
transferred back to PWPS. PWPS is electing to keep the units at the Lightning Dock site in anticipation that we will enter into a new purchase contract for those units at the appropriate time.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2007, we entered into an agreement to acquire GeoLectric, LLC. This agreement was later superseded by our agreement to purchase a United States Bureau
of Land Management (BLM) lease and other miscellaneous assets totaling $4,140,000 from a subsidiary of GeoLectric, LLC (the Purchase). The expenses associated with the negotiation, document 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 BLM approved the assignment of the BLM lease to us, which fulfilled the condition required to complete the Purchase pursuant to the terms of the agreement. Under the assigned BLM lease, we obtained rights to begin development of one or more
geothermal power plants on the property located on approximately 2,500 acres in Hidalgo County, New Mexico. We also obtained the exclusive rights to the geothermal energy resource contained on the property. 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. Annual delay rental payments of $5,000 are required on each anniversary date until geothermal power production has begun. If a
geothermal power plant is constructed which utilizes geothermal resources covered by the lease, royalties are owed to the BLM based on a percentage of electrical sales from the plant. We have capitalized certain legal fees directly associated with
completing the Purchase and obtaining the BLM lease. We also capitalized the obligations we assumed to plug certain abandoned wells located on the property.

With respect to the same 2,500 acres in Hidalgo County, New Mexico, in January 2008, we also entered into a surface access and use lease agreement, or surface lease agreement, with a private property owner in New
Mexico (the New Mexico Property Owner) and paid $320,000 to obtain surface right-of-way access and drilling rights. The term of the surface lease agreement continues until our geothermal rights respective to the BLM lease have expired.
Pursuant to the surface lease agreement, we also obtained rights to certain water rights for the project.

In August 2008, we paid $1,200 as
a lease bonus and entered into a ground lease agreement for 20 acres with the New Mexico Property Owner. The term of the ground lease agreement is indefinite, as long as the power plant, transmission and related facilities on the leased property are
producing or capable of producing electricity from geothermal resources. No annual payments are required for the ground lease agreement. Under the ground lease agreement, we obtained the right to construct and operate a geothermal power plant and
transmission facilities on the property.



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The New Mexico resource is one of the most well-studied moderate-temperature geothermal resources in the
country. The New Mexico resource is located in a topographic low, bounded on the west by the Peloncillo Mountains and on the east by the Pyramid Mountains. Relatively young basaltic volcanism is widespread in the area. Rocks exposed in the
bordering mountain ranges include granodiorite, Paleozoic and Mesozoic sedimentary rocks, Tertiary/Cretaceous volcanic rocks, Tertiary intrusive rocks, and Tertiary conglomerate. The prominent features of the valley are the north east trending
Animus Valley and western faults, which displace the Tertiary volcanic tuft in fractured basement rocks creating an ideal location for geothermal activity. The New Mexico property can be accessed by road suitable for unrestricted ground
transportation and is approximately 14 miles from the nearest transmission lines. Based on the leases described above, we believe we have secured the necessary surface rights and rights of way to construct the power plant. We believe that we can
obtain the necessary rights of way to construct an interconnection line to connect the planned power plant to the existing nearby transmission lines. The source of water to be used at the property is an underground well located at the site. There is
a greenhouse operation and a fish farm nearby that utilize the geothermal resource for direct-use heating. During the summer of 2008, two PureCycle power generating units were installed at the local greenhouse operation.

Prior to our purchase of the Lightning Dock leases, multiple wells had been drilled on the leased property exhibiting temperatures in the range of 250 to
308 degrees Fahrenheit. Previous studies indicate that an operational production well on the leased property has the potential to generate approximately 7 MW of electricity. Based upon the available studies and on the evaluation completed by
external geologic consultants, in September of 2007, we concluded with a high degree of confidence that a commercially viable geothermal resource exists beneath the Lightning Dock project surface. Our high degree of confidence was based specifically
upon two reportsthe first from GeothermEx, Inc. entitled Lightning Dock Resource Assessment issued in June of 2005, and the second in conjunction with the Sandia National Laboratories entitled Final Technical Report Geothermal
Resource Evaluation and Definitions ProgramPhases I, II and III for the Animas Valley, New Mexico Geothermal Resource issued in August of 2005. These reports based their conclusions on a number of geophysical and geologic studies which had
been undertaken in the area over a number of years, including geochemical surveys, flow test data from a deep geothermal well, test data from other wells in the area, seismic surveys and gravity surveys. These reports concluded that the Lightning
Dock resource had a likely potential to support at least one of our power plants. We have submitted permits for drilling and storm water discharge and are in the process of finalizing other environmental permits to be able to begin drilling at the
site. However, to date, we have not drilled production or reinjection wells on this site. We are awaiting final approval to proceed with permitting from the local government officials, pending a ruling relating to a protest filed by a nearby land
owner.

In addition to working on permitting for the Lightning Dock project, we are also finalizing engineering designs for the project. The
Lightning Dock plans and specifications are based on the Thermo No. 1 plans and specifications with certain changes and modifications based on lessons learned during the construction of the Thermo No. 1 project.

The power generated from the facility will be sold to the Salt River Project Agricultural Improvement and Power District in Phoenix, Arizona pursuant to a
20-year power purchase agreement.

We currently anticipate that the total costs of the completed Lightning Dock geothermal power plant will
range from $50.0 to $60.0 million, including the costs of well field development and transmission line construction. Continued development of the Lightning Dock plant, other than the permitting and engineering work currently being performed, will be
dependent on additional financing.



| |  |  | Thermo No. 2 and No. 3 Plants (Utah): Based on a preliminary site identification review used to either identify parcels of land for which we
want to pursue leases or to identify parcels within an already leased area that are of high interest (a Preliminary Site Review), the written Resource Evaluation report on the Thermo resource, and the report prepared by our consulting
reservoir engineers, in March of 2008 we concluded with a high degree of confidence that the Thermo area contained a commercially viable geothermal resource which could support additional power plants. Our high degree of confidence was based
specifically upon geophysical, geochemistry and other studies and data collected, summarized and prepared for us by EGI. As discussed above in the section entitled Thermo No. 1 Plant (Utah), the formal written Resource Evaluation was
delivered to us by EGI in March of 2008. The Resource Evaluation contained the same information upon which we had made our decision to drill the first well for Thermo No. 1, and also contained new information derived from the drilling and
preliminary testing of our first Thermo No. 1 well. When it became clear that the geothermal resource located on our leased lands in the Thermo area could support more than just the Thermo No. 1 project, we began preliminary planning for the
Thermo No. 2 and Thermo No. 3 projects including preparing permit applications, securing water rights, filing for transmission interconnection, securing rights of way for the expected new transmission line, and beginning environmental
work. These permits include, among others, air quality permits, hazardous materials permits, and storm water discharge permits. While construction of the Thermo No. 1 geothermal power plant has been ongoing, we have begun obtaining the
necessary permits for the Thermo No. 2 project and the Thermo No. 3 project. As noted above, we believe that we may be able to transfer one or more production wells away from the Thermo No. 1 project and to the Thermo No. 2
project. The Thermo No. 2 geothermal power plant is expected to be located on an approximately 480 acre portion of the 11,000 acre private lease and the Thermo No. 3 geothermal power plant is expected to be located on an approximately 480
acre parcel of the States land each of which are described above in the Thermo No. 1 Plant (Utah) description. The Thermo No. 2 and Thermo No. 3 projects can be accessed utilizing public roads suitable for
unrestricted ground transportation. As of March 31, 2009, we have not entered into power purchase agreements for the sale of the power to be generated from the Thermo No. 2 and Thermo No. 3 geothermal power plants.
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For additional information regarding a description of the Thermo area, the terms and conditions
associated with the applicable geothermal lease agreements, and a discussion of the studies performed to obtain a high degree of confidence that a commercially viable geothermal resource exists in the Thermo area, please see the description of the
Thermo No. 1 Plant (Utah) above. The Thermo No. 2 and 3 project sites are accessible utilizing public roads suitable for unrestricted ground transportation. The Thermo No. 1 project was able to interconnect to the Rocky
Mountain Power system via an approximately 6 mile long transmission line that we built. We anticipate that some additional lines will need to be built for Thermo No. 2 and 3 and that these projects will be interconnected to the Rocky Mountain
Power system or another nearby transmission system. Continued development of the Thermo No. 2 and Thermo No. 3 plants, other than the permitting and engineering work currently being performed, will be dependent on additional financing.



| |  |  | Klamath Falls Plant (Oregon): We have obtained the necessary zoning permit and drilling permit to drill the first well at our Klamath Falls project. We are
in the process of obtaining the necessary water change permit for reinjecting water into the ground, along with permits for construction, air quality and other permits necessary to begin construction of our geothermal power plant. We have performed
some preparations at the site, but have not begun drilling activities. Continued development of the Klamath Falls plant, other than the permitting work currently being performed, will be dependent on additional financing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With the assistance of external consultants, we identified a site near Klamath Falls, Oregon for evaluation. We undertook
a Preliminary Site Review, and based upon data obtained from an independent geochemistry study and operating relatively shallow wells that currently have temperatures of approximately 195 degrees Fahrenheit and are used to supply a greenhouse
operation in the area, we determined to proceed with the Klamath Falls project. These wells have been in commercial use for greenhouse operations for approximately twenty-five years. In January 2008, we paid $10,000 as a lease bonus and entered into
a geothermal lease with private land owners for 984 acres approximately 13 miles south of Klamath Falls, Oregon. The leased property is a farm that contains a residential house, barns, hay storage sheds, greenhouses and a bio diesel plant. 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.
Annual delay rental payments of $1,000 are due on each anniversary date until production begins. If a geothermal power plant is constructed which utilizes geothermal resources covered by the lease, royalties are owed to the landowner based on a
percentage of electrical sales from the plant.

Upon signing the lease, we retained independent geological consulting firms to perform a
Resource Evaluation to further evaluate the information known about the Klamath Basin and conduct additional geologic and geophysical surveys to determine drilling targets. The independent geologists concluded that geothermal fluids at the Klamath
Falls project site are fault-controlled deeply circulating waters that have encountered temperatures up to about 248 degrees Fahrenheit. The hot wells in the Klamath Falls project area, ranging from 194 degrees Fahrenheit to 199 degrees Fahrenheit,
are associated with a fault that generally bounds in the range. This fault is part of the fault system that runs through an area where opal and silica veins are found in both sandstone and basalt. Hydrothermal alteration and self-potential anomalies
are also found in this area. The geologists concluded that the coalescence of these factors suggest that hot water is circulating throughout the fault system.

The Klamath Falls project can be accessed by road suitable for unrestricted ground transportation and is approximately 6 miles from the nearest appropriate transmission interconnection location. We have begun the
process of securing rights of way for the proposed transmission line to interconnect the project to the grid.

In addition to the lease
acquisition costs for the Klamath Falls project totaling $10,000, we have incurred permitting costs totaling $75,600.



| |  |  | Truckee Plant (Nevada): We have obtained the drilling, construction, air quality, water reinjection, water quality and other permits that are
necessary to begin drilling at the Truckee site. We are in the process of obtaining the environmental assessment from the BLM that will enable us to construct the Truckee plant. We drilled the first well at this site in the fourth quarter of 2007.
However, the results of the first well have been inconclusive. We will have additional independent geologic studies performed before we proceed with any additional drilling. With other projects showing greater geothermal resources, we expect to seek
funding to continue the development of our other projects ahead of the Truckee project. Further development on the Truckee resource will be dependent upon more positive geological studies and the availability of financing for the resource.
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With the assistance of external consultants, we identified a site in Nye County, Nevada known as the Big
Smoky Valley for evaluation. We and external geologic consultants prepared a Preliminary Site Review of the entire valley by gathering historic geophysical data that was available for the Big Smoky Valley area. For example, regional-scale gravity
data, audio-magnetotelluric, magnetotelluric soundings, and telluric profiles were completed as part of a U.S. Geological Survey exploration program in 1976. Additional gravity profiles and limited electrical resistivity and shallow temperature
measurements were completed by the Nevada Bureau of Mines under a Department of Energy program. The most recent geophysical surveys completed include a ground magnetic survey. As part of the Preliminary Site Review we also analyzed land positions
and transmission access.

