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MOUNTAIN VIEW, Calif. (August 2, 2001) - Catalytica Energy Systems, Inc.
(Nasdaq: CESI), a leader in the discovery, development, and manufacture of
advanced energy products that enable environmentally friendly power
production, today reported financial results for the second quarter ended
June 30, 2001.
Revenues for the second quarter of 2001 grew to $2,212,000, from $1,158,000
reported for the same period of the prior year, primarily reflecting
increased funding from government agencies and OEM partners in support of
continued development and commercialization activities related to the
Company's Xonon(tm) Cool Combustion system. Net loss for the quarter was
$2,871,000, or a loss of $0.22 per share. Net loss in the second quarter of
the prior year was $2,650,000.
"We are pleased with our performance during the second quarter,
which signals that we are continuing to meet our financial targets for the
year," stated Craig Kitchen, president and CEO of Catalytica Energy Systems.
"Additional funding from the Department of Energy to support development
programs associated with extending catalyst life and reducing component
costs resulted in a near doubling of revenues for the quarter. At the same
time, our continued investment in research and development activities helped
us build momentum in our commercialization efforts for Xonon. In fact,
spending on this front during the quarter helped to support the manufacture
of our first commercial production units, which have been shipped to
Kawasaki for integration into three 1.4 MW gas turbines to be installed
later this year in Massachusetts. An increase in selling, general and
administrative expenses this quarter compared to a year ago was the result
of operating as a stand-alone business and the strengthening of our
organizational infrastructure with the addition of key personnel to support
commercialization efforts for Xonon. The significant growth in revenues
this quarter helped to partially offset these increased operating expenses.
As a result, our cash position remains strong with over $49.0 million at the
end of the quarter and essentially no long-term debt."
Kitchen continued, "We also achieved a number of business milestones during
the quarter. Testing of Xonon modules for the GE10 gas turbine is on track,
following our shipment of commercial scale pre-production modules to GE in
April. This testing will continue throughout the summer in support of
ongoing development and commercialization efforts for the 10 MW turbine. We
are also pleased to have demonstrated the durability and reliability of our
Xonon system through the accumulation of 8,000 hours of ultra-low emissions
operation on the grid at Silicon Valley Power. We expect that the
demonstrated impressive performance of our system during this extended
operation will contribute to expanding visibility of our product among OEMs
and end-users, and strengthening our position in the market."
The Company will host a conference call Thursday, August 2, 2001 at 1:45 PM
(PST) to discuss its financial results along with its outlook for the
remainder of 2001. The call will be broadcast live over the Internet and
can be accessed via the Company's website at An
archived version of the webcast will be available for replay on the
Company's website beginning approximately two hours following the conclusion
of the live call, and continuing for a period of one week following the
-- more --


Catalytica Energy Systems designs and develops advanced products for more
effective energy production. Its proprietary technologies include the use
of catalysts to create solutions to ease the environmental impact of power
generation. The Company's first product, Xonon Cool Combustion, is a
breakthrough combustion technology that achieves ultra-low emissions levels
for gas turbine power production. Xonon prevents the formation of
pollution, particularly nitrogen oxides (NOx), a primary contributor to
smog, through a proprietary catalytic combustion process. Additional
technology development efforts include work on fuel processing for fuel
cells, as well as adaptation of Xonon technology to micro-turbines, hybrid
gas turbine fuel cells, and diesel applications. Find Catalytica Energy
Systems on the Worldwide Web at

