HTM U.S. Geothermal Inc. (delisted)

Financial Information about Geographic Areas

The Company has interests in operational power plants in three locations in the Western region of the United States. The Raft River Energy I LLC power plant is located in the southeastern part of the State of Idaho. The Raft River unit became operational on January 3, 2008. USG Nevada LLC constructed a new power plant located in the northwestern part of the State of Nevada in the San Emidio Desert. This power plant owned by USG Nevada LLC became commercially operational May 25, 2012. The three units owned by USG Oregon LLC became commercially operational November 16, 2012. These units are located in the Eastern part of the State of Oregon near the Idaho border. A summary of total energy and energy credit sales by location is as follows:

Available Information

We make available, free of charge through our Internet website at http://www.usgeothermal.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Information on our website is not incorporated into this report and is not a part of this report.

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Governmental Approvals and Regulation

The Company is subject to federal and state regulation in respect of the production, sale and distribution of electricity. Federal legislation includes the Energy Policy Act of 2005, the Federal Power Act, and the Energy Policy Act of 1992. The Company is defined as an independent power producer under the rules and regulations of the Federal Energy Regulatory Commission (“FERC”). As an independent power producer, the Company’s operations are supported by the Public Utility Regulatory Policies Act (“PURPA”) which encourages alternative energy sources such as geothermal, wind, biomass, solar and cogeneration. The State of Idaho also regulates electricity through the Idaho Public Utility Commission (“IPUC”). Regulated utilities have the exclusive right to distribute and sell electricity within their service area. They may purchase electricity in the wholesale market from independent producers like the Company. The IPUC, has the authority to establish rules and regulations governing the sale of electricity generated from alternative energy sources. Regulated utilities are required to purchase electricity on an avoided cost basis from renewable energy facilities, or they may acquire purchased power through bids or negotiated procedures.

On May 8, 2006, the Company submitted proposals to Idaho Power in response to their “Request for Proposal for Geothermal Power.” The Company was the preferred respondent and entered into power purchase contract negotiations with Idaho Power. The Raft River Unit I Geothermal Power Plant started up under a contract based on avoided costs which limited the output of the plant to 10 average megawatts per month. Through subsequent contract negotiations, the Company reduced the long-term price of power to Idaho Power, and is now allowed to deliver as much power in any month as the plant is capable of producing, up to a maximum hourly output of approximately 16 megawatts. The annual average output capacity is on the order of 13 megawatts.

Because carbon regulation is anticipated to increase the cost of power sourced from coal and because there are limited opportunities to purchase baseload geothermal power, the Company has found that utilities across the Western United States are eager to discuss PPAs.

On December 11, 2009, the Company signed a 25 megawatt (maximum) contract with Idaho Power for the full output of the Neal Hot Springs development in Oregon. The contract has received approval from the Idaho PUC. The levelized cost of power for the project is $117.55/megawatt hours for 25 years after the plant startup.

On June 1, 2011, the Company announced the signing of a 25 year power purchase agreement between its wholly owned subsidiary (USG Nevada LLC) and NV Energy for the purchase of an annual average of up to 19.9 net megawatts of energy produced from the San Emidio Geothermal Project located in Washoe County, Nevada. This agreement is still subject to approval by the PUC.

The Company will be required to obtain various federal, state and county approvals for construction of future geothermal facilities. These approvals are issued by entities such as the U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency, State (Nevada, Oregon, Idaho) Departments of Environmental Quality, Water Resources, State Historic Preservation Offices, the applicable land management agency, and County Commissioners.

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Environmental Credits

In the past several years, there has been increased demand for energy generated from geothermal resources in the United States as production costs for electricity generated from geothermal resources have become competitive relative to fossil fuel generation. This is partly due to newly enacted legislative and regulatory incentives, such as production tax credits and state renewable portfolio standards. State renewable portfolio standards laws require that an increasing percentage of the electricity supplied by electric utility companies operating in states with such standards will be derived from renewable energy resources until certain pre-established goals are met. We expect increasing demand for energy generated from geothermal and other renewable resources in the United States as additional states adopt or extend renewable portfolio standards.

As a “green” power producer, environmental-related credits, such as renewable energy credits or carbon credits, are also available for sale to power companies (to allow them to meet their “green” power requirements) or to businesses which produce carbon based pollution. In all of the Company’s projects, these credits have been sold separately, or bundled with the electricity to provide an additional source of revenue.

We expect the following key incentives to influence our results of operations:

Production Tax Credits and Investment Tax Credits. A Production Tax Credit (PTC) provides project owners with a federal tax credit for the first ten years of plant operation. The PTC enhances the annual revenues of the projects by as much as 25 percent per year for the first 10 years. At present, unless extended, facilities constructed after December 31, 2014 will not be eligible to use this production tax credit. The federal production tax credit available for geothermal energy in 2013 was 2.3 cents per kilowatt-hour. Alternatively, certain projects under construction before the end of 2013, are eligible to elect to take a 30% Investment Tax Credit (ITC) in lieu of the PTC. The ITC may be taken after the plant has gone into operation and monetized. Both PTC and ITC credits require a tax equity partner to monetize.

Renewable Energy Credits. Renewable Energy Certificates, or RECs, are tradable environmental commodities that represent proof that 1 megawatt-hour of electricity was generated from an eligible renewable energy resource. A renewable energy provider is credited with one REC for every 1,000 kilowatt-hours or 1 megawatt-hour of electricity it produces. The electrical energy is fed into the electrical grid and the accompanying REC can either be delivered to the purchaser of the power (“bundled”) or can be sold on the open market providing the renewable energy producer with an additional source of income.

On July 29, 2006, the Company signed a $4.6 million renewable energy credits purchase and sales agreement with Holy Cross Energy, a Colorado cooperative electric association. The agreement is capped at 87,600 RECs (10 MWs average over the year). Holy Cross Energy began purchasing the renewable energy credits associated with the Raft River Energy Unit I power production on October 2007, and is expected to continue purchasing through 2017. Under the revised RREI agreement, Idaho Power keeps all RECs above 87,600 RECs per year. In addition, we retain 49% of the renewable energy credits associated with power production from Raft River Unit I after 2017 and Idaho Power retains the other 51%. We expect to receive a majority of the annual revenue from the ten-year renewable energy credits sales arrangement with Holy Cross Energy.