Based on the results of the Preliminary Site Review we identified three areas to pursue within the valley: the
Truckee project area, the Devils Canyon project area, and the Trail Canyon project area. The Truckee project is located near the mid-point of the Big Smoky Valley on generally flat to gently sloping land. We identified certain private and
federal lands in the area to pursue. In December 2006, we paid $25,000 in cash, as a lease bonus, to cover the first year rental obligation, and issue to the owner 25,000 restricted shares of our common stock that had a fair value of $115,250 on the
grant date to obtain the right to begin development and construction of geothermal power plants on three ranches in central Nevada consisting of approximately 11,600 acres. In August 2007, we also granted to the private property owner 35,000 options
at a strike price of $15.10 representing the closing market price on the date of the grant as consideration to cancel previously awarded contingently vesting stock. The fair value of the 35,000 options was recorded as Power project leases and
prepaid delay rentals in the consolidated balance sheets totaling $424,000. Annual delay rental payments total $34,800 on each anniversary date until production of electricity begins. If a geothermal power plant is constructed which utilizes
geothermal resources covered by the lease, royalties are owed to the landowner based on a percentage of electrical sales from the plant. The terms of the lease agreement are for 50 years subject to extension for as long as we are actively pursuing
or generating resources from the leased lands. Under the same lease agreement, we also obtained a grant of geothermal and surface rights, if any, held by a property owner with respect to three million additional acres of land currently used for
ranching in central Nevada. During the fourth quarter of 2008, we began the necessary due diligence to determine if the property owner has any geothermal rights with respect to these three million acres of land. We expect to complete our due
diligence in the second quarter of 2009.

In June 2007, we paid $40,000 to the private land owner that held the geothermal rights and
entered into a geothermal lease agreement for the same 11,600 acres described above. Under the terms of this lease agreement, there are no delay rental payments. Of the 11,600 acres of leased property, approximately 1,000 acres have been designated
for the Truckee project. In September 2007, we participated in a BLM auction to obtain the geothermal development rights for certain parcels of land in the Truckee project site. We successfully won the bid for one parcel of land and entered into a
10-year lease agreement with the BLM covering a total of approximately 5,000 acres. Our payment obligation under this lease was $55,000, which was paid in the third quarter of 2007. Pursuant to the terms of the BLM leases, annual delay rental
payments total $15,000. If a geothermal power plant is constructed which utilizes geothermal resources covered by the lease, royalties are owed to the BLM based on a percentage of electrical sales from the plant.

After we acquired the geothermal rights to the Truckee project, we contracted with external geologic consultants to perform a Resource Evaluation and
assist with the determination of the drilling locations. Based upon a completed study and evaluation by external geologic consultants, in January 2007, we obtained a high degree of confidence that a commercially viable geothermal resource exists
beneath the Truckee project surface. Our high degree of confidence was based specifically upon reports generated by an independent geological consulting firm, including The Geothermal Potential of the Monitor Valley, Big Smoky Valley and the
Intervening Toquima Mountain Range, dated January 2007, and The Geothermal Potential of the Landing Strip Prospect Located in Big Smoky Valley, Nye County, Nevada, dated January 2007. These reports were based on, among other things, hot
spring data, hydrothermal anomalies, well data from deep wells in the area, geologic structures, and geochemical surveys. The Landing Strip Prospect report specifically identified the resource as having the likely potential to support
one or more of our power plants. As a result, we omitted drilling slim holes, and began drilling a production well in late 2007 to a depth of approximately 7,000 feet. Preliminary testing of the well indicated that temperatures were within
commercial ranges but the flow data was inconclusive as to whether the well could be used to produce electricity. Since the results of the well were inconclusive, we determined to allow the well to stabilize and redirect efforts toward the Thermo
No. 1 project and delay further testing of the Truckee well and drilling of the Truckee resource.

As of December 31, 2008, we
performed an impairment review of the Truckee well in accordance with FAS 144, Impairment of Long-Lived Assets and determined that it should be impaired. The circumstances that led to the impairment of the Truckee well are primarily due
to the current world-wide economic conditions that have led to tightening credit markets. Because of the tightening credit markets, we determined that our access to capital may be constrained in the future. Accordingly, we prioritized our cash
uses, concentrating our efforts on our largest known resources. As a result, the future undiscounted cash flows from the Truckee well have become uncertain because of the re-prioritization of our projects based upon the changing economic
conditions. Therefore, we considered our ability to secure sufficient financing necessary to continue drilling at the Truckee project and determined it was uncertain if we would be able to finance continued drilling at the Truckee project in
the near term in addition to our other projects of higher priority. Because of this uncertainty, we expensed $3.0 million in the Power Systems segment in the fourth quarter of 2008. However, management believes that the Truckee well could
still be used in the production of electricity as either a production or reinjection well in the future should the appropriate financing be obtained.



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The Truckee project can be accessed by road suitable for unrestricted ground transportation and is
approximately one mile from the nearest appropriate transmission interconnection location.

In addition to the lease acquisition costs for
the Truckee project totaling $734,500, we incurred drilling costs totaling $3.0 million. As of December 31, 2008, we determined that the value of this well had been impaired due to our current cash requirements and the need to raise additional
capital to continue with the Truckee project. Accordingly, the costs were expensed at December 31, 2008. However, if we are able to secure additional financing and continue development of the Truckee project, we believe it is likely that the
Truckee well will be suitable as a reinjection well, but until more detailed testing is performed on the well we will not know if it will be a production well, a reinjection well or will be abandoned.



| |  |  | Devils Canyon Plant (Nevada): We have obtained drilling permits for up to eight production wells and three reinjection wells at our Devils
Canyon project. We are in the process of obtaining the necessary environmental assessment permit from the BLM, water change permit for reinjecting water into the ground, construction, air quality, environmental and other permits necessary to begin
construction of our geothermal power plant. We have not yet begun drilling activities. Continued development of the Devils Canyon plant, other than the permitting work currently being performed, will be dependent on additional financing.
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The Devils Canyon project is located in the southern part of the Big Smoky Valley, Nye County, Nevada on generally
flat to gently sloping land. Based upon the Preliminary Site Review we performed on the Big Smoky Valley described above, we identified the Devils Canyon area as an area of high interest. The Devils Canyon area exhibits several
geothermal anomalies including an active hot spring. A geothermal well drilled on an adjacent property in 1963 exhibited temperatures of 265 degrees Fahrenheit. Based on these positive signs, we determined to proceed with the Devils Canyon
project. We have also obtained subsequent external studies from independent consultants concluding that the Devils Canyon resource equilibrium temperatures are likely in the 240-270 degrees Fahrenheit range and that the resource is fault
controlled. Currently, additional geologic studies and other preparations are being done on the site.

In February 2007, we entered into a
lease agreement with a private property owner covering approximately 155 acres in Devils Canyon. Under the lease agreement, we obtained the right to begin development and construction of geothermal power plants. The initial term of the lease
agreement is 10 years, subject to extension for as long as we are actively pursuing or generating resources from the leased lands. Concurrently, we were assigned the rights of the private property owners BLM lease covering 240 acres. Under the
lease agreement, we obtained the right to begin development and construction of geothermal power plants. The remaining term of the BLM lease agreement is four years, subject to extension for as long as we are actively pursuing or generating
resources from the leased lands. In June 2008, we leased an additional 600 acres of private land from another private landowner adjacent to our previously leased property. Under the lease agreement, we obtained the right to begin development and
construction of geothermal power plants. The initial term of the lease agreement is 50 years, subject to extension for as long as we are actively pursuing or generating resources from the leased lands. Annual delay rental payments of $20,000 are due
on each anniversary date until production begins.

Our Devils Canyon geothermal leases are located on ranches that contain a shed with
no other structures.

In December 2008, we purchased a cold water well containing certain water rights on property that we had leased for
geothermal development. We expect this well to provide a portion of the water needed to operate the Devils Canyon plant.

The
Devils Canyon project can be accessed by road suitable for unrestricted ground transportation and is less than one mile from the nearest appropriate transmission interconnection location. We have begun the process of securing rights of way for
the proposed transmission line to interconnect the project to the grid.

In addition to the lease acquisition costs for the Devils
Canyon project totaling $45,600, we incurred permitting costs totaling $77,100.



| |  |  | Trail Canyon Plant (Nevada): We have not yet obtained any permits for the Trail Canyon project. We are in the process of obtaining the necessary
environmental assessment permit from the BLM, and are moving forward with drilling permits, the water change permit for re-injecting water into the ground, construction, air quality and other permits necessary to begin construction of our geothermal
power plant. Accordingly, we have not yet begun drilling activities. Continued development of the Trail Canyon plant, other than the permitting work currently being performed, will be dependent on additional financing.
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The Trail Canyon project is located in the northern part of the Big Smoky Valley on generally flat to gently sloping land. As part of our Preliminary
Site Review of the Big Smoky Valley, we identified the Trail Canyon area as a high-prospect area. Data obtained from external studies indicate the existence of several geothermal anomalies and an active hot spring with promising geochemistry
temperatures in the 260 degrees Fahrenheit range. We expect to undertake additional studies to determine the highest prospect drill sites in 2009.



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After the Preliminary Site Review, we began acquiring land on or near the Trail Canyon project site. In
January 2007, we paid $5,000 and issued 5,000 restricted shares of our common stock to a private land owner and entered into a geothermal lease agreement on 635 acres of private land in the Trail Canyon area. The terms of the lease agreement are for
50 years, subject to extension for as long as we are actively pursuing or generating resources from the leased lands. Annual delay rentals total $635 on each anniversary date of the lease until production of electricity begins. In addition,
concurrent with entering into this lease agreement, the private land owner assigned to us a BLM lease in the Trail Canyon project for the same 635 acres. The BLM lease contains the rights to develop and construct a geothermal power plant. The term
of the a BLM lease is 10 years, subject to extension for as long as we are actively pursuing or generating resources from the leased lands. Annual delay rentals for the BLM lease total $635 due on each anniversary date until production of
electricity begins. If a geothermal power plant is constructed which utilizes geothermal resources covered by these leases, royalties are owed to the respective landowners based on a percentage of electrical sales from the plant.

In September 2007, we participated in a BLM auction to obtain the geothermal development rights for certain parcels of land in the Trail Canyon project
site. We successfully won the bid for one parcel of land and entered into a 10-year lease agreement with the BLM covering a total of approximately 1,900 acres. Our payment obligation under this lease was $126,800, which was paid in the third quarter
of 2007. Pursuant to the terms of the BLM leases, annual delay rental payments total $5,700. If a geothermal power plant is constructed which utilizes geothermal resources covered by the lease, royalties are owed to the BLM based on a percentage of
electrical sales from the plant.

In August and November 2007, we paid a total of $5,000 and entered into seven separate lease agreements
with seven private land owners of the same private property near the Truckee project drilling site consisting of 4,444 acres to obtain the right to develop and construct a geothermal power plant. The terms of the lease agreements are for 50 years,
subject to extension for as long as we are actively pursuing or generating resources from the leased lands. Pursuant to the terms of this lease agreement, annual delay rentals total $4,444 on each anniversary date until production of a geothermal
power plant begins. If a geothermal power plant is constructed which utilizes geothermal resources covered by the leases, royalties are owed to the respective landowners based on a percentage of electrical sales from the plant.

In May 2008, we paid $15,000 as a lease bonus and entered into a geothermal lease with private land owners for 560 acres in the Trail Canyon project.
Under the lease agreement, we obtained the right to begin development and construction of geothermal power plants. The initial lease term is 15 years, subject to extension for as long as we are actively pursuing or generating resources from the
leased lands. The annual delay rental payments total $5,000 on each anniversary date until production of electricity begins. If a geothermal power plant is constructed which utilizes geothermal resources covered by the leases, royalties are owed to
the respective landowners based on a percentage of electrical sales from the plant.

