##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended March 31, 2006

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 000-30657

RASER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Utah                                                           |  | 87-0638510                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

5152 North Edgewood Drive, Suite 375

Provo, Utah 84604

(Address, including zip code, of registrants
principal executive offices)

(801) 765-1200

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x                Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes ̈No  x.

There were 50,628,212 shares of the registrants common stock, par value $0.01, outstanding on May 9, 2006.



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##### Table of Contents

Raser Technologies, Inc.

SEC Form 10-Q

Table of Contents



|                                                                                              |  |         
|--------------------------------------------------------------------------------------------- |  | --------
|                                                                                              |  | Page No.
|Part I. Financial Information                                                                 |  | 1       
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  | 1       
|                                                                                              | 
|Condensed Consolidated Balance Sheets                                                         |  | 1       
|                                                                                              | 
|Condensed Consolidated Statements of Operations                                               |  | 2       
|                                                                                              | 
|Condensed Consolidated Statements Of Cash Flows                                               |  | 3       
|                                                                                              | 
|Notes to Condensed Consolidated Financial Statements                                          |  | 4       
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13      
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                             |  | 23      
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 24      
|                                                                                              | 
|Part II. Other Information                                                                    |  | 25      
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 25      
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 38      
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 39      
|                                                                                              | 
|SIGNATURES                                                                                    |  | 42      



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                        |  | March 31, 2006 |             |   | December 31,2005 |  
|Assets                                                                                                                                                                                  |  |                |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                         |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                               |  | $              | 15,063,620  |   |                  | $ | 17,467,545  |  
|Restricted cash                                                                                                                                                                         |  |                | 400,000     |   |                  |   | 400,000     |  
|Short-term investments                                                                                                                                                                  |  |                |            |   |                  |   | 533,512     |  
|Notes receivable                                                                                                                                                                        |  |                | 1,610,636   |   |                  |   |            |  
|Accounts receivable                                                                                                                                                                     |  |                |            |   |                  |   | 134,835     |  
|Other current assets                                                                                                                                                                    |  |                | 65,600      |   |                  |   | 154,002     |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                    |  |                | 17,139,856  |   |                  |   | 18,689,894  |  
|Equipment, net                                                                                                                                                                          |  |                | 578,404     |   |                  |   | 580,526     |  
|Patent and trademarks, net                                                                                                                                                              |  |                | 303,851     |   |                  |   | 283,121     |  
|Deferred acquisition costs                                                                                                                                                              |  |                | 162,631     |   |                  |   |            |  
|Other assets                                                                                                                                                                            |  |                | 11,110      |   |                  |   | 11,110      |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Total assets                                                                                                                                                                            |  | $              | 18,195,852  |   |                  | $ | 19,564,651  |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                                    |  |                |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                                                    |  |                |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                        |  | $              | 143,001     |   |                  | $ | 160,576     |  
|Accrued liabilities                                                                                                                                                                     |  |                | 1,330,376   |   |                  |   | 184,483     |  
|Deferred revenues                                                                                                                                                                       |  |                | 28,529      |   |                  |   | 25,080      |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                               |  |                | 1,501,906   |   |                  |   | 370,139     |  
|Commitments and contingencies, (see note H)                                                                                                                                             |  |                |             |   |                  |   |             |  
|Stockholders equity:                                                                                                                                                                   |  |                |             |   |                  |   |             |  
|Series B and C convertible preferred stock, $.01 par value, 5,000,000 shares authorized; no shares of Series B issued and outstanding, and no
shares of Series C issued and outstanding |  |                |            |   |                  |   |            |  
|Common stock; $0.01 par value; 250,000,000 shares authorized 50,610,462 and 50,404,005 shares issued and outstanding,
respectively                                                      |  |                | 506,105     |   |                  |   | 504,040     |  
|Additional paid in capital                                                                                                                                                              |  |                | 36,213,268  |   |                  |   | 35,675,184  |  
|Accumulated deficit                                                                                                                                                                     |  |                | (20,025,427 | ) |                  |   | (16,984,712 | )
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                              |  |                | 16,693,946  |   |                  |   | 19,194,512  |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                                                              |  | $              | 18,195,852  |   |                  | $ | 19,564,651  |  
|                                                                                                                                                                                        |  |                |             |   |                  |   |             |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)