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On December 10, 2010, a second REC contract was signed with Public Utility District No. 1 of Clallam County, Washington. The term of the agreement is from 2018 to 2034 and includes sales of an estimated 50,000 megawatt hours of RECs annually, representing the 49% ownership in RECs retained by RREI under the Idaho Power PPA.

The power purchase agreements for the existing San Emidio and Neal Hot Springs power plants require the bundling of power sales and RECs. Therefore, under these contracts all RECs are delivered with the net power sold to the utility.

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Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this 10-K filing and related financial statements, before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks, or other risks that are currently unknown or unforeseen by us, or that we currently believe are not material, could harm our business, financial condition, results of operation or growth prospects. In that case, you may lose all or a portion of your investment.

We have organized the following risk factors into categories to present related risks together. As a consequence of this, it is highly recommended that you read this entire risk factor section completely. The risks we have identified have been grouped into the following categories:

• Risks Related to Our Business;
• Risks Related to Our Growth;
• Risks Related to Our Power Purchase Agreements;
• Risks Related to Our Liquidity and Capital Resources;
• Risks Related to Government Regulation;
• Risks Related to Ownership of Our Common Stock.

Risks Related to Our Business

Our geothermal power plants have numerous pieces of equipment that are subject to breakdown or failure, many beyond our control. Failure of critical equipment could have a material impact on electrical generation and associated revenues. Our financial performance depends on the successful operation of our geothermal power plants, which are subject to numerous operational risks that are outside of our control. The continued operation of our geothermal power plants involves many risks, including breakdown or failure of power generation equipment, transmission lines, pipelines, geothermal pumps or other equipment or processes, and performance below expected levels of output or efficiency. If any of these risks were to materialize, they could have a material and adverse effect on our financial condition and results of operations.

A breakdown or failure in our geothermal power plants, our power generation equipment, the transmission lines, pipelines, geothermal pumps or other equipment or processes would also mean lost revenue because such a failure or breakdown could prevent us from selling electricity to our customers. For instance, because we rely on transmission lines owned by third parties to deliver all of the power that we generate to the purchasers of our electricity, any interruption in a transmission line’s service could result in lost revenue. Any such interruption in our ability to provide electricity to our customers on a timely basis could therefore materially and adversely affect our financial condition and results of operations.

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Our geothermal reserves could decline in the future. Declines greater than those that we expect would reduce our electricity production levels, which could have a material adverse effect on our ability to generate revenue. We currently derive all of our revenue from geothermal energy and anticipate that we will continue to generate substantially all of our revenue from our current geothermal power plants for the next several years. Electricity production from geothermal properties can decline as the water resources in the earth are used, with the rate of water or temperature decline depending on reservoir characteristics and our ability to re-inject water effectively back into the earth. Therefore, we try to minimize the decline in water and temperature of the water in the ground and maximize the resources that we use to generate electricity. For each of our geothermal power plants, we estimate the productivity of the geothermal resource and the expected decline in productivity. We base our operating plans and financial models on these estimates of resources. However, because the development and operation of geothermal energy resources are subject to substantial risks and uncertainties, the productivity of a geothermal resource may decline more than anticipated, resulting in insufficient reserves being available for sustained generation of the electrical power capacity desired. Factors that could adversely affect our geothermal reserves and result in decline rates greater than we forecast include, among others:

• significant changes in the characteristic of the geothermal resource;
• drilling in areas in and around our facilities by third parties; and
• the total amount of recoverable reserves.

An unexpected decline in productivity of our geothermal resources would therefore reduce the amount of electricity that we can produce and, therefore, the revenue that we will be able to generate from our geothermal resources.

We cannot assure you that our estimates of future generation resources, production capacity and cash flows are accurate. Estimates of future generation resources and the future net cash flows attributable to those resources are prepared by independent engineers, geologists and geoscientists. There are numerous uncertainties inherent in estimating these resources and the potential future cash flows attributable to such resources. Reserve engineering is a subjective process of estimating underground accumulations that cannot be measured in an exact manner. The accuracy of an estimate of quantities of resources, or of cash flows attributable to such resources, is a function of the available data, assumptions regarding future electricity prices and expenditures for future development and exploitation activities, and of engineering and geological interpretation and judgment. In order to undertake these estimates and studies, independent third parties must often rely to some extent on our own estimates and data, which we believe are reasonable and accurate but which may ultimately be proved to be incorrect. Actual future production, revenue, taxes, development expenditures, operating and royalty expenses, quantities of recoverable resources and the value of cash flows from such resources may vary significantly from the assumptions and underlying information set forth herein. In addition, different reserve engineers may make different estimates of resources and cash flows based on the same available data. We cannot assure you that we will accurately estimate the quantity or productivity of our geothermal resources.

Our results are subject to quarterly and seasonal fluctuations. Our quarterly operating results have fluctuated in the past and could be negatively impacted in the future as a result of a number of factors, including:

• seasonal variations in ambient weather conditions;
• variations in levels of production; and
• the completion of exploration and production projects.

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Operating hazards, natural disasters or other interruptions of our geothermal power plant operations could result in potential liabilities, which may not be fully covered by our insurance. The geothermal business involves certain operating hazards such as:

• well blowouts;
• casing deformation;
• casing corrosion;
• uncontrollable flows of steam and hot water;
• pollution; and
• induced seismic activity.

The occurrence of any one of the above may result in injury, loss of life, suspension of operations, environmental damage and remediation and/or governmental investigations and penalties.

In addition, all of our operations are susceptible to damage from natural disasters, such as earthquakes and fires, which involve increased risks of personal injury, property damage and service interruptions. Any of these events could cause serious injuries, fatalities or property damage, which could expose us to liabilities. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration, development and acquisition, or could result in a loss of our properties. Our insurance policies are subject to deductibles, limits and exclusions that are customary or reasonable given the cost of procuring insurance, current operating conditions and insurance market conditions. There can be no assurance that such insurance coverage will continue to be available to us on an economically feasible basis, nor that all events that could give rise to a loss or liability are insurable, nor that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the operations of our assets. If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we incur liability at a time when we do not have liability insurance, our business, results of operations and financial condition could be materially and adversely affected.

Our geothermal resource leases may terminate if not placed into production, which could require us to enter into new leases or secure rights to alternate geothermal resources, none of which may be available on terms as favorable to us as any such terminated lease, if at all.