The Trail Canyon project can be accessed by road
suitable for unrestricted ground transportation and is approximately three miles from the nearest appropriate transmission interconnection location. We have begun the process of securing rights of way for the proposed transmission line to
interconnect the project to the grid.

In addition to the lease acquisition costs for the Trail Canyon project totaling $179,600, we
incurred permitting costs totaling $139,800.

The timing for construction and completion of each of the projects described above will
depend on a number of factors, including the receipt of necessary permits, timely granting of interconnection and transmission access, and the ability to obtain adequate financing for both the well-field development phase and the plant construction
phase of each project. Uncertainties associated with these factors could result in unexpected delays. In addition, the feasibility of certain of the projects described above is still subject to further geological testing and/or drilling to determine
whether an adequate geothermal resource exists to support a geothermal power plant.

In addition to the projects currently under
development, we intend to initiate the development of additional projects each year. However, the number of projects we initiate each year will depend on a number of factors, including the availability of adequate financing, the availability of
adequate geothermal resources, the demand for renewable power, the number of projects we have under development, and our available resources to devote to our project development efforts.

Research and Development

Our Transportation & Industrial segment has sought to develop and
demonstrate new applications for our motor and drive/controller-related technologies as well as our new extended range PHEV-based product and solution technologies. We have made periodic introductions of new motor and generator-related technologies,
application of 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).



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We have devoted 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 quarters ended March 31, 2009 and 2008 totaled $657,728 and $969,183, respectively. Due to the current
economic weakness in the automotive industry and impact on other manufacturers, we have reduced our resources committed to further research and develop new solutions based on our technologies. We believe future research and development expenditures
are required in order to develop additional extended range technologies primarily relating to plug-in hybrid electric vehicles and electric and electric-hybrid propulsion systems, integrated starter alternators, or ISAs, AC electric motors,
generators and power electronic AC drives. However, for the foreseeable future, particularly until economic conditions improve, we intend to focus our efforts on commercializing already licensed technologies and technologies developed by our
manufacturing partners.

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 completed the major construction of the cooling towers and transmission lines and installed the PWPS power generating units at our Thermo No. 1 project in October 2008. The Thermo No. 1 power plant began
generating and transmitting nominal quantities of test electricity in December 2008. We began delivering electricity generated by the Thermo No. 1 geothermal power plant to the City of Anaheim in April 2009 pursuant to a power
purchase agreement we previously entered into with Anaheim. We expect the plant to become operational at or near full capacity in early in the third quarter of 2009. Although our Thermo Subsidiary began generating revenues under the Thermo PPA
during 2009, the expected revenues and cash flows received by Raser, the parent company of Thermo No. 1, will not have a material effect on our liquidity or our needs for additional financing. Our Transportation & Industrial segment is
seeking to generate revenues by licensing our SymetronTMtechnologies to third parties. We also 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 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 enhanced motors and generators through our business cooperation agreement with HHI in 2009, although the exact amount and timing of these revenues will be dependent on HHIs ability to implement these enhanced designs into its
manufacturing and distribution system. We also have entered into a licensing agreement with Wilson Automotive to manufacture and sell enhanced alternators for high-output applications. 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, 2009, we had incurred an accumulated deficit and deficit accumulated after
re-entry into the development stage of approximately $96.2 million on cumulative revenues since inception of approximately $1.0 million. Our net losses applicable to common stockholders for the quarters ended March 31, 2009 and 2008 totaled
$6.7 million and $5.4 million, respectively.

During the three months ended March 31, 2009, our average monthly cash expenditure rate
for operations slightly decreased to $1.3 million per month from approximately $1.6 million per month for the three months ended March 31, 2008. The lower spending rate primarily reflects decreased professional services associated with
designing the financing and tax structures for the project debt and tax equity financing transactions totaling $0.3 million per month. This decrease was partially offset by increase payroll costs and related office expenses related to the
construction of the Thermo No. 1 geothermal power plant. We expect that our average monthly cash expenditure rate will begin to increase again as we implement our plans to develop additional geothermal power plants.

For the three months ended March 31, 2009, 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 & Industrial 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
and pay for certain services provided by our vendors and consultants. We expect to continue to use equity-based compensation to provide incentives to our employees and certain service providers.



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Power project development expenses for the quarters ended March 31, 2009 and 2008 primarily include
professional services for mapping, environmental and geological studies and other prospecting costs related to the exploration for geothermal resources. Power project development expenses also include certain legal costs to design the project debt
and tax equity financing structure and other operating agreements as well as certain consulting costs relating to project oversight. 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 & Industrial 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. Regarding our research and development expenses, the recent economic downturn has had a dramatic adverse effect on the automotive
industry and other large industrial manufacturers that would be in a position to use and benefit from our technologies. As a result, we believe our ability to commercialize our Symetron technologies may be limited until economic conditions
improve. In the interim, we have taken steps to reduce the resources committed to new developmental efforts. We intend to evaluate the prospects for our Transportation & Industrial segment on an ongoing basis. If we believe there are
attractive opportunities, we will devote the resources to pursue those opportunities to the extent we believe appropriate. If, on the other hand, we determine that the risks and uncertainties for this business segment are too great in light of the
current economic climate, we may choose to further reduce the resources devoted to these efforts.

Results of Operations



|                                                        |  |                              |            |   |      |   |            |  
|------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | Three months ended March 31, |           
|                                                        |  | 2009                         |            |   | 2008 |  
|Revenue                                                 |  | $                            |           |   |      | $ | 130,543    |  
|                                                        |  |                              |            |   |      |   |            |  
|Operating expense                                       |  |                              |            |   |      |   |            |  
|Cost of sales                                           |  |                              |           |   |      |   | 74,112     |  
|General and administrative                              |  |                              | 2,505,422  |   |      |   | 2,780,238  |  
|Power project development                               |  |                              | 2,113,340  |   |      |   | 1,787,054  |  
|Unsuccessful and impaired wells                         |  |                              |           |   |      |   |           |  
|Research and development                                |  |                              | 657,728    |   |      |   | 969,183    |  
|                                                        |  |                              |            |   |      |   |            |  
|Total operating expenses                                |  |                              | 5,276,490  |   |      |   | 5,610,587  |  
|                                                        |  |                              |            |   |      |   |            |  
|Operating loss                                          |  |                              | (5,276,490 | ) |      |   | (5,480,044 | )
|Interest income                                         |  |                              | 62,379     |   |      |   | 59,734     |  
|Interest expense                                        |  |                              | (1,415,618 | ) |      |   | (65,512    | )
|Loss on derivative                                      |  |                              | (942,839   | ) |      |   |           |  
|Other                                                   |  |                              | (131,412   | ) |      |   | 75,357     |  
|                                                        |  |                              |            |   |      |   |            |  
|Loss before income taxes                                |  |                              | (7,703,980 | ) |      |   | (5,410,465 | )
|Income tax benefit (expense)                            |  |                              |           |   |      |   |           |  
|                                                        |  |                              |            |   |      |   |            |  
|Net loss                                                |  |                              | (7,703,980 | ) |      |   | (5,410,465 | )
|Non-controlling interest in the Thermo No. 1 subsidiary |  |                              | 1,030,571  |   |      |   |           |  
|                                                        |  |                              |            |   |      |   |            |  
|Net loss applicable to common stockholders              |  | $                            | (6,673,409 | ) |      | $ | (5,410,465 | )
|                                                        |  |                              |            |   |      |   |            |  
|Loss per common share-basic and diluted                 |  | $                            | (0.10      | ) |      | $ | (0.10      | )
|                                                        |  |                              |            |   |      |   |            |  
|Weighted average common shares-basic and diluted        |  |                              | 64,349,000 |   |      |   | 56,023,000 |  
|                                                        |  |                              |            |   |      |   |            |  

Comparison of Three Months Ended March 31, 2009 and 2008

Revenue

During the three months ended March 31,
2009, we recognized no revenue as compared to recognizing revenue totaling $0.1 million during the same period in 2008. 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.

Operating Expenses

Cost of sales. We reported cost of sales for the three months ended March 31, 2009 and 2008 totaling zero and $0.1 million, respectively. The decrease in cost of sales for 2009 compared to the prior year
is primarily related to completing the ARINC subcontract in 2008.



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General and Administrative.General and administrative expenses decreased to approximately $2.5
million for the three months ended March 31, 2009 from approximately $2.8 million for the three months ended March 31, 2008. This decrease is primarily due to a reduction of professional services totaling $0.5 million associated with
designing the tax equity and financing structures contemplated by our commitment letter we obtained from Merrill Lynch in the prior year. This decrease is partially offset by an increase in equity-based non-cash employee and service provider
compensation expense, which increased to $0.6 million in the first quarter of 2009 compared to $0.5 million in same the period of 2008. Equity-based non-cash compensation expense was higher during the first quarter of 2009 due to the vesting of a
larger number of executive option grants. Office expenses increased $0.1 million for the three months ended March 31, 2009 primarily related to expanding our corporate office space beginning in 2009. Other employment related costs remained
relatively flat during the first quarter of 2009 compared to the first quarter of 2008, reflecting constant average salaries and employment levels.

Power Project Developments.Power project development expenses during the three months ended March 31, 2009 totaled $2.1 million as compared to $1.8 million for the three months ended March 31, 2008. This increase is
primarily due to employment related costs resulting from increased employment levels to execute our business plan totaling $0.4 million. Equity-based non-cash employee and contractor compensation for the three months ended March 31, 2009
increased $0.2 million over the first quarter of 2008 as a result of stock option grants to new employees and stock grants to a consultant on our Lightning Dock project. During the three months ended March 31, 2009, professional services
relating to geological engineering consulting associated with the construction of the Thermo No. 1 geothermal power plant decreased $0.6 million from the first quarter of 2008 primarily resulting from completing certain phases of the
construction during the prior year. In addition, we have incurred certain testing costs that were charged directly to expense during the first quarter of 2009 relating to a well that we had impaired at our Thermo No. 1 project in the fourth
quarter of 2008 totaling $0.1 million.

Research and Development. Research and Development expense decreased from $1.0 million in
the three months ended March 31, 2008 to $0.7 million for the three months ended March 31, 2009. Equity based non-cash employee compensation increased by approximately $0.1 million during the three months ended March 31, 2009 as
compared to the same period in 2008. This increase is primarily due to issuing stock grants to employees as part of their severance agreements resulting from our decision to reduce the cash requirements at our design center. Although we reduced our
employment levels at the design center, cash based employee compensation remained relatively flat for each of the three months ended March 31, 2009 and 2008 primarily due to making the reductions near the end of the quarter. The portion of
engineering expenses that could be attributed to cost of sales decreased during the three months ended March 31, 2009 over the comparable 2008 period by approximately $0.1 million primarily due to the decreased materials consumed in testing.

Interest and Other Income.

Interest
income for the three months ended March 31, 2009 remained relatively flat at $0.1 million compared to the same period in 2008 reflecting relatively constant average monthly cash balances. Interest expense during the three months ended
March 31, 2009 increased $1.4 million over the three months ended March 3, 2008 primarily due to interest expense associated with the convertible debt and Merrill Lynch financing arrangements entered into during 2008.

Non-controlling Interest.

Non-controlling interest
for the three months ended March 31, 2009 includes an adjustment resulting from a correction of an error from a prior period that resulted from modifying our hypothetical liquidation at book value computation to include a basis difference that
arises under the recast-financial-statements approach. Such modification resulted in a decrease in non-controlling interest during the first quarter totaling $2.1 million. Non-controlling interest also decreased due to certain operating expenditures
that we paid on the Thermo Subsidiarys behalf totaling $0.2 million. Non-controlling interest increased during the first quarter of 2009 due to accruing liquidation preferences in accordance with the Thermo Financing Agreements totaling $1.0
million. There was no non-controlling interest during the three months ended March 31, 2008. In previous filings, non-controlling interest was referred to as minority interest.

