Catalytica Energy Systems Reports First Quarter Financial Results

Market Wire, May, 2007

Catalytica Energy Systems, Inc. (NASDAQ: CESI), a provider of innovative products and services to meet the growing demand for clean energy production, today reported financial results for the first quarter ended March 31, 2007. The quarterly financial results for the comparable period of 2006 have been reclassified to account for discontinued operations associated with the Company's exit from its research and development business segment during the fourth quarter of 2006. Accordingly, total revenues for all periods presented herein are comprised solely of sales from the Company's continuing SCR catalyst and management services business (SCR-Tech).

Total revenues for the first quarter of 2007 were $1,355,000, compared with total revenues of $2,979,000 in the same period of the prior year. Revenues during the first quarter of 2006 were unusually high as a result of the timing of individual catalyst cleaning and regeneration projects and represented 40% of the Company's full-year revenues in 2006. Selling, general and administrative expenses for the quarter increased to $2,446,000, from $1,765,000 in the first quarter of 2006. The significant increase in selling, general and administrative expenses during the most recent quarter was primarily attributable to legal and consulting expenses associated with the proposed merger of Catalytica Energy Systems with the renewable energy divisions of NZ Legacy, LLC, which was announced on May 8, 2007. Total operating expenses for the quarter, including cost of revenues, were $3,350,000, compared with $3,357,000 in the first quarter last year. The resulting net loss for the quarter was $1,718,000, or a loss of $0.09 per share, compared with a net loss of $1,726,000, or a loss of $0.10 per share in the corresponding period of the prior year. Net loss in the first quarter of 2007 included a gain from discontinued operations totaling $25,000, while net loss in the first quarter of 2006 included a loss from discontinued operations totaling $1,595,000.

During the first quarter of 2007, the Company's use of cash, cash equivalents and short-term investments (collectively referred to as "cash consumption") declined to $1,058,000, from cash consumption of $2,755,000 during the first quarter of 2006. This improvement primarily reflects the benefit of the Company's restructuring and cost reduction activities completed in the fourth quarter of 2006. At March 31, 2007, Catalytica Energy Systems' cash position totaled $17,569,000.

Rob Zack, president and CEO of Catalytica Energy Systems, commented, "The expected decline in our first quarter revenues resulted from lower backlog levels at the beginning of the year driven primarily by less demand for emergency catalyst cleaning services, which represented a significant amount of our total cleaning and regeneration revenues in the first quarter last year. We believe the slower pace of order activity we have been experiencing over the past several months is temporary as the market is less in need of emergency cleaning work and is now beginning to transition to planned regeneration cycles for installed SCR catalyst that we expect may soon be in need of replenishment. While we expect revenues to continue to be soft for the next several months, the industry is currently preparing for the onset of more stringent NOx emissions regulations and year-round SCR operation beginning in January 2009, which we anticipate will result in meaningful market growth during 2008. We are also encouraged by today's separate announcement of the signing of two new catalyst regeneration contracts totaling approximately $1.0 million, and a pipeline of new order prospects that remains strong."

Other Recent Developments

On May 8, 2007, Catalytica Energy Systems announced the signing of a definitive agreement pursuant to which the renewable energy divisions of NZ Legacy, LLC (a privately owned Arizona land and energy development company), which include Snowflake White Mountain Power, LLC, Renegy, LLC, and Renegy Trucking, LLC, businesses engaged in creating and operating renewable energy power projects and harvesting biomass fuel, will combine with Catalytica Energy Systems in an all-stock transaction. The combined companies will operate under a holding company to be called Renegy Holdings, Inc.

Upon completion of the proposed transaction, the combined company will operate under two divisions focused on clean energy, with one division focused on becoming an independent power producer (IPP) of renewable energy, and the other division providing emissions compliance services for the coal-fired power generation industry. The mission of Renegy's renewable energy division will be to utilize existing technology to supply clean, renewable and economical power, with the vision of becoming a leading renewable energy IPP in the U.S. Renegy will own and operate a 24 megawatt (MW) biomass plant, which is currently under construction in Snowflake, Arizona, that will supply power to Arizona Public Service and Salt River Project, the two largest utilities in the state of Arizona, pursuant to long-term power purchase agreements currently in place for a 20-year period. Renegy will also endeavor to create multiple additional renewable energy projects over a five-year period through acquisition, construction, installation and operation. Future projects will focus primarily on biomass, solar and wind power. The second division will focus on growing its SCR-Tech business, and continuing to explore strategic opportunities to broaden its reach in the growing market for clean coal technologies.