Most of our geothermal resource leases are originally for a fixed term but provide for continuation for so long as we extract geothermal resources in “commercial quantities” or pursuant to other terms of extension. Most of the leases have been producing in “commercial quantities” for many years. The land covered by a few of our periphery leases have yet to produce “commercial quantities” of geothermal resources. Leases covering land that remains undeveloped and does not produce geothermal resources in commercial quantities will terminate. In the event that we determine that a terminated lease is subsequently required for a project, we would need to enter into one or more new leases in order to develop and exploit these geothermal resources. It may not be possible to enter into new leases or these new leases could be on less favorable financial terms than the prior leases, which could materially and adversely affect our ability to achieve commercial success on the applicable project.

Pursuant to the terms of our leases with the United States Bureau of Land Management, which we refer to as BLM, we are required to conduct our operations on BLM-leased land in a workmanlike manner and in accordance with all applicable laws and BLM directives and to take all mitigating actions required by the BLM to protect the surface of and the environment surrounding the relevant land. In the event of a default under any BLM lease, or the failure to comply with such requirements, or any non-compliance with any applicable regulations governing our use of the land, the BLM may, thirty days after notice of default is provided to our relevant project subsidiary, suspend our operations until the requested action is taken or terminate the lease, either of which could materially and adversely affect our business, financial condition, operating results and cash flow.

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

As an SEC reporting company, failure to achieve and maintain effective internal control over financial reporting in accordance with the rules of the SEC could harm our business and operating results and/or result in a loss of investor confidence in our financial reports, which could in turn have a material and adverse effect on our business and stock price. Under current rules of the SEC, we are required to document and test our internal control over financial reporting so that our management can certify as to the effectiveness of our internal control over financial reporting and our independent registered public accounting firm can render an opinion on management’s assessment. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions, if any, related to internal controls and other SEC rules or the impact of the same on our operations. The assessment of our internal control over financial reporting will require us to expend significant management and employee time and resources and incur significant additional expense.

During the course of our assessment of the effectiveness of our internal control over financial reporting, we may identify material weaknesses in our internal control over financial reporting, as well as any other significant deficiencies that may exist or hereafter arise or be identified, which could harm our business and operating results, and could result in adverse publicity, regulatory scrutiny and a loss of investor confidence in the accuracy and completeness of our financial reports. In turn, this could have a materially adverse effect on our stock price, and, if such weaknesses are not properly remediated, could adversely affect our ability to report our financial results on a timely and accurate basis. Although we believe we would be able to take steps to remediate any material weaknesses we may discover, we cannot assure you that this remediation would be successful or that additional deficiencies or weaknesses in our controls and procedures would not be identified. In addition, we cannot assure you that our independent registered public accounting firm will agree with our assessment that any identified material weaknesses have been remediated. Moreover, we expect to continue to operate at a relatively low staffing level. Our control procedures have been designed with this staffing level in mind; however, they are highly dependent on each individual’s performance of controls in the required manner. The loss of accounting personnel, particularly our chief financial officer, would adversely impact the effectiveness of our control environment and our internal controls, including our internal control over financial reporting.

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Our participation in joint ventures is subject to risks relating to working with a co-venturer . We are subject to risks in working with a co-venturer that could adversely impact our current projects as well as anticipated development of expansion projects. It’s possible that the proposed project expansions may utilize the geothermal resource within the current joint venture boundaries. Our required contribution to the joint venture could also exceed returns from the joint venture.

We are a holding company and our revenues depend substantially on the performance of our subsidiaries and the projects they operate. We are a holding company whose primary assets are our ownership of the equity interests in our subsidiaries. We conduct no other business and, as a result, we depend entirely upon our subsidiaries’ earnings and cash flow. Our subsidiaries and projects may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to us prior to the satisfaction of other obligations, including the payment of operating expenses or debt service.

Counterparty credit default could have an adverse effect on the Company. Our revenues are generated under contracts with various counterparties. Results of operations would be adversely affected as a result of non-performance by any of these counterparties of their contractual obligations under the various contracts. A counterparty’s default or non-performance could be caused by factors beyond our control. A default could occur as a result of circumstances relating directly to the counterparty, or due to circumstances caused by other market participants having a direct or indirect relationship with such counterparty. We seek to mitigate the risk of default by evaluating the financial strength of potential counterparties and utilizing industry standard credit provisions in our contracts, however, despite our mitigation efforts, defaults by counterparties may occur from time to time, and this could negatively impact our results of operations, financial position and cash flows.

Environmental liabilities and compliance costs could adversely affect our financial condition.

The geothermal business is subject to environmental hazards, such as leaks, ruptures and discharges of geothermal fluids and hazardous substances, emissions of toxic gases and disposal of hazardous substances. These environmental hazards could expose us to material liabilities for property damages, personal injuries or other environmental harm, including costs of investigating and remediating contaminated properties. In addition, we also may be liable for environmental damages caused by the previous owners or operators of properties we have purchased or are currently operating.

A variety of stringent federal, state and local laws and regulations govern the environmental aspects of our business and impose strict requirements for, among other things:

• water extraction from surface streams and lakes;
• well drilling or workover, operation and abandonment;
• waste management;
• injection well classifications;

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• land reclamation;
• financial assurance, such as posting bonds; and
• controlling air, water and waste emissions.

Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities and could lead to a curtailment or shut down of one or more of our plants. Additionally, our compliance with these laws may result in increased costs to our operations or our exploration, acquisition and development of new plants or may result in decreased production from our existing plants. We are unable to predict the ultimate cost of complying with these regulations. Pollution and similar environmental risks generally are not fully insurable.

We use industrial lubricants and other substances at our projects that are or could become classified as hazardous substances. If any hazardous substances are found to have been released into the environment at or by the projects, we could become liable for the investigation and removal of those substances, regardless of their source or time of release. If we fail to comply with these laws, ordinances or regulations, we could be subject to civil or criminal liability, the imposition of liens or fines, and large expenditures to bring the projects into compliance. Furthermore, we can be held liable for the cleanup of releases of hazardous substances at other locations where we arranged for disposal of those substances, even if we did not cause the release at that location. The cost of any remediation activities in connection with a spill or other release of such substances could be significant.

Our geothermal facilities have been in operation for a substantial length of time, and current or future local, state and federal environmental and other laws and regulations may require substantial expenditures to remediate the properties or to otherwise comply with these laws and regulations.