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.

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.



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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 31,2009 |         | December 31,2008
|Cash                                          |  | $             | 148,345 |                  | $ | 59,492   
|Certificate of Deposit (unrestricted portion) |  |               |        |                  |   |         
|Money Market Account                          |  |               | 10,722  |                  |   | 1,475,328
|                                              |  |               |         |                  |   |          
|Total                                         |  | $             | 159,067 |                  | $ | 1,534,820



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Liquidity and Certain Commitments

At March 31, 2009, we had approximately $0.2 million in cash and cash equivalents. Our operating activities used approximately $8.1 million and $2.8 million of cash during the quarters ended March 31, 2009
and 2008, respectively. At March 31, 2009, we had approximately $56.5 million in accounts payable and accrued expenses. Approximately $26.4 million of this amount was owed to PWPS for power generating units received for projects other than the
Thermo No. 1 project. Under the terms of our agreement with PWPS, these amounts were not due and payable until we had received project financing for these projects and until specific tests have been successfully completed. Approximately $4.3
million was owed to PWPS for the remaining balance on power generating units at our Thermo No. 1 project. These amounts were to be paid from the $11.0 million in restricted cash upon successful completion of certain tests to be performed on the
units. The remaining balance of the accounts payable and accrued expenses is for amounts owed for well field development, other equipment and construction costs for the Thermo No. 1 project and for general and administrative costs.



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As a development stage company, our ability to secure liquidity in the form of additional financing or
otherwise is crucial for the execution of our plans and our ability to continue as a going concern. Our current cash balance, together with cash anticipated to be provided by customer sales, will not be sufficient to satisfy our anticipated cash
requirements for normal operations, accounts payable and capital expenditures for the foreseeable future. Obligations that may exert further pressure on our liquidity situation include the obligation to repay amounts borrowed under our Line of
Credit, which are due in November 2009, and additional liquidated damages payable to Fletcher International, Ltd. if the staff of the SEC does not complete its review of our periodic reports and the registration statement that we have filed for
Fletchers benefit is not declared effective before the end of May of 2009. During 2008 and the first part of 2009, economic conditions have weakened significantly and global financial markets have experienced a significant liquidity crisis.
The current economic environment makes it challenging for us to access the liquidity that we need, on terms acceptable to us, to successfully pursue such development plans and operations. Although we have access to the Deposit Refund (described
above under OverviewRecent Developments) and the Line of Credit established in January 2009 (described further below under Recent Financing Activities), there are certain conditions to our ability to access
these funds. For example, the lenders party to the Line of Credit have no obligation to make advances to us. Further, the Line of Credit was established primarily for general corporate purposes and the maximum amount available under the Line of
Credit is not sufficient to satisfy a meaningful portion of our financing needs for the foreseeable future. Funds from the Deposit Refund may only be used for expenses associated with the Thermo No. 1 plant and are only available if certain
other conditions are met. The cost of raising capital in the debt and equity capital markets has increased substantially while the availability of funds from those markets generally has diminished significantly. Also, as a result of concerns about
the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates,
enacted tighter lending standards, refused to refinance existing debt at maturity on terms that are similar to existing debt, and reduced, or in some cases ceased, to provide funding to borrowers. If we are unable to secure adequate funds on a
timely basis on terms acceptable to us, we would be unable to satisfy our existing obligations, or to execute our plans. In such case, we would be required to curtail or cease operations, liquidate or sell assets, modify our current plans for plant
construction, well field development and other development activities, or extend the time frame over which these activities will take place, or pursue other actions that could adversely affect future operations.

Our independent registered public accounting firms report on our financial statements as of December 31, 2008 expressed doubt about our
ability to continue as a going concern. The report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern due to our incurring significant losses, the use of significant cash in
operations, and the lack of sufficient capital, as of the date the report was issued, to support our business plan through the end of 2009.

We are not currently generating significant revenues, and our cash and cash equivalents will continue to be depleted by our ongoing development efforts. Until we are in a position to generate significant revenues, we will need to continue
to secure additional funds to continue operating as a going concern. Despite difficult economic conditions, we intend to continue to seek financing arrangements to fund our development activities, which may include the issuance of debt, preferred
stock, equity or a combination of these instruments. We may also seek to obtain financing through government funding from grants, loan guarantees and private activity bonds, joint ventures, the sale of one or more of our projects or interests
therein, entry into pre-paid power purchase agreements with utilities or municipalities, or a merger and/or other transaction, a consequence of which could include the sale or issuance of stock to third parties. We cannot be certain that funding
from any of these sources will be available on reasonable terms or at all. Nevertheless, we have made or are in the process of making applications for funding under several stimulus programs established by the Recovery Act and other pre-existing
programs. For example, we:



| |  |  | Have applied for a loan guarantee under a DOE program for energy project utilizing innovative technologies;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Are preparing an application for another DOE loan guarantee program under the Recovery Act;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Will submit an application for the DOEs Advanced Technology Vehicle Manufacturing Loan Program in the second quarter of 2009;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Are preparing an application for plug-in hybrid vehicle grants under the Recovery Act; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Will apply for certain geothermal-specific programs created by the Recovery Act when the regulations related to said programs are released by the DOE.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to funding for general corporate purposes, well field development and certain other general development
expenses, we will need to finance each of the geothermal power projects we intend to develop. As more fully described below under Our Commitment Letter with Merrill Lynch, we have entered into a Commitment Letter (the
Commitment Letter) with Merrill Lynch. The Commitment Letter sets forth certain general terms relating to the structure and financing of up to 155 MW of geothermal power plants we intend to develop. As more fully described below, we have
obtained financing for the Thermo No. 1 project pursuant to the Commitment Letter, and we are seeking to fund additional projects in accordance with the Commitment Letter. The timing of the funding for additional projects will depend on the
progress of our development at the potential sites, and our ability to satisfy any applicable conditions under the terms of the Commitment Letter and the related financing commitments.



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We do not believe the recently completed merger of Merrill Lynchs parent company with Bank of
America Corporation will adversely affect our relationship with Merrill Lynch or our plans to develop and finance geothermal power projects. We continue to work with Merrill Lynch regarding the potential funding of additional projects in accordance
with our Commitment Letter with Merrill Lynch. Although we do not believe that the merger of Merrill Lynchs parent with Bank of America Corporation will alter Merrill Lynchs ability or willingness to provide or arrange funding for our
projects under the Commitment Letter or otherwise adversely affect our relationship with Merrill Lynch, the merger could have unanticipated consequences that we cannot predict. If unanticipated consequences of the merger adversely affect Merrill
Lynchs ability or willingness to provide or arrange funding for our projects, we will need to seek funding from other sources, which could adversely affect the timing and costs of our future projects. We intend to continue discussions with
other potential sources of capital interested in investing in geothermal energy. We believe there are other potential capital sources that would be interested in participating as an additional partner in the financing of our future plants.

In order to seek funding for our projects in accordance with our Commitment Letter with Merrill Lynch, we must first develop a well field
and demonstrate that the well field is sufficient to support the planned power plant. Costs to develop a well field for our power plants can be significant. We anticipate that we will fund well field development activities from general corporate
funds if available or other potential arrangements outside the Merrill Lynch Commitment Letter. We will need to obtain the necessary financing for well field development and develop adequate well fields to support one or more of our current projects
before we will be in a position to seek financing under the Commitment Letter for the development of the applicable power plant. Due to uncertainties associated with the current economic environment, we cannot be certain that financing will be
available to us on reasonable terms or at all. As a result, the timing for continued development at each of our projects other than the Thermo No. 1 Plant is uncertain.

As part of our geothermal power project development efforts, we have made a variety of financial commitments. These commitments allow us to order and
purchase generating units, transformers, pumps, cooling towers, transmission lines, power substations, fire safety equipment and other major electronic components for use in our geothermal power plants. 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. As of March 31, 2009, we were obligated to pay the vendors and the lessors of our geothermal leases approximately $66.2 million in
2009; $5.0 million in 2010; $5.2 million in 2011; $5.3 million in 2012; and $5.4 million in 2013.



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Our obligations to PWPS relate primarily to purchase agreements for the purchase of power generating
units. In 2007 and 2008 we entered into a number of agreements with UTCP for the purchase of power generating units to be used in connection with the construction of our geothermal power plant at the Thermo No. 1 project and for future
projects. These agreements were subsequently assigned to PWPS. In April 2009, we entered into the PWPS Agreement pursuant to which we and PWPS agreed to terminate certain agreements with UTCP. Under the PWPS Agreement, we agreed to transfer title to
PWPS of 113 power generating units subject to the PWPS Agreement, free and clear of all liens and encumbrances, which were previously delivered to us at our Thermo No. 1 project site and the Lightning Dock project site and which were being held
for us at PWPS manufacturing facilities. We and PWPS also agreed that, until the earlier of April 9, 2012 and the date on which we have installed 200 power generating units (in addition to the power generating units installed at our Thermo
No. 1 project site), PWPS will be the exclusive provider of heat-to-electricity equipment used for any merchant power plant project developed by us or any of our affiliates so long as PWPS can meet the needs of the particular project. For
additional information about the PWPS Agreement, please see the discussion under OverviewRecent Developments above. Notwithstanding the PWPS Agreement, our agreements with PWPS relating to the purchase of the 50 power
generating units for the Thermo No. 1 plant and the associated services agreement remain in full force and effect.

As of
March 31, 2009, we had received 113 power generating units that we agreed to transfer the title to PWPS. At March 31, 2009, the cost of these power generating units that were included in Power project construction-in-progress
totaled $14.6 million and the cost of these power generating units that were included in Power project equipment, net totaled $19.7 million. Furthermore, at March 31, 2009, accrued liabilities relating to these power generating
units totaled $26.4 million (net of applied deposits) and Power project development deposits (unapplied deposits) totaled $4.1 million. The effect of this title transfer to PWPS will reverse the cost of the power generating units
included Power project construction-in-progress and Power project equipment, net, and the related accrued liabilities (net of the deposits applied) and Power project development deposits (unapplied deposits)
during the second quarter of 2009. The restructuring fee of $1.5 million contemplated by the PWPS Agreement will also be expensed in the second quarter of 2009.

In connection with the purchase of a BLM lease for the Lightning Dock project in New Mexico, we also executed a promissory note in February 2008 whereby we agreed to pay to the seller $900,000 in principal plus
$50,000 in interest charges on or before January 5, 2009. This obligation was ultimately funded in February 2009 through the issuance of our common stock to settle the outstanding debt. 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.

Recent Financing Activities

Since inception, we have funded our operations primarily through the sale of equity instruments, borrowings and project financing arrangements.

Most recently, on January 27, 2009, we entered into an Unsecured Line of Credit Agreement and Promissory Note (the Line of
Credit), among Radion Energy, LLC (Radion), Ocean Fund, LLC (Ocean Fund), Primary Colors, LLC (Primary Colors) and R. Thomas Bailey, an individual (collectively, the LOC Lenders). Pursuant to the
Line of Credit, we may borrow up to $15.0 million, subject to the final approval of each advance by the LOC Lenders. Radion is controlled by the Chairman of our Board of Directors, Kraig Higginson. The commitment amounts under the Line of Credit
from each of the LOC Lenders are as follows: $7.2 million from Radion; $5.3 million from Ocean Fund; $2.0 million from Primary Colors; and $500,000 from Mr. Bailey. We obtained the Line of Credit in order to provide working capital for general
corporate purposes. We expect that borrowings under the Line of Credit will be repaid primarily with proceeds from other financing arrangements we intend to secure in connection with the development of our geothermal power projects. Under the Line
of Credit, advances are subject to the final approval of the LOC Lenders, and amounts borrowed under the Line of Credit accrue interest at the rate of 10% per annum. Unless the LOC Lenders agree to a later date, the Line of Credit will mature
and amounts borrowed must be repaid by November 15, 2009 or earlier if certain financing arrangements for the development of our geothermal power projects are completed and placed in service. Under the Line of Credit, each LOC Lender receives
warrants (the LOC Warrants) to purchase our common stock for each advance of funds made under the Line of Credit. The number of shares underlying each LOC Warrant is equal to 50% of the total amounts funded by the applicable LOC Lender
divided by the closing price of our common stock on the date of the advance. The LOC Warrants have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million of the Line of Credit and LOC Lenders had received LOC
Warrants to purchase approximately 1,140,872 shares of our common stock. As of May 8, 2009, our total borrowings under the Line of Credit were $11.0 million, and LOC Lenders have received LOC Warrants to purchase approximately 1,453,045 shares
of our common stock.