|                                                   |  |                              |            |   |      |   |            |  
|-------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                   |  | Three Months Ended March 31, |           
|                                                   |  | 2006                         |            |   | 2005 |  
|Revenue                                            |  | $                            | 33,736     |   |      | $ |           |  
|                                                   |  |                              |            |   |      |   |            |  
|Operating expenses:                                |  |                              |            |   |      |   |            |  
|Cost of sales                                      |  |                              | 55,584     |   |      |   |           |  
|General and administrative                         |  |                              | 2,354,697  |   |      |   | 1,723,648  |  
|Research and development                           |  |                              | 856,461    |   |      |   | 551,244    |  
|                                                   |  |                              |            |   |      |   |            |  
|Total operating expenses                           |  |                              | 3,266,742  |   |      |   | 2,274,892  |  
|                                                   |  |                              |            |   |      |   |            |  
|Operating loss                                     |  |                              | (3,233,006 | ) |      |   | (2,274,892 | )
|Interest income                                    |  |                              | 200,803    |   |      |   | 23,947     |  
|Loss on the sale of securities                     |  |                              | (8,512     | ) |      |   |           |  
|                                                   |  |                              |            |   |      |   |            |  
|Loss before income taxes                           |  |                              | (3,040,715 | ) |      |   | (2,250,945 | )
|Income tax benefit                                 |  |                              |           |   |      |   |           |  
|                                                   |  |                              |            |   |      |   |            |  
|Net loss                                           |  |                              | (3,040,715 | ) |      |   | (2,250,945 | )
|Preferred stock dividends                          |  |                              |           |   |      |   | (7,536     | )
|                                                   |  |                              |            |   |      |   |            |  
|Net loss applicable to common shareholders         |  | $                            | (3,040,715 | ) |      | $ | (2,258,481 | )
|                                                   |  |                              |            |   |      |   |            |  
|Loss per common share  basic and diluted          |  | $                            | (0.06      | ) |      | $ | (0.05      | )
|                                                   |  |                              |            |   |      |   |            |  
|Weighted average common shares  basic and diluted |  |                              | 50,444,000 |   |      |   | 49,231,000 |  
|                                                   |  |                              |            |   |      |   |            |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Condensed Consolidated Statements Of Cash Flows

(Unaudited)