We depend on our senior management, geothermal resource and other technical employees. The loss of these employees could harm our business. We are dependent upon the services of our Chief Executive Officer, Dennis J. Gilles, our President and Chief Operating Officer, Douglas J. Glaspey, our Chief Financial Officer, Kerry D. Hawkley, and our Treasurer and Executive Vice President, Jonathan Zurkoff. The loss of any of their services could have a material adverse effect upon us. As of the date of this report, the Company has executed employment agreements with these persons, but does not have key-man insurance on any of them.

Our success depends on the skills, experience and efforts of our people, particularly our senior management, geothermal resource and other technical employees. The geothermal industry is relatively small with a limited number of individuals with the management, technical and operational expertise necessary to run and operate facilities. In addition, many of our workers have significant and unique knowledge on how to manage and operate geothermal facilities. The loss of the services of one or more members of our senior management or of numerous employees with critical skills could have a negative effect on our business.

There are some risks for which we do not or cannot carry insurance. Because our current operations are limited in scope, the Company carries property, public liability insurance and directors’ and officers’ liability coverage, but does not currently insure against other risks. As its operations progress, the Company will acquire additional coverage consistent with its operational needs, but the Company may become subject to liability for pollution or other hazards against which it cannot insure or cannot insure at sufficient levels or against which it may elect not to insure because of high premium costs or other reasons.

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Our officers and directors may have conflicts of interests arising out of their relationships with other companies. Several of our directors and officers serve (or may agree to serve) as directors or officers of other companies or have significant shareholdings in other companies. To the extent that such other companies may participate in ventures in which the Company may participate, the directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.

Risks Related to Our Growth

Our growth prospects depend in part on our ability to further develop or acquire geothermal or other renewable energy power generation facilities and resources, which are subject to substantial risks. Because production from geothermal properties generally declines as both water and temperature is depleted, with the rate of decline depending on reservoir characteristics, our geothermal resources will decline as we continue to produce electricity unless we conduct other successful exploration and development activities or supplement the current amounts of water that we inject into the reservoir with sufficient water from other sources, or both. The acquisition and development of geothermal power generation facilities and resources is complex, expensive, time consuming and subject to substantial risks, many of which are outside of our control. In connection with the development of geothermal power generation facilities and resources, we must:

• identify suitable locations and appropriate technology;
• secure rights to exploit the resources;
• obtain sufficient capital and revenue sources;
• obtain appropriate governmental permits;
• maintain cost controls during construction; and
• identify, hire and retain a qualified work force.

We may be unsuccessful in accomplishing any of these matters or in doing so on a timely basis. In our exploration efforts, we may not find commercially productive reservoirs or, if we do, the remote location of the resource may hinder our access to markets or delay our production. In addition, project development is subject to various environmental, engineering and construction risks. Although we may attempt to minimize the financial risks in the development of a power generation facility by obtaining all required governmental permits and approvals and arranging adequate financing prior to the commencement of construction, the development of a power project may require us to expend significant sums for preliminary engineering, permitting, legal and other expenses before we can determine whether a project is feasible, economically attractive or financeable.

In addition, community opposition could delay or prevent us from obtaining the necessary approvals The process for obtaining initial environmental, siting and other governmental permits and approvals is complicated and lengthy, often taking more than one year, and is subject to significant uncertainties. If we are unable to complete the development of a facility, we would most likely not recover any of our investment in the project. We cannot assure you that we will be successful in the acquisition of additional geothermal resources or development of power generation facilities in the future or that we will be able to successfully complete construction of our facilities currently in development, nor can we assure you that any of these facilities of resources will be profitable or generate consistent and reliable cash flow.

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Actual costs of construction or operation of a power plant may exceed estimates used in negotiation of power purchase and power financing agreements. If the actual costs of construction or operations exceed the costs used in our economic model, the Company may not be able to build the contemplated power plants, or if constructed, may not be able to operate profitably. The Company’s financing agreements provide for a priority payback to our partner. If the actual costs of construction or operations exceed the model costs, we may not be able to operate profitably or receive the planned share of cash flow and proceeds from the project. As an example, the actual costs of operating the Raft River power project are higher than the original estimate due to several factors including the need to filter the ground water used for cooling to remove harmful and unanticipated chloride levels in the water, the need to purchase production pump power from a third party to provide maximum plant output, and increased general costs related to labor, maintenance and management.

We may not be able to successfully integrate companies that we may acquire in the future, which could materially and adversely affect our business, financial condition, future results and cash flow. Our strategy is to continue to expand in the future, including through acquisitions. Integrating acquisitions is often costly, and we may not be able to successfully integrate our acquired companies with our existing operations without substantial costs, delays or other adverse operational or financial consequences. Integrating our acquired companies involves a number of risks that could materially and adversely affect our business, including:

• failure of the acquired companies to achieve the results we expect;
• inability to retain key personnel of the acquired companies;
• risks associated with unanticipated events or liabilities; and
• the difficulty of establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and procedures.

If any of our acquired companies suffers performance problems, the same could adversely affect the reputation of our group of companies and could materially and adversely affect our business, financial condition, future results and cash flow.

Our development activities are inherently very risky . The high risks involved in the development of a geothermal resource must be emphasized. The development of geothermal resources at our projects is such that there cannot be any assurance of success. Exploration costs are high and are not fixed. The geothermal resource cannot be relied upon until substantial development, including drilling and testing, has taken place. The costs of development drilling are subject to numerous variables such as unforeseen geologic conditions underground which could result in substantial cost overruns. Drilling for geothermal resources can result in well depths that are relatively deep with well costs typically proportionate to the depth and geology encountered. Drilling may involve unprofitable efforts, not only from dry wells, but also from wells that do not produce sufficient volumes to generate net revenues that provide a profit after drilling, operating and other costs.

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Our drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, many of which are beyond our control, including economic conditions, mechanical problems, title problems, weather conditions, compliance with governmental requirements and shortages or delays of equipment and services. If our drilling activities are not successful, we could experience a material adverse effect on our future results of operations and financial condition.

In addition to the substantial risk that wells drilled will not be productive, or may decline in productivity after commencement of production, hazards such as unusual or unexpected geologic formations, pressures, downhole conditions, mechanical failures, blowouts, cratering, explosions, chemical corrosion, uncontrollable flows of well fluids, pollution and other physical and environmental risks are inherent in geothermal exploration and production. These hazards could result in substantial losses to us due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations.