In addition, we had previously paid to UTCP non-refundable deposits totaling $8,855,250 under agreements for the
purchase of power generating units. As part of the PWPS Agreement, although $1,500,000 of these deposits were retained by PWPS as a restructuring charge, PWPS agreed to refund the remaining $7,355,250 of deposits (the Deposit Refund),
subject to the satisfaction of certain conditions. The purpose of the Deposit Refund is to help facilitate payment for certain work necessary for the completion of



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the Thermo No. 1 geothermal power plant, including the payment of certain existing accounts payable. Accordingly, PWPS is only required to distribute
portions of the Deposit Refund if we (1) provide reasonable documentation to PWPS evidencing the work performed at the Thermo No. 1 project site by a third party vendor; (2) provide reasonable documentation to PWPS evidencing the
payment of such third party vendor; and (3) represent that the amount of the Deposit Refund to be paid is related solely to the Thermo No. 1 project site and is necessary to keep the project moving forward. The Deposit Refund may be
released to Raser in installments at times and in the amounts determined at the sole reasonable discretion of PWPS. Any difference between the Deposit Refund and the amounts paid to third party vendors will be held by PWPS until the Thermo
No. 1 geothermal power plant achieves successful performance testing and PWPS is paid in full for the unbilled portion of amounts owed under certain agreements. While the Thermo No. 1 geothermal power plant is currently operational, it is
not currently operating at full capacity. We expect to incur additional construction and drilling during 2009 to facilitate the ability of the Thermo No. 1 geothermal power plant to operate at or near full capacity. The PWPS Agreement will
facilitate the payment of a portion of these costs, including existing accounts payable for work that has already been performed.

Debt Obligations

Our primary debt obligations, in addition to the Line of Credit described above, are summarized below.

On August 31, 2008, we finalized the project financing arrangements for the Thermo No. 1 project and entered into the Thermo Financing
Agreements, including a non-recourse senior secured note, that provide debt financing and tax equity capital for the Thermo No. 1 project. According to the Thermo Financing Agreements, the project financing arrangements for the Thermo
No. 1 project included approximately $31.2 million of permanent non-recourse debt financing for the Thermo No. 1 project with a fixed annual interest rate of 7.00% over 18 years. Our Thermo Subsidiary received proceeds from the debt
financing of approximately $26.1 million for construction of the Thermo No. 1 project after an original issue discount of approximately $5.0 million. After the effect of the original issue discount, the effective interest rate on the $26.1
million of debt financing proceeds is 9.50%. Pursuant to the Thermo Financing Agreements, the debt financing for the Thermo No. 1 project is held by our Thermo Subsidiary, which is responsible for debt service, all maintenance and operations
expenses, and the payment of various fees and distributions to us and Merrill Lynch. Accordingly, if our Thermo Subsidiary defaulted on the loan, there would be no recourse to us to pay the unpaid balance. As of March 31, 2009, we had made
total principal payments of $573,004 and total interest payments of $1,084,518 on the 7.00% senior secured note.

On March 26, 2008,
we sold $50.0 million aggregate principal amount of our 8.00% Convertible Notes due 2013 (the Convertible Notes) pursuant to the terms of 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. 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 were offered through the Initial Purchaser only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the sale
of the Convertible Notes, after deducting financing fees of $2.2 million, totaled $52.8 million. The $2.2 million of financing fees was capitalized as a deferred financing fee and is being amortized as additional interest expense over the five-year
term of the Convertible Notes. On April 1, 2009, we paid the second semi-annual interest payment totaling $2.2 million to the current holders 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 5,960,121 shares of our common stock. As of
March 31, 2009, 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. 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.

Our Commitment Letter with Merrill Lynch

On January 16, 2007, we, together with our wholly-owned subsidiary, Truckee Geothermal No. 1 SV-01, LLC, 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. We have obtained financing commitments from Merrill Lynch to provide
non-recourse financing for our Thermo No. 1 project in Utah, our Lighting Dock project in New Mexico, and our Truckee project in Nevada. During the third quarter of 2008, we finalized the project financing arrangements for the Thermo No. 1
project as described below.



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Each project funded under the Commitment Letter will be held in a special purpose entity. These entities
will be responsible for the debt service, all maintenance and operations expenses and various fees and distributions to us. We intend to act as engineering, procurement and construction contractor and operator on some of the projects.

The Thermo Financing

On May 16,
2008, pursuant to the Commitment Letter, we and our Thermo Subsidiary entered into a financing commitment letter (the Thermo Commitment) with Merrill Lynch relating to the project financing and tax equity funding for the Thermo
No. 1 project. On August 31, 2008, we finalized the project financing arrangements for the Thermo No. 1 project and entered into definitive agreements (the Thermo Financing Agreements) that provide debt financing and tax
equity capital for the Thermo No. 1 project.

Pursuant to the Thermo Financing Agreements, we have agreed to serve as the engineering,
procurement and construction contractor and have guaranteed the completion of the construction of the Thermo No. 1 project. The useful life of the Thermo No. 1 project is expected to be approximately 35 years. The useful life of the
geothermal resource is expected to be renewable and have a much longer life than the Thermo No. 1 project.

The Thermo No. 1
project is held by the Thermo Subsidiary, which is responsible for debt service, all maintenance and operations expenses, and the payment of various fees and distributions to us and Merrill Lynch. The following provides further details concerning
the terms and conditions of the Thermo Financing Agreements:



| |  |  | The Thermo Financing Agreements provided for approximately $31.2 million of permanent non-recourse debt financing for the Thermo No. 1 project with a fixed
annual interest rate of 7.00%. The Thermo Subsidiary received proceeds from the debt financing of approximately $26.1 million for construction of the Thermo No. 1 project after an original issue discount of approximately $5.0 million. After the
effect of the original issue discount, the effective interest rate on the $26.1 million of debt financing proceeds is 9.50%. From the proceeds of the debt financing, we received approximately $14.1 million from the Thermo Subsidiary as repayment for
construction costs at the Thermo No. 1 project that were incurred by us prior to closing the project financing. Thermo is responsible for debt service and is expected to retire the debt through sculpted principal payments over 18 years. The
sculpted principal payments provide for larger principal payments than normal amortization in the earlier years when project cash flows are greatest. Merrill Lynch has the right to syndicate its debt obligations under the Commitment Letter and has
done so for the debt associated with the Thermo No. 1 project.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under the Thermo Financing Agreements, tax equity capital for the tax benefits associated with the Thermo No. 1 project was provided to Thermo by the
Class A Member, of which Merrill Lynch funded approximately $3.7 million, at the initial funding. The balance of the tax equity capital, totaling approximately $20.8 million, was funded in October 2008. Merrill Lynch has the right to syndicate
tax equity capital commitment under the Commitment Letter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We expect to receive $5.0 million in development distributions from the Thermo Subsidiary, 25% of which is expected to be paid to us on the first anniversary of the
date the Thermo No. 1 project achieves final completion, with the balance to be due and payable 18 months after completion.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We also expect to receive approximately $0.6 million annually from Thermo for our services as managing member and operator of the Thermo No. 1 project.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Prior to the date when the Class A Member achieves its target rate of return (the Flip Date), we will be eligible to receive a management bonus if
the Thermo No. 1 project performs better than expected.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Annual operating and maintenance costs for the Thermo No. 1 project are expected to be approximately $2.5 million and are expected to be paid by Thermo from
its operating revenues. These costs include a manufacturers guarantee and maintenance agreement provided by PWPS.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Any residual cash flows available after paying all expenses and debt service will be distributed 99% to Merrill Lynch and 1% to us prior to the equity Flip Date,
which is anticipated to occur between the seventh and tenth year of operation, after which the distribution split will be 5% to Merrill Lynch and 95% to us. Post-Flip Date distributable cash flows are expected to average approximately $1.7 million
per year until the debt services is completed in year eighteen and approximately $6.0 million per year after the eighteenth year for the rest of the useful life of the Thermo No. 1 project plus certain residual tax benefits.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our equity contribution to Thermo of approximately $29.0 million was comprised primarily of the well field.
| | - |  | -----------------------------------------------------------------------------------------------------------



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In connection with the Thermo Financing Agreements and the Thermo No. 1 project financing, we and
our affiliates have entered into certain other ancillary agreements, including a Pledge Agreement with Deutsche Bank to secure the payment and performance of the Thermo No. 1 project under the Credit Agreement. The Pledge Agreement grants
Deutsche Bank a continuing security interest in and lien on certain membership interests or other interests in the Thermo No. 1 project. We have also entered into a Guaranty Agreement in favor of the Thermo No. 1 project and the
Class A Member, pursuant to which we guarantee certain obligations of certain parties to the Thermo Financing Agreements.

The
Lightning Dock Commitment

On July 18, 2008, pursuant to the Commitment Letter, we and our subsidiary, Lightning Dock Geothermal
HI-01, LLC, entered into a financing commitment letter (the Lightning Dock Commitment) with Merrill Lynch relating to the project financing and tax equity funding for what is expected to be a 10 MW geothermal power plant in Hidalgo
County, New Mexico, which we refer to as the Lightning Dock project. The Lightning Dock Commitment provides for debt financing and tax equity capital for the Lightning Dock project. The tax equity capital is expected to be provided by Merrill Lynch
or, at the option of Merrill Lynch, by a third party that can utilize the tax benefits provided by the Lightning Dock project.

The
Lightning Dock Commitment provides for up to approximately $43.0 million of construction and term debt financing and up to approximately $27.0 million of tax equity capital. Under the Lightning Dock Commitment, we expect approximately $16.0 million
of the tax equity financing will be used to pay down the construction debt at the time the plant is placed in service. Further, we expect the term debt will fully amortize over 17 years of operations. Generally, the finance structure is designed to
distribute a significant portion of the first ten years of cash flows after the plant is placed in service to us in the form of distributions and fees during the first two years of operations based upon both the successful completion of the
Lightning Dock project and attainment of on-going operational targets. Once the debt for the Lightning Dock project has been retired and most of the tax benefits have been utilized, we expect that 95% of all of the remaining cash flows of the
Lightning Dock project are expected to flow to us. It is the intention of the parties that the power generation facilities will qualify to receive tax credits and other benefits under the provisions of the Internal Revenue Code.

The Lightning Dock Commitment is subject to market conditions, due diligence, receipt of all necessary internal approvals by both us and Merrill Lynch,
Merrill Lynchs satisfaction with the structure of the tax equity financing, the negotiation and execution of definitive documentation and the satisfaction of certain other conditions. The Lightning Dock Commitment expired on December 1,
2008. However, we intend to work with Merrill Lynch towards formally extending the expiration date of this commitment in the future and finalizing arrangements for Lightning Dock in 2009 when final permits are approved.

The Truckee Commitment

The Truckee
Commitment expired by its terms on June 30, 2008. Since the Truckee Commitment was negotiated, we have initiated the development of several other projects, and a number of these projects are expected to be developed more rapidly than the
Truckee project. Therefore, in the fourth quarter of 2008, we determined to postpone our discussions with Merrill Lynch regarding an extension of the Truckee commitment. We intend to continue our development efforts at the Truckee project and seek a
new financing commitment from Merrill Lynch once those development efforts progress to the point when financing is needed for construction of a plant and related development activities.