|                                                                            |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | Three Months Ended March 31, |           
|                                                                            |  | 2006                         |            |   | 2005 |  
|Cash flows used in operating activities:                                    |  |                              |            |   |      |   |            |  
|Net loss                                                                    |  | $                            | (3,040,715 | ) |      | $ | (2,250,945 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |            |   |      |   |            |  
|Depreciation and amortization expense                                       |  |                              | 48,088     |   |      |   | 8,802      |  
|Loss on the sale of securities                                              |  |                              | 8,512      |   |      |   |           |  
|Common stock, stock options and warrants issued for services                |  |                              | 1,411,989  |   |      |   | 765,860    |  
|Decrease in accounts receivable                                             |  |                              | 134,835    |   |      |   |           |  
|Decrease in other current assets                                            |  |                              | 88,402     |   |      |   | 29,168     |  
|(Decrease) / increase in accounts payable                                   |  |                              | (17,575    | ) |      |   | 167,501    |  
|Increase in accrued liabilities                                             |  |                              | 150,979    |   |      |   | 151,897    |  
|Increase in unearned revenues                                               |  |                              | 3,449      |   |      |   |           |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in operating activities                                       |  |                              | (1,212,036 | ) |      |   | (1,127,717 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Cash flows used in investing activities:                                    |  |                              |            |   |      |   |            |  
|Purchase of available for sale securities                                   |  |                              |           |   |      |   | (3,114,711 | )
|Increase in notes receivable                                                |  |                              | (1,610,636 | ) |      |   |           |  
|Proceeds from the sale of short-term investments                            |  |                              | 525,000    |   |      |   |           |  
|Increase in restricted cash                                                 |  |                              |           |   |      |   | (400,000   | )
|Increase in patents and trademarks                                          |  |                              | (24,091    | ) |      |   | (27,148    | )
|Purchase of equipment                                                       |  |                              | (42,606    | ) |      |   | (100,732   | )
|Increase in deferred acquisition costs                                      |  |                              | (162,631   | ) |      |   |           |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in investing activities                                       |  |                              | (1,314,964 | ) |      |   | (3,642,591 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Cash flows from financing activities:                                       |  |                              |            |   |      |   |            |  
|Proceeds from exercise of common stock warrants                             |  |                              | 25,650     |   |      |   | 2,195,996  |  
|Proceeds from exercise of common stock options                              |  |                              | 97,425     |   |      |   |           |  
|Preferred stock dividend                                                    |  |                              |           |   |      |   | (7,536     | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash provided by financing activities                                   |  |                              | 123,075    |   |      |   | 2,188,460  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                   |  | $                            | (2,403,925 | ) |      | $ | (2,581,848 | )
|Cash and cash equivalents, beginning of period                              |  |                              | 17,467,545 |   |      |   | 2,665,486  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Cash and cash equivalents, end of period                                    |  | $                            | 15,063,620 |   |      | $ | 83,638     |  
|                                                                            |  |                              |            |   |      |   |            |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A. Basis of
Presentation

The interim consolidated financial statements include the accounts of Raser Technologies, Inc. and its subsidiaries.
Unless the context requires otherwise, Raser, the Company, we, our or us refer to Raser Technologies, Inc. and its subsidiaries.

The Company has prepared the accompanying condensed consolidated financial statements without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to
such rules and regulations. These condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of our management, are necessary to present fairly the results of our
operations for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Form 10-KSB for the year ended December 31,
2005. The results of operations for the three months ended March 31, 2006, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006 or any other period.

B. Net Loss Per Common Share

Basic net loss per
common share (Basic EPS) is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by
the sum of the weighted average number of common shares outstanding and the weighted average dilutive common share equivalents then outstanding. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an
anti-dilutive effect. Common share equivalents consist of shares issuable upon the exercise of options and warrants to purchase common stock, the conversion of any convertible debentures and related accrued interest, and shares issuable upon
conversion of any preferred stock. 66,947 and 159,661 shares of common stock issuable upon exercise of warrants that were outstanding on March 31, 2006 and 2005 respectively; 247,000 and 250,000 stock options granted to a contractor that were
outstanding on March 31, 2006 and 2005 respectively; and 1,607,000 and 1,217,000 employee stock options that were outstanding at March 31, 2006 and 2005 respectively were not included in the calculation of diluted net loss per share
because their effect was anti-dilutive.

C. Stock Based Compensation

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



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



optional non-employee directors with automatic, nondiscretionary annual stock option grants. As of March 31, 2006, we were authorized to issue up to
4,723,784 shares of common stock pursuant to the Plan.

Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment (SFAS No. 123R). Under the revised standard, companies may no longer account for share-based compensation transactions, such as stock options, restricted stock, and potential
payments under programs such as the Companys Amended and Restated 2004 Long-Term Incentive Plan using the intrinsic value method as defined in APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Instead,
companies are required to account for such equity transactions using an approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service period.

Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied. However, compensation
expense already recognized is not adjusted if market conditions are not met, such as for stock options which expire out-of-the-money, or options which expire unexercised. The new standard was adopted using the modified prospective method
and beginning with the first quarter of 2006, the Company reflects compensation expense in accordance with SFAS No. 123R transition provision. Under the modified prospective method, the effect of the standard is recognized in the period of
adoption and in future periods. Prior periods have not been restated to reflect the impact of adopting the new standard.