Our exploration and development activities may not be commercially successful. Exploration activities involve numerous risks, including the risk that no commercially productive reservoirs will be discovered. In addition, the future cost and timing of drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:

• unexpected drilling conditions; irregularities in formations; equipment failures or accidents;
• compliance with governmental regulations;
• unavailability or high cost of drilling rigs, equipment or labor;

Our decisions to purchase, explore, develop and exploit prospects or properties depend in part on data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often uncertain. Because of these factors, we could incur losses as a result of exploratory drilling expenditures. Poor results from exploration activities could have a material adverse effect on our future cash flows, results of operations and financial position.

Our acquisition strategy could fail or present unanticipated problems for our business in the future, which could adversely affect our ability to make acquisitions or realize anticipated benefits of those acquisitions. Our growth strategy may include acquiring geothermal and other renewable energy businesses and properties. We may not be able to identify suitable acquisition opportunities or finance and complete any particular acquisition successfully.

Furthermore, acquisitions involve a number of risks and challenges, including:

• diversion of management’s attention;
• the need to integrate acquired operations;
• potential loss of key employees of the acquired companies;
• greater geographic dispersion of employees;
• the potential that we may make bad acquisitions;

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• potential lack of operating experience in a geographic market of the acquired business; and
• an increase in our expenses and working capital requirements.

Any of these factors could materially and adversely affect our ability to achieve anticipated levels of cash flows from the acquired businesses or realize other anticipated benefits of those acquisitions.

Development and expansion are dependent on the ability to successfully complete drilling activity. Drilling and exploration are the main methods of establishing new reserves. However, drilling and exploration may be curtailed, delayed or cancelled as a result of:

• availability of equipment, particularly drilling rigs and well casing;
• lack of acceptable prospective acreage;
• inadequate capital resources;
• weather;
• compliance with governmental regulations; and
• mechanical difficulties;
• opposition to development.

Natural gas prices are volatile, and a decline in gas prices would affect significantly the electricity prices we are able to obtain future PPA contracts. Development of our new plants depends on the prices we are able to negotiate in our long term Power Purchase Agreements (“PPAs”). The prices of those PPAs in today’s market are substantially associated with the prices and demand for natural gas. The markets for these commodities are volatile, and modest drops in prices can affect significantly our financial results and impede our growth. Prices for natural gas fluctuate widely in response to relatively minor changes in the supply and demand for oil and gas, market uncertainty and a variety of additional factors beyond our control, such as:

• domestic and foreign supply of oil and gas;
• price and quantity of foreign imports;
• actions of the Organization of Petroleum Exporting Countries and state-controlled oil companies relating to oil price and production controls;
• domestic and foreign governmental regulations;
• political conditions in or affecting other oil producing and gas producing countries, including the current conflicts in the Middle East and conditions in South America and Russia;
• weather conditions, as evidenced by recent hurricanes;
• technological advances affecting oil and gas consumption;
• overall U.S. and global economic conditions; and
• price and availability of alternative fuels.

Further, oil prices and gas prices do not necessarily fluctuate in direct relationship to each other. Because our geothermal reserves are valued similar to gas reserves, our financial results are more sensitive to movements in gas prices. Lower gas prices decrease our potential revenues available from future long term power purchase agreements, but have little impact on the actual proved reserves we can produce economically, unlike typical oil and gas fields that require extensive ongoing drilling to sustain production.

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

We have development projects outside of the United States. Our foreign development is subject to regulation by various foreign governments and regulatory authorities and are subject to the application of foreign laws. Such foreign laws or regulations may not provide for the same type of legal certainty and rights, in connection with our contractual relationships in such countries, as are afforded to our projects in the United States, which may adversely affect our ability to receive revenues or enforce our rights in connection with our foreign operations. In addition, the laws and regulations of some countries may limit our ability to hold a majority interest in some of the projects that we may develop or acquire, thus limiting our ability to control the development, construction and operation of such projects. Our foreign development are also subject to significant political, economic and financial risks, which vary by country, and include:

• Changes in government policies or personnel;
• Changes in general economic conditions;
• Restrictions on currency transfer or convertibility;
• Changes in labor relations;
• Political instability and civil unrest;
• Changes in the local electricity market;
• Breach or repudiation of important contractual undertakings by governmental entities; and
• Expropriation and confiscation of assets and facilities.

In particular, the Guatemalan electricity sector was partially privatized and it is currently unclear whether further privatization will occur in the future. Such developments may affect our projects and the El Ceibillo project currently under development if, for example, they result in changes to the prevailing tariff regime or in the identity and creditworthiness of our power purchasers.

We plan to obtain political risk insurance in connection with our foreign project, when appropriate, but note that such political risk insurance does not mitigate all of the above-mentioned risks. In addition, insurance proceeds received pursuant to a political risk insurance policy, where applicable, may not be adequate to cover all losses sustained as a result of any covered risks and may at times be pledged in favor of the lenders to a project as collateral. Also, insurance may not be available in the future with the scope of coverage and in amounts of coverage adequate to insure against such risks and disturbances.

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

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Changes in costs and technology may significantly impact our business by making our power plants less competitive. A basic premise of our business model is that generating baseload power at central geothermal power plants achieves economies of scale and produces electricity at a competitive price. However, gas-fired systems may under certain economic conditions produce electricity at lower average prices than our geothermal plants. In addition, there are other technologies that can produce electricity, most notably fossil fuel power systems, hydroelectric systems, wind-turbines and photovoltaic (solar) cells. Some of these alternative technologies currently produce electricity at a higher average price than our geothermal plants; however, research and development activities are ongoing to seek improvements in such alternate technologies and their cost of producing electricity is gradually declining. It is possible that advances will further reduce the cost of alternate methods of power generation to a level that is equal to or below that of most geothermal power generation technologies. If this were to happen, the competitive advantage of our projects may be significantly impaired.

Risks Related to Our Power Purchase Agreements

A force majeure event, disruption of existing transmission or a forced outage affecting a project or unexpected operating expenses could reduce our net income and materially and adversely affect our business, financial condition, future results and cash flow. If a plant experiences a force majeure event, such as a fire, earthquake or flood, we would be excused from our obligations to deliver electricity under the PPAs to which we are parties. However, the power purchasers under those PPAs may/will not be required to make any and/or energy payments with respect to the affected project or plant so long as the force majeure event continues and, pursuant to certain of our power purchase agreements, will have the right to prematurely terminate the power purchase agreement altogether. Additionally, to the extent that a forced outage has occurred, a power purchaser may not be required to make any energy payments to the affected project, and if as a result the project fails to attain certain performance requirements under certain of our power purchase agreements, the purchaser may have the right to prematurely terminate the power purchase agreement altogether. As a consequence, we may not receive any net revenues from the affected project or plant other than the proceeds from any business interruption insurance that may apply to the force majeure event or forced outage after the relevant waiting period, and we may incur significant liabilities in respect of past amounts required to be refunded.