This news release contains forward-looking statements regarding
commercialization of Catalytica Energy Systems' Xonon Cool Combustion
system, product shipment, the incorporation of Xonon into GE and Kawasaki
gas turbines, the scheduled delivery of Xonon-equipped GE and Kawasaki gas
turbines by Catalytica Energy Systems, the deployment of Xonon-equipped gas
turbines at project sites, the market demand for Xonon-equipped gas
turbines, the Company's ability to increase Xonon's visibility in the
market, and the competitive position of Catalytica Energy Systems. Actual
results could differ and such differences could be material. These
statements involve risks and uncertainties, including without limitation,
the risk that there may be unanticipated technical, commercial or other
factors related to the incorporation of Xonon into GE and Kawasaki gas
turbines or the arrangements between Catalytica Energy Systems and each of
GE and Kawasaki for the supply of Xonon-equipped gas turbines, that
marketing, project development and installation timelines and regulatory
review outcomes are uncertain and that anticipated deadlines may not be met,
that results may differ from those stated and the other risks set forth in
the Catalytica Energy Systems' Form S-1/A filed with the Securities and
Exchange Commission on July 20, 2001. Catalytica Energy Systems undertakes
no obligation to update publicly any forward-looking statements to reflect
new information, events, or circumstances after the date of this release.
Investors are encouraged to review Catalytica Energy Systems' Form S-1/A
dated July 20, 2001, or Form 10-K for the year ending December 31, 2000,
filed with the Securities and Exchange Commission, for additional factors
that could affect Catalytica Energy Systems' future performance.

# # # #

Editor's Note: Xonon and Xonon Cool Combustion are registered trademarks of
Catalytica Energy Systems, Inc. Mountain View, CA, USA

-- more --


Catalytica Energy Systems, Inc.
Condensed and Consolidated Statements of Operations (1.)
(in thousands, except per share amounts)

Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
Research and development
contracts $ 2,212 $ 1,158 $ 3,658
$ 2,433

Costs and expenses:
Research and development 3,514 3,103
7,608 4,244
Selling, general and administrative 1,939 993
3,681 2,087
Total costs and expenses 5,453 4,096
11,289 6,331

Operating loss (3,241) (2,938)
(7,631) (3,898)

Interest income 591 194 1,393
Interest expense (10) 94 (23)
Loss on equity investments (211) --
(335) --

Net loss $ (2,871) $(2,650) $
(6,596) $ (3,603)

Basic and diluted net
loss per share: $ (0.22) $ (5.14) $(0.51)
$ (7.02)

Shares used in computing
net loss per share: 12,905 516
12,911 513

Note (1.) In December 2000, Catalytica Advanced Technologies, Inc. was
merged into Catalytica Energy Systems, Inc. The results for all periods
presented in these financial statements represent the combined balance
sheets and combined statements of operations of Catalytica Advanced
Technologies, Inc. and Catalytica Energy Systems, Inc.

Note (2.) Prior to December 2000, Catalytica Energy Systems operated as a
subsidiary of Catalytica, Inc. Accordingly, shares used to compute the net
loss per share for the three and six months ended June 30, 2000, were the
actual number of shares in existence prior to the spin-off.



Catalytica Energy Systems, Inc.
Condensed Consolidated Balance Sheet*
(in thousands)

June 30, 2001 December 31, 2000


Cash and short-term investments $ 49,268 $ 58,712

Accounts and notes receivable, net 2,126 2,348

Inventory 621 180
Other current assets 283 524
Total current assets 52,298 61,764

Property and equipment 13,654 13,592
Less accumulated depreciation and amortization (8,846)
4,808 5,530
Other assets 2,793 478
$ 59,899 $ 67,772

Current liabilities $ 8,228 $ 10,058
Current portion of long-term debt 54 155

Total current liabilities 8,282 10,213

Long-term debt 94 89

Stockholders' equity 51,523 57,470
$ 59,899 $ 67,772

*Note: In December 2000, Catalytica Advanced Technologies, Inc. was merged
into Catalytica Energy Systems, Inc. The results for all periods presented
in these financial statements represent the combined balance sheets and
combined statements of operations of Catalytica Advanced Technologies, Inc.
and Catalytica Energy Systems, Inc.

# # # #

Melinda C. Broyles
Catalytica Energy Systems
430 Ferguson Drive
Mountain View, CA 94043
PH: 650-940-6337
FX: 650-960-0127
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