Potential Additional Financing Commitments

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 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 Thermo 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. Prepaid power purchase agreements, government grants and joint venture funding arrangements are considered excluded
financings to the Commitment Letter.

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 we have obtained individual financing commitments for certain
projects, our development efforts at one or more of these sites 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 one or more of the projects for which we have obtained financing commitments.



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Structuring Fees and Other Consideration

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 is 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 during the first quarter of 2008, the issuance of common stock during the third quarter of 2008 and the issuance of common stock in connection with our private equity placement during the fourth quarter of 2008
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 $13.13 to $16.73. On August 31, 2008, warrants to purchase 1,350,000 shares of our common stock vested in connection with the
closing of the project financing arrangements for the Thermo No. 1 project.

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. When a series of warrants vests, we are obligated to register these securities for resale and cause the registration statement to remain
continuously effective until all vested warrants and the shares of common stock issuable upon exercise of the warrants covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 of the Securities
Act of 1933, as amended. Merrill Lynch agreed to permit us to defer our obligation to register the resale of the warrants that vested in connection with the funding of the Thermo No. 1 project until such registration is requested by Merrill
Lynch. We do not believe the recently completed merger of Merrill Lynchs parent with Bank of America Corporation will alter our understanding or Merrill Lynchs understanding of our outstanding obligations under the registration rights
agreement with Merrill Lynch.

Consolidated Statements of Cash Flows

Operating Activities. Cash consumed by operating activities for the three months ended March 31, 2009 consisted primarily of a net loss of approximately $8.1 million, adjusted for approximately $1.2
million of stock-based compensation and stock issued for services and deferred financing amortization relating to raising capital through debt issuances totaling $1.0 million. Accounts payable and accrued liabilities decreased $8.0 million to $56.5
million at March 31, 2009. This decrease is primarily due to using our restricted cash to pay outstanding accounts payable relating to well field development and the purchase of power systems equipment. Other assets decreased by approximately
$0.4 million due to the refund of a deposit relating to completion of the Thermo No. 1 transmission lines. We also adjusted our net loss for the non-controlling interest in our Thermo No. 1 subsidiary totaling $1.0 million and recognized
loss on derivatives totaling $0.9 million due to increases in the fair value of our warrants that have been classified as liabilities due to containing price reset features.

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.

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, 2009, cash in our money market account was invested with AIM Funds earning 0.42 percent interest and totaled $10,000. Cash from our checking account is swept nightly into a variable rate interest bearing account earning 1.05 percent
per annum and totaled $0.1 million at March 31, 2009.



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Investing activities consumed approximately $1.6 million in the three months ended March 31, 2009,
reflecting payments of $3.2 million for the purchase of electric turbines installed at our Thermo No. 1 geothermal power plant. We have also purchased two new power project leases totaling $0.1 million in Oregon and Utah. During the first
quarter of 2009, we also paid $7.0 million for construction costs relating to the Thermo No. 1 geothermal power plant and $5.4 million relating to drilling the Thermo No. 1 well field. As a result, these construction and well field
expenses were primarily paid through our Thermo No. 1 restricted cash account totaling $9.9 million. During the first quarter of 2009, we received a refund of deposits that were previously held with a sub-contractor for the construction of the
Thermo No. 1 transmission lines totaling $0.9 million.

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 &
Industrial 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.

Financing Activities. Financing activities provided approximately $8.3 million and $28.2 million of cash in the three months ended March 31,
2009 and 2008, respectively.

During the three months ended March 31, 2009, we obtained the Line of Credit to provide working capital
for general corporate purposes. As of March 31, 2009, we had borrowed a total of $8.5 million under the Line of Credit. During the three months ended March 31, 2009, we also made principal payments against the 7.00% senior secured note
(non-recourse) totaling $0.2 million.

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 used the remaining
net proceeds from the offering for general corporate purposes and well field and other development activities for the geothermal power plants. 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.

As of March 31, 2009, we had stockholders deficit of approximately $(19.2) million and approximately $0.2 million in cash and cash
equivalents. Our cash balance, together with cash anticipated to be provided by our operations, will not be sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the next twelve months ending
March 31, 2010. To strengthen our financial position, we intend to seek additional funding to be used for general corporate purposes, as well as geothermal development activities, including advancing well field development activities and
project permitting. We intend to seek funding for our capital needs through the issuance of debt, preferred stock, equity or a combination of these instruments. We may also seek to obtain financing through government grants, loan guarantees and
private activity bonds, joint ventures, the sale of one or more of our projects or interests therein, entry into prepaid power purchase agreements with utilities or municipalities, or a merger and/or other transaction, a consequence of which could
include the sale or issuance of stock to third parties. We expect that we will be able to secure sufficient financing to satisfy our anticipated cash requirements for normal operations and capital expenditures through at least March 31, 2010,
although current economic conditions will make it challenging for us to do so. We intend to seek separate financing commitments with respect to each geothermal power project we intend to develop in order to fund construction and other development
costs. We cannot be certain that we can obtain financing on terms acceptable to us or at all. If we are not able to raise additional capital, we will not have sufficient cash to fund our operations. In such case, we would be required to curtail or
cease operations, liquidate or sell assets, modify our current plans for plant construction, well field development and other development activities, or extend the time frame over which these activities will take place, or pursue other actions that
would adversely affect future operations.

Dividends.No dividends have been paid relating to either common stock or preferred stock
during the three months ending March 31, 2009. We do not expect to pay dividends on either common stock or preferred stock in the near future.



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Off-Balance Sheet Arrangements

As of March 31, 2009, we had the following off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of SEC Regulation S-K.

In connection with the Thermo Financing Agreements, we entered into an Amended and Restated Purchase Contract with UTCP relating to the purchase of
generating units for the Thermo No. 1 project. The agreements relating to the purchase of the power generating units have since been assigned from UTCP to PWPS, as discussed above under OverviewRecent Developments. Under
the terms of the Amended and Restated Purchase Contract, PWPS is required to allow us to retain a certain portion of the purchase price of the generating units pending the successful completion of the Thermo No. 1 project. If the Thermo
No. 1 project is not successfully completed as a result of a problem with the generating units, then we will keep the retained portion of the purchase price as a liquidated damages payment. If the Thermo No. 1 project is not successfully
completed as a result of any other reason, we will reimburse PWPS for any liquidated damages paid by PWPS. To secure payment of our obligations to reimburse PWPS under the Amended and Restated Purchase Contract, we provided a security interest to
PWPS in five patents relating to our Transportation & Industrial segment. We are unable to estimate the maximum potential obligation we may have for future reimbursement payments under the Amended and Restated Purchase Contract at this
time. We believe that the likelihood that we will be obligated to reimburse PWPS for liquidated damages under the Amended and Restated Purchase Contract is remote and, accordingly, no liability was recorded for the quarter ended
March 31, 2009.

Contractual Obligations and Commitments

We lease our corporate office located at 5152 North Edgewood Drive, Suite 200, Provo, Utah. Our corporate office lease expires on December 31, 2011. We also lease our Symetron testing facility in Utah
County, Utah. Our testing facility lease expires on June 1, 2009. We are currently evaluating whether to extend this lease. The corporate offices and facilities are well maintained and in good condition.

During 2008, we entered into an agreement with a private land owner adjacent to our geothermal leased property in Hidalgo County, New Mexico. Under the
agreement, we are permitted to store our power generating units, cooling tower equipment, pumps and other equipment that have been delivered to New Mexico for construction of our Lightning Dock geothermal power plant. All equipment is stored outside
and the agreement continues on a month-to-month basis until all equipment is removed from the property.

Total rent expense for all of our
office space, testing facilities and outdoor storage site leases for the three months ended March 31, 2009 and 2008, was approximately $158,742 and $ 91,793, respectively.

On April 21, 2008, our wholly-owned subsidiary entered into a Road Construction and Maintenance Agreement with Beaver County, Utah to post an
improvement bond, or mutually agreed upon equivalent, in the amount of $100,000. We are currently in the process of securing the improvement bond.

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, 2009:



|                                        |  |                        |             |                 |   |             |  |             |            |                  |   |            |  |   |           
|--------------------------------------- |  | ---------------------- | ----------- | --------------- | - | ----------- |  | ----------- | ---------- | ---------------- | - | ---------- |  | - | ----------
|                                        |  | Payments due by period
|                                        |  | Total                  |             | Less than1 year |   | 1 to 3years |  | 3 to 5years |            | More than5 years
|Operating Lease Obligations             |  | $                      | 1,176,612   |                 | $ | 427,841     |  | $           | 748,771    |                  | $ |           |  | $ |          
|Long Term Debt (principal and interest) |  |                        | 138,546,335 |                 |   | 15,893,964  |  |             | 14,740,455 |                  |   | 67,607,296 |  |   | 40,304,620
|Purchase Obligations                    |  |                        | 89,728,177  |                 |   | 66,223,289  |  |             | 10,114,537 |                  |   | 10,710,878 |  |   | 2,679,473 
|                                        |  |                        |             |                 |   |             |  |             |            |                  |   |            |  |   |           
|Total                                   |  | $                      | 229,451,124 |                 | $ | 82,545,094  |  | $           | 25,603,763 |                  | $ | 78,318,174 |  | $ | 42,984,093
|                                        |  |                        |             |                 |   |             |  |             |            |                  |   |            |  |   |           

The contractual purchase obligations set forth above are not recorded as liabilities in our
consolidated financial statements. Our equipment purchase obligations are recorded as liabilities when the equipment is received by us or the risk of loss has been legally transferred to us. Amounts payable pursuant to our operating leases are
expensed during the reporting period in which the amounts are due and payable. The operating lease obligations include operating leases for our corporate headquarters, our testing facility and outdoor storage of our Lightning Dock project equipment
that we have received.



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Our obligations to PWPS relate primarily to purchase agreements for the purchase of power generating
units. In 2007 and 2008 we entered into a number of agreements with UTPC for the purchase of power generating units to be used in connection with the construction of our geothermal power plant at the Thermo No. 1 project and for future
projects. These agreements were subsequently assigned to PWPS. In April 2009, we entered into the PWPS Agreement pursuant to which we and PWPS agreed to terminate certain agreements that had been assigned to PWPS from UTCP. Under the PWPS Agreement,
we agreed to transfer title to PWPS of 113 power generating units, free and clear of all liens and encumbrances, which were previously delivered to us at our Thermo No. 1 project site and the Lightning Dock project site and which were being
held for us at PWPS manufacturing facilities. We and PWPS also agreed that, until the earlier of April 9, 2012 and the date on which we have installed 200 power generating units (in addition to the power generating units installed at our Thermo
No. 1 project site), PWPS will be the exclusive provider of heat-to-electricity equipment used for any merchant power plant project developed by us or any of our affiliates so long as PWPS can meet the needs of the particular project. For
additional information about the PWPS Agreement, please see the discussion under OverviewRecent Developments above.

On August 31, 2008, we finalized the project financing arrangements which provided project financing and tax equity capital for the Thermo No. 1 project. Pursuant to the project financing arrangements, the Thermo Subsidiary
received proceeds of approximately $29.8 million pursuant to the initial funding and the Thermo Subsidiary received approximately $20.8 million of additional proceeds on October 20, 2008. These proceeds have been restricted for use of which a
portion will be used to complete the outstanding purchase obligation relating to the generating units installed at the Thermo No. 1 power plant totaling up to approximately $4.3 million.

The purchase obligations set forth in the table above include a series of purchase and service agreements whereby certain vendors have agreed to provide
certain equipment and services to us. As of March 31, 2009, we were obligated to pay the vendors approximately $66.2 million in 2009; $5.0 million in 2010; $5.2 million in 2011; $5.3 million in 2012; and $5.4 million in 2013, as reflected in
the table above. Since our geothermal lease agreements are not considered to be operating leases under the Statement of Financial Accounting Standard No. 13 (FAS 13), Accounting for Leases, the purchase
obligations include delay rental payments that we have agreed to make in order to maintain our granted rights to the leased properties.