In addition, we rely on transmission lines owned by local utilities to deliver all of the electricity that we generate to the purchasers of our electricity. If the transmission system were to experience a force majeure event or a forced outage which prevented it from transmitting the electricity from our projects to a power purchaser, the power purchaser would not be required to make energy payments for that electricity with respect to the affected project so long as such force majeure event or forced outage continues.

Any of these events could significantly increase the expenses incurred by our projects or reduce the overall generating capacity of our projects and could significantly reduce or entirely eliminate the revenues generated by one or more of our projects, which in turn would reduce our net income and could materially and adversely affect our business, financial condition, future results and cash flow.

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Payments under our power purchase agreements may be reduced if we are unable to forecast our production adequately . Under the terms of certain of our power purchase agreements, if we do not deliver electricity output within 90% to 110% of our forecasted amount, payments for the amount delivered will be reduced, possibly significantly. For example if the plant produces more than 110% of the power as forecasted then we would receive reduced revenue for the amount over the forecast figure. If the plant produces less than 90% of the forecast amount for unexcused reasons, such as normal plant breakdowns and maintenance, then we may be subject to a replacement power costs, depending on the prevailing power market conditions. The agreement moves the power price to the market price instead of contracted price, and the reduction in revenue could be perhaps 30 percent of that amount. As a risk mitigation element, we are not subject to this adjustment until year three of the contract and then we are able to submit a new forecast every three months thereby limiting this exposure.

Our failure to supply the contracted capacity under some of our PPAs with investor-owned electric utilities in states that have renewable portfolio standards may result in the imposition of penalties. The terms of certain of our PPAs require that we make payments to the relevant power purchaser in an amount equal to such purchaser's replacement costs for renewable energy that we are required to but do not provide as required under the PPA and which such power purchaser obtains from an alternate source. In addition, we may be required to make payments to the relevant power purchaser in an amount equal to its replacement costs relating to any renewable energy credits we do not provide as required under the relevant PPA. All of which could materially and adversely affect our business, financial condition, future results and cash flow.

Industry competition may impede our growth and ability to enter into power purchase agreements on terms favorable to us, or at all, which would negatively impact our revenue . The electrical power generation industry, of which geothermal power is a sub-component, is highly competitive and we may not be able to compete successfully or grow our business. We compete in areas of pricing, grid access and markets. The industry in the Western United States, in which the Raft River, Neal Hot Springs and San Emidio projects are located, is complex as it is composed of public utility districts, cooperatives and investor-owned power companies. Many of the participants produce and distribute electricity. Their willingness to purchase electricity from an independent producer may be based on a number of factors and not solely on pricing and surety of supply. If we cannot enter into power purchase agreements on terms favorable to us, or at all, it would negatively impact our revenue and our decisions regarding development of additional properties.

Risks Related to Our Liquidity and Capital Resources

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Substantial leverage and debt service obligations may adversely affect our cash flows, liquidity and operations. We will have substantial indebtedness that we may be unable to service and that restricts our activities. Our ability to meet our debt service obligations and repay, extend, or refinance our outstanding indebtedness will depend primarily upon the operational performance of our geothermal power generation, the prices that we receive for the electricity that we generate, risk management activities, as well as general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, this indebtedness has important consequences, including:

• limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, entering into other renewable energy businesses, or other purposes;
• limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service the debt;
• increasing our vulnerability to general adverse economic and industry conditions;
• limiting our ability to or increasing the costs of refinance indebtedness; and
• limiting our ability to enter into marketing, hedging, optimization and trading transactions by reducing the number of counterparties with whom we can transact and the volume of those transactions.

We have a need for substantial additional financing and will have to significantly delay, curtail or cease operations if we are unable to secure such financing. The Company requires substantial additional financing to fund the cost of continued expansion of the Raft River (Idaho), San Emidio (Nevada), Neal Hot Springs (Oregon) projects, and the development of the Gerlach (Nevada), El Ceibillo (Guatemala) and Granite Creek Ranch (Nevada) projects. Also, the Company requires funds for other operating activities, and to finance the growth of our business, including the construction and commissioning of power generation facilities. We may not be able to obtain the needed funds on terms acceptable to us or at all. Further, if additional funds are raised by issuing equity securities, significant dilution to our current shareholders may occur and new investors may get rights that are preferential to current shareholders. Alternatively, we may have to bring in joint venture partners to fund further development work, which would result in reducing our interests in the projects.

We may be unable to obtain the financing we need to pursue our growth strategy in the geothermal power production segment, which may adversely affect our ability to expand our operations. When we identify a geothermal property that we may seek to acquire or to develop, a substantial capital investment will be required. Our continued access to capital, through project financing or through a partnership or other arrangements with acceptable terms is necessary for the success of our growth strategy. Our attempts to secure the necessary capital may not be successful on favorable terms, or at all.

Market conditions and other factors may not permit future project and acquisition financings on terms favorable to us. Our ability to arrange for financing on favorable terms, and the costs of such financing, are dependent on numerous factors, including general economic and capital market conditions, investor confidence, the continued success of current projects, the credit quality of the projects being financed, the political situation in the state in which the project is located and the continued existence of tax laws which are conducive to raising capital. If we are unable to secure capital through partnership or other arrangements, we may have to finance the projects using equity financing which will have a dilutive effect on our common stock. Also, in the absence of favorable financing or other capital options, we may decide not to build new plants or acquire facilities from third parties. Any of these alternatives could have a material adverse effect on our growth prospects and financial condition.

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It is very costly to place geothermal resources into commercial production . Before the sale of any power can occur, it will be necessary to construct a gathering and disposal system, a power plant, and a transmission line, and considerable administrative costs would be incurred, together with the drilling of production and injection wells. Future expansion of power production at Raft River, Idaho, San Emidio, Nevada, and Neal Hot Springs, Oregon and development of El Ceibillo, Guatemala and other opportunities may result in significantly increased capital costs related to increased production and injection well drilling and higher costs for labor and materials. To fund expenditures of this magnitude, we may have to find a joint venture participant with substantial financial resources or expand the current ownership of existing joint venture partners. There can be no assurance that a participant can be found and, if found, it would result in us having to substantially reduce our interest in the project.

We may be unable to realize our strategy of utilizing the tax and other incentives available for developing geothermal power projects to attract strategic alliance partners, which may adversely affect our ability to complete these projects. 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.

Our debt instruments impose significant operating and financial restrictions on us; any failure to comply with these restrictions could have a material adverse effect on our liquidity and our operations. The instruments governing our outstanding debt impose significant operating and financial restrictions on our geothermal operating subsidiaries. These restrictions could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs. These restrictions limit our ability to, among other things:

• make prepayments on or purchase indebtedness in whole or in part;
• pay dividends to us or make other distributions to us thereby limiting our ability to use available cash to pay dividends to stockholders, repurchase our capital stock or make other investments in geothermal projects or other renewable energy businesses;
• make certain investments, including capital expenditures;
• enter into transactions with affiliates;
• create or incur liens to secure debt;
• consolidate or merge with another entity, or allow one of our subsidiaries to do so;
• lease, transfer or sell assets and use proceeds of permitted asset leases, transfers or sales;
• incur dividend or other payment restrictions affecting certain subsidiaries;
• engage in certain business activities; and
• acquire facilities or other businesses

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In addition, any debt facilities that we enter into in the future are likely to contain similar or additional covenants.

Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We cannot assure you that such waivers, amendments or alternative financing could be obtained, or if obtained, would be on terms acceptable to us.

If we are unable to comply with the terms of the documents governing our indebtedness, we may be required to refinance all or a portion of our indebtedness or to obtain additional financing or sell assets. However, we may be unable to refinance or obtain additional financing because of our existing levels of indebtedness and the debt incurrence restrictions under our existing indentures and other debt agreements. If our cash flow is insufficient and refinancing or additional financing is unavailable, we may be forced to default on our indebtedness. Such a default or other breach of the covenants or restrictions contained in any of our existing or future debt instruments could result in an event of default under those instruments and, due to cross-default and cross-acceleration provisions, under our other debt instruments. Upon an event of default under our debt instruments, the debt holders could elect to declare the entire debt outstanding thereunder to be due and payable and could terminate any commitments they had made to supply us with further funds. If any of these events occur, we cannot assure you that we will have sufficient funds available to repay in full the total amount of obligations that become due as a result of any such acceleration, or that we will be able to find additional or alternative financing to refinance any accelerated obligations.

Risks Related to Government Regulation

We are subject to complex government regulation which could adversely affect our operations. Our activities are subject to complex and stringent environmental and other governmental laws and regulations. The exploration and production of geothermal energy requires numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies, including state and local agencies, whose regulations typically are more stringent than in other states or localities, as well as compliance with environmental protection legislation and other regulations. While we believe that we have obtained the requisite approvals and permits for our existing operations and that our business is operated in accordance with applicable laws, we remain subject to a varied and complex body of laws and regulations that both public officials and private individuals may seek to enforce. Existing laws and regulations could be changed or reinterpreted, or new laws and regulations may become applicable to us that could increase our costs associated with compliance or otherwise harm our business and results of operations. We may be unable to obtain all necessary licenses, permits, approvals and certificates for proposed projects. Intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures to obtain and maintain permits. If a project is unable to function as planned due to changing requirements or local opposition, it may create expensive delays, extended periods of non-operation or significant loss of value in a project.

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Under certain circumstances, the United States Office of Natural Resource Revenue (“ONR”) may require that our operations on federal leases be suspended or terminated. These circumstances include our failure to pay royalties or our failure to comply with safety and environmental regulations. The requirements imposed by these laws and regulations are frequently changed and subject to new interpretations, and if such were to occur, could negatively impact our results of operations and cash flows.

On a Federal level, the most important tax rule that affects our business is the PTC, which was extended to December 31, 2014. Recent legislation enacted as part of the “Fiscal Cliff” efforts resulted in the extension of the 30% ITC with eligibility for projects that started construction in 2013. There is not a cash grant component to the ITC credit so there is a risk related to monetizing the credit. The loss of the PTC or ITC is a risk that could result in making future expansions at our current project sites, or development at new sites, uneconomic. New rules recently adopted by the Bureau of Land Management, as directed by the Energy Policy Act of 2005, require competitive auction of all geothermal leases on Federal lands. Competitive leasing is significantly increasing the cost of obtaining leases on Federal land, is adding to the capital costs needed to develop geothermal projects, is increasing the total electrical power prices needed to make a geothermal project viable and is making it more difficult to acquire additional adjacent lands for reservoir protection and exploration.

If Federal lands or any Federal involvement are included in any geothermal development, requirements of the National Environmental Policy Act ("NEPA") will be triggered. Most of the geothermal resources in the United States are located in the western states, where the Federal Government often is the largest landowner. If a NEPA action is triggered, such as an Environmental Impact Statement or Environmental Assessment, a project delay of one to two years and a cost of $1,000,000 to $2,000,000 or more may be incurred while the environmental permitting process is completed. NEPA not only can impact the property where the geothermal resource is located, but includes the siting and construction of transmission lines. Environmental legislation is evolving in a manner that means stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

In the states of Idaho, Nevada and Oregon, drilling for geothermal resources is governed by specific rules. In Nevada drilling operations are governed by the Division of Minerals (Nevada Administrative Code Chapter 534A); in Idaho by the Idaho Department of Water Resources (IDAPA 37 Title 03 Chapter 04); and in Oregon by the Division of Oil, Gas and Mineral Industries (Division 20 Geothermal Regulation). These rules require drilling permits and govern the spacing of wells, rates of production, prevention of waste and other matters, and, may not allow or may restrict drilling activity, or may require that a geothermal resource be unitized (shared) with adjoining land owners. Such laws and regulations may increase the costs of planning, designing, drilling, installing, operating and abandoning our geothermal wells, the power plant and other facilities. State environmental requirements and permits, such as the Idaho Department of Environmental Quality, Air Quality Permit to Construct, include public disclosure and comment. It is possible that a legal protest could be triggered through one of the permitting processes that would delay construction and increase cost for one of our projects. The state of Oregon has an Energy Facility Siting Council that must issue a site certificate for any geothermal energy facilities of 35 MWs or higher.