Recently Issued
Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4), FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2), and FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and
APB 28-1). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have
significantly decreased, and also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 107-1 and APB 28-1amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. These FSPs shall be effective for interim and annual reporting
periods ending after June 15, 2009. The impact of adopting these pronouncements during the quarter ended June 30, 2009, will be increased financial statement disclosure surrounding the fair value of our financial debt instruments that were
previously disclosed annually.



|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, 2009, we had approximately $0.2 million in cash and cash equivalents, including $11.0 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 range from approximately 0.42% to 0.44%. The money market interest rates have
declined from 1.33% over the last three months. A review of our money market accounts indicated that no impairment occurred during the three months ended March 31, 2009 and no write-down in fair value is considered necessary.

Concurrent with the issuance of 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 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



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$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, 2009, 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.

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.
There was no change in our internal control over financial reporting that occurred during the first quarter of 2009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



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

Raser is not subject to or
involved in, nor is Raser aware of, any pending or threatened litigation which it believes could reasonably have a material negative effect on its business or financial position.



|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.



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

At March 31,
2009, we had approximately $0.2 million in cash and cash equivalents, which is not sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the foreseeable future. Our operating activities used
approximately $22.9 million of cash for the year ended December 31, 2008 and approximately $8.1 million of cash during the quarter ended March 31, 2009. We have incurred substantial losses since inception and we are not operating at cash
breakeven. Obligations that may exert further pressure on our liquidity situation include the obligation to repay amounts borrowed under our Line of Credit, which are due in November 2009, and additional liquidated damages payable to Fletcher
International, Ltd. if the staff of the SEC does not complete its review of our periodic reports and the registration statement that we have filed for Fletchers benefit is not declared effective before the end of May of 2009.

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

From time to time, we have raised additional capital through the sale of equity and equity-related securities. Most recently, we entered into the Line
of Credit in January 2009. However, the lenders party to the Line of Credit have no obligation to make advances to us. Further, the Line of Credit was established primarily for general corporate purposes and the maximum amount available under the
Line of Credit is not sufficient to satisfy a meaningful portion of our financing needs for the next year. In addition, under the PWPS Agreement, PWPS is required to refund to us $7,355,250 of deposits, subject to the satisfaction of certain
conditions. However, since the purpose of the Deposit Refund is to help facilitate payment for certain work necessary for the completion of the Thermo No. 1 geothermal power plant, including the payment of certain existing accounts payable,
PWPS is only required to distribute portions of the Deposit Refund if we (1) provide reasonable documentation to PWPS evidencing the work performed at the Thermo No. 1 project site by a third party vendor; (2) provide reasonable
documentation to PWPS evidencing the payment of such third party vendor; and (3) represent that the amount of the Deposit Refund to be paid is related solely to the Thermo No. 1 project site and is necessary to keep the project moving
forward. The Deposit Refund may be released to Raser in installments at times and in the amounts determined at the sole reasonable discretion of PWPS.

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

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. Pursuant to the Commitment Letter, we have obtained project financing for our Thermo No. 1 project. Pursuant to the Commitment Letter we have also received financing commitments for two other projects: one in Nevada
and one in New Mexico. The financing commitments for the New Mexico and Nevada projects expired on December 1, 2008 and June 30, 2008, respectively. We and Merrill Lynch have agreed to work towards formally extending the expiration date of
the Lightning Dock commitment in the future. Since the Truckee commitment was negotiated, we have initiated the development of several other projects, and a number of these projects are expected to be developed more rapidly than the Truckee project.
Therefore, in the fourth quarter of 2008, we determined to postpone our discussions with Merrill Lynch regarding an extension of the Truckee commitment. We intend to continue our development efforts at the Truckee project and seek a new financing
commitment from Merrill Lynch once those development efforts progress to the point when financing is needed for construction of a plant and related development activities. 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 additional 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.



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

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

We have a limited operating history and, from our inception, we have earned limited revenue from operations. We have incurred significant net losses in
each year of our operations, including a net loss applicable to common stockholders of approximately $45.5 million and $6.7 million for the year ended December 31, 2008 and the quarter ended March 31, 2009, respectively. As a result of
ongoing operating losses, we had an accumulated deficit and deficit after re-entry into development stage of approximately $96.2 million on cumulative revenues from inception of approximately $1.0 million as of March 31, 2009. In addition, at
March 31, 2009, we had negative working capital totaling $58.7 million.

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



| |  |  | secure adequate capital;
| | - |  | ------------------------



| |  |  | identify and secure productive geothermal sites;
| | - |  | ------------------------------------------------



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



| |  |  | acquire electrical transmission and interconnection rights for geothermal plants we intend to develop;
| | - |  | ------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | manage construction, drilling and operating costs associated with our geothermal power projects;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | successfully license commercial applications of our motor, generator and drive technologies;
| | - |  | --------------------------------------------------------------------------------------------



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



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



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

Our
independent registered public accounting firms report on our 2008 financial statements questions our ability to continue as a going concern.

Our independent registered public accounting firms report on our financial statements as of December 31, 2008 and 2007 and for the three year period ended December 31, 2008 expresses doubt about our
ability to continue as a going concern. Their report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern due to the lack of sufficient capital, as of the date their report was
issued, to support our business plan through the end of 2009.



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

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

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

The United States credit and capital markets have become increasingly volatile as a result of adverse
conditions that have caused the failure and near failure of a number of large financial services companies. If the capital and credit markets continue to experience volatility and the availability of funds remains limited, our ability to obtain
needed financing on favorable terms could be severely limited. In the current environment, lenders may seek more restrictive lending provisions and higher interest rates that may reduce our ability to obtain financing and increase our costs. Also,
lenders may simply be unwilling or unable to provide financing. Although we intend to seek additional funding for our projects in accordance with our Commitment Letter with Merrill Lynch, we cannot predict whether Merrill Lynchs ability or
willingness to provide financing to us will be adversely affected if current market conditions continue or worsen.

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

Ongoing
review of our periodic reports by the staff of the Securities and Exchange Commission may further delay effectiveness of a registration statement filed by us and increase our liability for liquidated damages.

On August 19, 2008, we received a comment letter from the SEC Staff (the Staff) related to a review of our Annual Report on Form 10-K for
the year ended December 31, 2007, as amended. Although we are working with the Staff to resolve all remaining comments as quickly as possible, the Staff has not yet completed its review and may have further comments following the filing of this
report. As described in Note A. Basis of Presentation to the condensed consolidated financial statements included elsewhere in this report, on November 13, 2008, we entered into an agreement (the Fletcher Agreement) with
Fletcher International, Ltd. (Fletcher) pursuant to which Fletcher has purchased a total of 4,360,417 shares of our common stock, and pursuant to which we issued warrants to Fletcher to purchase up to an additional 7,458,532 shares of
our common stock (the shares issued or issuable to Fletcher referred to as the Fletcher Shares.) Pursuant to Fletchers registration rights included in the Fletcher Agreement, we were required to file a registration statement (the
Fletcher Registration Statement) with the SEC registering the resale of the Fletcher Shares no later than November 14, 2008, and to use our best efforts to cause the Fletcher Registration Statement to be declared effective by
December 29, 2008. Under the Fletcher Agreement, for any part of any month past December that the registration statement is not effective, we are required to pay to Fletcher $200,000 in liquidated damages (subject to a cap of $2 million in the
aggregate).

Although we timely filed the Fletcher Registration Statement, due primarily to the Staffs ongoing review of our periodic
reports, the Fletcher Registration Statement has not been declared effective. Accordingly, we have incurred $1 million in liquidated damages under the Fletcher Agreement through May of 2009. The Company is working to resolve all remaining comments
as soon as possible in order to avoid any additional liquidated damages under the Fletcher Agreement. However, there can be no assurance about the timeframe within which the Staff will finish its review or whether the Staff will have additional
comments based on our disclosure in this report or in future periodic reports. If the Staff does not finish its review of our periodic reports and the Fletcher Registration Statement is not declared effective before the end of May of 2009, we will
be liable for additional liquidated damages under the Fletcher Agreement. The incurrence of any additional liquidated damages under the Fletcher Agreement will exert further pressure on our liquidity requirements and could have a material adverse
affect on our development plans and future operations.



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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 $2.54 per share to a high of $4.71 per share from
January 1, 2009 to March 31, 2009. Our stock price is likely to experience significant volatility in the future as a result of numerous factors outside of our control, including the level of short sale transactions. As a result, the market
price of our stock may not reflect our intrinsic value. In addition, following periods of volatility in our stock price, there may be increased risk that securities litigation, governmental investigations or enforcement proceedings may be instituted
against us. Any such litigation, and investigation or other procedures, regardless of merits, could materially harm our business and cause our stock price to decline due to potential diversion of management attention and harm to our business
reputation.

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

The volatility in our stock price could impair our
ability to raise additional capital. Further, to the extent we do raise additional funds through equity financing, we may need to issue such equity at a substantial discount to the market price for our stock. This, in turn, could contribute to the
volatility in our stock price.



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

We are devoting a substantial amount of our available resources to the power production development activities of our Power Systems
segment. To date, we have placed one geothermal power plant in service, and we continue our efforts to ramp up production of that plant. However, our ability to successfully complete that plant and develop additional projects is uncertain. Our
success in developing a particular geothermal project is contingent upon, among other things, locating and developing a viable geothermal site, negotiation of satisfactory engineering, procurement and construction agreements, negotiation of
satisfactory power purchase agreements, receipt of required governmental permits, obtaining interconnection rights, obtaining transmission service rights, obtaining adequate financing, and the timely implementation and satisfactory completion of
construction. We may be unsuccessful in accomplishing any of these necessary requirements or doing so on a timely basis. 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.

Financing needed
to develop geothermal power projects may be unavailable.

A substantial capital investment will be necessary to develop each
geothermal power project our Power Systems segment seeks to develop. Our continued access to capital through project financing or other arrangements is necessary for us to complete the geothermal power projects we plan to develop. 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 success of our projects, the credit quality of the projects being financed, the political situation in the state in which the project is located and the
continued existence of tax and securities laws which are conducive to raising capital. If we are not able to obtain financing for our projects on a substantially non-recourse or limited recourse basis, or if we are unable to secure capital through
partnership or other arrangements, we may have to finance the projects using recourse capital such as direct equity investments, which would have a dilutive effect on our common stock. Also, in the absence of favorable financing or other capital
options, we may decide not to pursue certain projects. Any of these alternatives could have a material adverse effect on our growth prospects and financial condition.

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 and also has a right of first refusal with respect to the financing of an additional 55 MW of substantially similar geothermal power plants we intend to develop. Pursuant to the Commitment Letter, we have obtained project financing for our
Thermo No. 1 project. Any determination on the part of Merrill Lynch to provide financing commitments is subject to the satisfaction of additional due diligence and other conditions, and the funding obligations pursuant to any existing
financing commitment, are 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 ultimately fund the financing commitments or provide us with additional 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.

The parent of Merrill Lynch was recently acquired by Bank of America Corporation. While we do not expect this transaction to adversely affect our
relationship with Merrill Lynch or our ability to obtain project financing under the Commitment Letter, we are not in a position to predict what impact, if any, this transaction might have on Merrill Lynchs organizational structure, personnel,
efficiency or existing or future commitments. Therefore, we cannot be certain that the acquisition will not adversely affect the timing or availability of the project financing arrangements contemplated by the Commitment Letter. Moreover, the United
States financial markets are currently experiencing a broad-based credit crisis, which could also have an adverse effect on the timing or availability of project financing.

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



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The United States Congress recently passed the Recovery Act that was subsequently signed into law by
President Obama. The Recovery Act provides certain economic incentives, such as clean energy grants, that are designed to provide developers of geothermal and other clean energy projects with cash to help fund the projects. These incentives are
designed, in part, to address some of the current problems in the tax equity markets and provide an alternative funding mechanism. Because this legislation is new, many of the details regarding the availability of grants or other incentives are
unknown. Therefore, we cannot predict whether the Recovery Act will have a positive effect on our ability to obtain financing for our projects.