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Because of these state and federal regulations, we could incur liability to governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remediation costs. We could potentially discharge such materials into the environment:

• from a well or drilling equipment at a drill site;
• leakage of fluids or airborne pollutants from gathering systems, pipelines, power plant and storage tanks;
• damage to geothermal wells resulting from accidents during normal operations; and
• blowouts, cratering and explosions.

Because the requirements imposed by such laws and regulations are frequently changed, we cannot assure you that laws and regulations enacted in the future, including changes to existing laws and regulations, will not adversely affect our business by increasing cost and the time required to explore and develop geothermal projects. In addition, because our Raft River and San Emidio project properties were previously operated by others, we may be liable for environmental damage caused by such former operators.

Changes in the legal and regulatory environment affecting our projects could significantly harm our business financial position and results of operations. Our operations are subject to extensive regulation and, therefore, changes in applicable laws or regulations, or interpretations of those laws and regulations, could result in increased compliance costs, the need for additional capital expenditures or the reduction of certain benefits currently available to our projects. The structure of federal and state energy regulation currently is, and may continue to be, subject to challenges, modifications, the imposition of additional regulatory requirements, and restructuring proposals. We may not be able to obtain all regulatory approvals that may be required in the future, or any necessary modifications to existing regulatory approvals, or maintain all required regulatory approvals. In addition, the cost of operation and maintenance and the operating performance of geothermal power plants may be adversely affected by changes in certain laws and regulations, including tax laws.

Risks Related to Ownership of Our Common Stock

The public market for our common stock is not that liquid which could result in purchasers being unable to liquidate their investment. The market price for shares of our common stock may be highly volatile and could be subject to wide fluctuations. Some of the factors that could negatively affect our share price include:

• actual or anticipated variations in our reserve estimates and quarterly operating results;
• changes in electricity prices;
• changes in our funds from operations or earnings estimates;
• publication of research reports about us or the exploration and production industry;
• increases in market interest rates which may increase our cost of capital;

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• changes in applicable laws or regulations, court rulings and enforcement and legal actions;
• changes in market valuations of similar companies;
• adverse market reaction to any increased indebtedness we incur in the future;
• additions or departures of key management personnel;
• actions by our stockholders;
• speculation in the press or investment community;
• large volume of sellers of our common stock pursuant to our resale registration statement with a relatively small volume of purchasers; and
• general market and economic conditions.

The market price of our common stock could be volatile, which could cause the value of your investment to decline. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could fall short of the expectations of market analysts and investors, and in response, the market price of our common stock could decrease significantly. You may be unable to resell your shares of our common stock at or above the initial offering price.

The market for our common stock is volatile, having ranged in the year ended December 31, 2013, from a low of $0.31 to a high of $0.59 on the NYSE MKT, and from a low of CDN$0.31 to a high of CDN$0.65 on the TSX. The trading price of our common stock on the NYSE MKT and on the TSX is subject to fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to our company could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause investment losses for our shareholders.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock. We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 250,000,000 shares of common stock. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes.

Failure to comply with regulatory requirements may adversely affect our stock price and business . As a public company, we are subject to numerous governmental and stock exchange requirements, with which we believe we are in compliance. The Sarbanes-Oxley Act of 2002 (“SOX”) and the Securities and Exchange Commission (“the SEC”) have requirements that we may fail to meet by the required deadlines or we may fall out of compliance with, such as the internal controls assessment, reporting and auditor attestation, as applicable, which are required under Section 404 of SOX. The Company has documented and tested its internal control procedures in order to satisfy the requirements of Section 404 of SOX. SOX requires an annual assessment by management of the effectiveness of the Company’s internal control over financial reporting, as well as an attestation report by the Company’s independent auditors on internal controls over financial reporting if the Company is no longer qualified as a “smaller reporting company” under applicable SEC rules. We may incur additional costs in order to comply with Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of SOX. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. Our failure to meet regulatory requirements and exchange listing standards may result in actions such as the delisting of our stock impacting our stock’s liquidity; SEC enforcement actions; and securities claims and litigation.

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We do not anticipate paying any dividends on our common stock in the foreseeable future.

We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, as we intend to use cash flow generated by operations to expand our business. We may enter into other borrowing arrangements in the future that restrict our ability to declare or pay cash dividends on our common stock.

Future sales of our common stock by our existing stockholders may depress our stock price.

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

If securities or industry equity analysts do not publish research or reports about our business, our stock price and trading volume could be adversely affected. To the extent one develops, the trading market for our common stock will depend in part on the research and reports that securities or industry equity analysts publish about us or our business. Our common stock is not currently and may never be covered by securities and industry equity analysts. If no securities or industry equity analysts commence coverage of our company, the trading price of our stock would be negatively impacted. In the event we obtain securities or industry equity analyst coverage of our common stock, if one or more of the equity analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these equity analysts ceases coverage of our company or fails to regularly publish reports on us, interest in the purchase of our stock could decrease, which could cause our stock price or trading volume to decline.

Provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of our company, which could adversely affect the price of our common stock. The existence of some provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of the Company, which could adversely affect the price of our common stock. Delaware law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Our certificate of incorporation and bylaws prohibit our stockholders from taking action by written consent absent approval by all of our Board of Directors. Further, our stockholders will not have the power to call a special meeting of stockholders.

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The sale of our common stock under our ATM to Lincoln Park Capital (“LPC”) may cause dilution and the sale of the shares of common stock acquired by LPC could cause the price of our common stock to decline. The ATM allows for the sale of up to $6,500,000 in shares of our common stock that we may issue and sell to LPC pursuant to the terms of the Purchase Agreement, less any shares already sold under the Purchase Agreement. The number of shares ultimately offered for sale by LPC is dependent upon the number of shares purchased by LPC under the Purchase Agreement. The purchase price for the common stock to be sold to LPC pursuant to the Purchase Agreement will fluctuate based on the price of our common stock. It is anticipated that shares will be sold over a period of up to 36 months from the date of the initial purchase under the Purchase Agreement. Depending upon market liquidity at the time, a sale of shares under the offering at any given time could cause the trading price of our common stock to decline. We can elect to direct purchases in our sole discretion. After LPC has acquired such shares, it may sell all, some or none of such shares. Therefore, sales to LPC by us under the Purchase Agreement may result in substantial dilution of the percentage ownership of other holders of our common stock. The sale of a substantial number of shares of our common stock under the offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of any sales of our shares to LPC and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

Item 1B. Unresolved Staff Comments

None.

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