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

Each of the geothermal power projects our Power Systems segment develops will likely be owned by a separate subsidiary. The geothermal power projects
developed by these subsidiaries will likely be separately financed. To obtain the financing necessary to develop the geothermal power projects, we may transfer a portion of our equity interest in the individual subsidiaries to a third party and
enter into long-term fixed price power purchase agreements. Depending upon the nature of these arrangements and the application of generally accepted accounting principles, primarily Statement of Financial Accounting Standards Board Interpretation
Number 46R Consolidation of Variable Interest Entities (Revised December 2003)an interpretation of ARB No. 51, we may be required to deconsolidate one or more or all of these subsidiaries, which would result in our share of
the net profits or loss generated by the deconsolidated entities being presented as a net amount in our financial statements. As a result, our financial statements would not reflect the gross revenues and expenses of the deconsolidated entities.
However, we do not expect the effect of such deconsolidation, if required, to have an impact on our stockholders equity (deficit), net income/loss or income/loss per share.

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

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

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

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

Available federal tax incentives include intangible drilling costs, accelerated depreciation, depletion allowances
and the investment tax credit (ITC), all of which currently are permanent features of the Internal Revenue Code. In addition, the Recovery Act recently extended the availability of the production tax credit (PTC) for
geothermal projects placed in service before 2014 and created a new grant program for certain projects that are placed in service in, or for which construction begins in, 2009 or 2010.

The ITC is claimed in the year in which the qualified project is placed in service, and the amount of the credit is a specified percentage (10% or 30%)
of the eligible costs of the facility. The ITC is subject to recapture if the property eligible for the credit is sold or otherwise disposed of within five years after being placed in service. In lieu of claiming the ITC, a project owner generally
can claim the PTC during the first ten years after the project is placed in service. The amount of the PTC is $21.00 (as adjusted for inflation) per megawatt hour of electricity produced from the facility and sold to unrelated parties. As extended
by the Recovery Act, the PTC applies to qualifying facilities that are placed in service before 2014. Also pursuant to the Recovery Act, an owner may elect to receive a grant from the United States Treasury Department in lieu of claiming either the
ITC or the PTC. The amount of the grant is 30% of the cost of qualifying geothermal property placed in service in 2009 or 2010, or placed in service before 2014 if construction begins in 2009 or 2010. Grants are to be paid 60 days after the later of
the date of the application for the grant or the date the project is placed in service.

Owners of projects also are permitted to
depreciate for tax purposes most of the cost of the power plant on an accelerated basis. Generally, that depreciation occurs over a five year period. Under the Recovery Act, property placed in service during 2009 generally is entitled to additional
bonus depreciation in which 50% of the adjusted basis of the property is deducted in 2009 and the remaining 50% of the adjusted basis of the property is depreciated over the five-year accelerated tax depreciation schedule.



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All of these programs are subject to review and change by Congress from time to time. In addition,
several of the programs are currently scheduled to expire, and continuation of those incentives will require affirmative Congressional action. Moreover, there are ambiguities as to how some of the provisions of the Recovery Act will operate,
including the grant program for which there is not yet administrative guidance.

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

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

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

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

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

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



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

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

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



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



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



| |  |  | Failure to properly maintain the hydrological balance of the applicable geothermal resource.
| | - |  | --------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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



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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 licensors may also seek to terminate our licenses.

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

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

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

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

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

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

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

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

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

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

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



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

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

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

No material
weaknesses were identified in connection with the audit of our 2008 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 New York
Stock 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.

If we fail to comply with the New York Stock Exchange listing standards and maintain our listing on the New York Stock Exchange, our business could be materially harmed and our stock price could decline.

Our shares of common stock are listed on the New York Stock Exchange. Pursuant to the Sarbanes-Oxley Act of 2002, national
securities exchanges, including the New York Stock Exchange, have adopted more stringent listing requirements. We may not be able to maintain our compliance with all of the listing standards of the New York Stock Exchange. Any failure by us to
maintain our listing on the New York Stock 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
certain key positions.

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

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



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

The market price of our common stock could decline as a result of the resale of shares of common stock that were previously restricted under Rule 144. In
addition, if our officers, directors or employees sell previously restricted shares for tax, estate planning, portfolio management or other purposes, such sales could be viewed negatively by investors and put downward pressure on our stock price.
Approximately 42.7 million shares were free of restrictive legend as of March 31, 2009, up from approximately 40.6 million as of December 31, 2008. 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 United States generally accepted accounting
principles.

United States generally accepted accounting principles are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a
significant effect on our financial results. For example, prior to January 1, 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, for periods after 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 27, 2009, we entered into the Line of Credit with the LOC Lenders. Pursuant to the Line of Credit, we may borrow up to $15.0 million, subject to the final approval of each advance by the LOC Lenders. Unless the LOC Lenders
agree to a later date, the Line of Credit will mature and amounts borrowed must be repaid by November 15, 2009 or earlier if certain financing arrangements for the development of our geothermal power projects are completed and placed in
service. Under the Line of Credit, each LOC Lender receives the LOC Warrants to purchase our common stock for each advance of funds made under the Line of Credit. The number of shares underlying each LOC Warrant is equal to 50% of the total amounts
funded by the applicable LOC Lender divided by the closing price of our common stock on the date of the advance. The LOC Warrants have an exercise price of $6.00 per share. As of March 31, 2009, we had borrowed $8.5 million of the Line of
Credit and LOC Lenders had received LOC Warrants to purchase approximately 1,140,872 shares of our common stock. Any issuance of LOC Warrants is exempt from registration under Section 4(2) under the Securities Act of 1933, as amended.



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



|              |  |                                                                                                                                                                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                                                
|              | 
|4.1           |  | Unsecured Line of Credit Agreement and Promissory Note, dated January 27, 2009, among Raser Technologies, Inc., Radion Energy, LLC, Ocean Fund, LLC, Primary Colors, LLC, and R. Thomas Bailey
(incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed February 2, 2009 (File No. 001-32661))
|              | 
|4.2           |  | Form of Warrant issued pursuant to Unsecured Line of Credit Agreement and Promissory Note (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K filed February 2, 2009 (File
No. 001-32661))                                                                                                     
|              | 
|10.1          |  | Agreement, among Raser Technologies, Inc., Trail Canyon Geothermal No. 1 SV-02, LLC, Raser Power Systems, LLC, and Pratt & Whitney Power Systems, Inc., dated as of April 9, 2009
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed April 17, 2009 (File No. 001-32661))              
|              | 
|10.2*         |  | Amended and Restated Utah State Mineral Lease FormGeothermal Energy Lease, ML 50921, effective as of July 1, 2007, between Raser Technologies, Inc. and the State of Utah, acting by and
through the School and Institutional Trust Lands Administration                                                              
|              | 
|10.3*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 51151, effective as of December 1, 2007, between Intermountain Renewable Power, LLC and the State of Utah, acting by and through
the School and Institutional Trust Lands Administration                                                                     
|              | 
|10.4*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 51193, effective as of March 1, 2008, between Raser Technologies, Inc. and the State of Utah, acting by and through the School and
Institutional Trust Lands Administration                                                                                  
|              | 
|10.5*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 50856, effective as of June 1, 2007, between Raser Technologies, Inc. and the State of Utah, acting by and through the School and
Institutional Trust Lands Administration                                                                                   



77



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                
|              | 
|10.6*         |  | Utah State Mineral Lease FormGeothermal Steam ML 50773, effective as of April 1, 2007, between Intermountain Renewable Power, LLC and the State of Utah, acting by and through the School
and Institutional Trust Lands Administration
|              | 
|10.7*        |  | Geothermal Resources Lease, dated as of September 25, 2007, between Intermountain Renewable Power, LLC and Minersville Land and Livestock Company                                                                                      
|              | 
|10.8*        |  | Purchase Contract, dated August 31, 2008, between Thermo No. 1 BE-01, LLC and UTC Power Corporation                                                                                                                                    
|              | 
|10.9*        |  | Service Agreement, dated August 31, 2008, between Thermo No. 1 BE-01, LLC and UTC Power Corporation                                                                                                                                    
|              | 
|31.1*         |  | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)                                                                                                                                                       
|              | 
|31.2*         |  | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)                                                                                                                                                       
|              | 
|32.1*         |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                



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



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



78



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##### Table of Contents

SIGNATURES

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

|             |  |  |  |                                     
|------------ |  |  |  | ------------------------------------
|             |  |  |  | RASER TECHNOLOGIES, INC.            
|             |  |  |  | (Registrant)                        
|             |  | 
|May 11, 2009 |  |  |  | /s/ Brent M. Cook                   
|             |  |  |  | Brent M. Cook,                      
|             |  |  |  | Chief Executive Officer and Director
|             |  | 
|May 11, 2009 |  |  |  | /s/ Martin F. Petersen              
|             |  |  |  | Martin F. Petersen,                 
|             |  |  |  | Chief Financial Officer             



79



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                                                
|              | 
|4.1           |  | Unsecured Line of Credit Agreement and Promissory Note, dated January 27, 2009, among Raser Technologies, Inc., Radion Energy, LLC, Ocean Fund, LLC, Primary Colors, LLC, and R. Thomas Bailey
(incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed February 2, 2009 (File No. 001-32661))
|              | 
|4.2           |  | Form of Warrant issued pursuant to Unsecured Line of Credit Agreement and Promissory Note (incorporated by reference to Exhibit 4.2 to our current report on Form 8-K filed February 2, 2009 (File
No. 001-32661))                                                                                                     
|              | 
|10.1          |  | Agreement, among Raser Technologies, Inc., Trail Canyon Geothermal No. 1 SV-02, LLC, Raser Power Systems, LLC, and Pratt & Whitney Power Systems, Inc., dated as of April 9, 2009
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed April 17, 2009 (File No. 001-32661))              
|              | 
|10.2*         |  | Amended and Restated Utah State Mineral Lease FormGeothermal Energy Lease, ML 50921, effective as of July 1, 2007, between Raser Technologies, Inc. and the State of Utah, acting by and
through the School and Institutional Trust Lands Administration                                                              
|              | 
|10.3*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 51151, effective as of December 1, 2007, between Intermountain Renewable Power, LLC and the State of Utah, acting by and through
the School and Institutional Trust Lands Administration                                                                     
|              | 
|10.4*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 51193, effective as of March 1, 2008, between Raser Technologies, Inc. and the State of Utah, acting by and through the School and
Institutional Trust Lands Administration                                                                                  
|              | 
|10.5*         |  | Utah State Mineral Lease FormGeothermal Energy Lease, ML 50856, effective as of June 1, 2007, between Raser Technologies, Inc. and the State of Utah, acting by and through the School and
Institutional Trust Lands Administration                                                                                   
|              | 
|10.6*         |  | Utah State Mineral Lease FormGeothermal Steam, ML 50773, effective as of April 1, 2007, between Intermountain Renewable Power, LLC and the State of Utah, acting by and through the School
and Institutional Trust Lands Administration                                                                               
|              | 
|10.7*        |  | Geothermal Resources Lease, dated as of September 25, 2007, between Intermountain Renewable Power, LLC and Minersville Land and Livestock Company                                                                                                                                                                      
|              | 
|10.8*        |  | Purchase Contract, dated August 31, 2008, between Thermo No. 1 BE-01, LLC and UTC Power Corporation                                                                                                                                                                                                                    
|              | 
|10.9*        |  | Service Agreement, dated August 31, 2008, between Thermo No. 1 BE-01, LLC and UTC Power Corporation                                                                                                                                                                                                                    
|              | 
|31.1*         |  | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)                                                                                                                                                                                                                                       
|              | 
|31.2*         |  | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)                                                                                                                                                                                                                                       
|              | 
|32.1*         |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                



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



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



80