The effect of
adopting SFAS No. 123R as of January 1, 2006 for the three months ended March 31, 2006 was to record $765,251 of stock-based compensation expense. For the three months ended March 31, 2006 and 2005, the Company has allocated
stock-based compensation expense, including the amount recorded for the effect of adopting SFAS 123R, to the following statement of operations captions:



|                               |  |                              |           |      |   |        
|------------------------------ |  | ---------------------------- | --------- | ---- | - | -------
|                               |  | Three months ended March 31,
|                               |  | 2006                         |           | 2005
|General and administrative     |  | $                            | 1,143,247 |      | $ | 689,610
|Research and development       |  |                              | 268,742   |      |   | 76,250 
|                               |  |                              |           |      |   |        
|Total stock-based compensation |  | $                            | 1,411,989 |      | $ | 765,860
|                               |  |                              |           |      |   |        

Prior to January 1, 2006, no stock-based compensation expense was recognized for stock
options granted to employees at not less than market prices on the dates of grant. The Companys net income and earnings per share for 2005 would have been reduced to the pro forma amounts shown below if compensation expense had been determined
based on the fair value at the grant dates in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure an amendment
of FASB Statement No. 123.



|                                                                                                                                            |  |                    |            |   |            |   |            |              |  |   |             |   |  |               |            |   |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ---------- | - | ---------- | ------------ |  | - | ----------- | - |  | ------------- | ---------- | - |  | - | ----------- | -
|                                                                                                                                            |  | 2005 Quarter Ended |            |   | Year Ended |  
|                                                                                                                                            |  | March 31           |            |   | June 30    |   |            | September 30 |  |   | December 31 |   |  | Dec. 31, 2005 |           
|Net loss applicable to common shareholders as reported                                                                                      |  | $                  | (2,258,481 | ) |            | $ | (7,927,196 | )            |  | $ | (2,457,047  | ) |  | $             | (1,966,333 | ) |  | $ | (14,609,057 | )
|Add: Stock based employee compensation expense included in reported net loss, under APB 25, net of tax                                      |  |                    |           |   |            |   |           |              |  |   |            |   |  |               |           |   |  |   |            |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                    | (176,928   | ) |            |   | (534,604   | )            |  |   | (405,883    | ) |  |               | (715,650   | ) |  |   | (1,833,065  | )
|                                                                                                                                            |  |                    |            |   |            |   |            |              |  |   |             |   |  |               |            |   |  |   |             |  
|Pro forma net loss                                                                                                                          |  | $                  | (2,435,409 | ) |            | $ | (8,461,800 | )            |  | $ | (2,862,930  | ) |  | $             | (2,681,983 | ) |  | $ | (16,442,122 | )
|                                                                                                                                            |  |                    |            |   |            |   |            |              |  |   |             |   |  |               |            |   |  |   |             |  
|Net loss per basic and diluted common share:                                                                                                |  |                    |            |   |            |   |            |              |  |   |             |   |  |               |            |   |  |   |             |  
|As reported                                                                                                                                 |  | $                  | (0.05      | ) |            | $ | (0.16      | )            |  | $ | (0.05       | ) |  | $             | (0.04      | ) |  | $ | (0.29       | )
|Pro forma                                                                                                                                   |  | $                  | (0.05      | ) |            | $ | (0.17      | )            |  | $ | (0.06       | ) |  | $             | (0.05      | ) |  | $ | (0.33       | )



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



Options granted to employees are valued by applying the fair value based method to stock-based
employee compensation in each period utilizing the Black-Scholes option pricing model, a generally accepted valuation model for determining the fair value of options. With respect to stock options granted during the three months ended March 31,
2006 and 2005, the assumptions used in the Black-Scholes option-pricing model were as follows:



|                                  |  |                              |  |           
|--------------------------------- |  | ---------------------------- |  | ----------
|                                  |  | Three months ended March 31,
|                                  |  | 2006                         |  | 2005      
|Risk-free interest rate           |  | 4.35%                        |  | 4.25%     
|Expected dividend yield           |  | 0.0%                         |  | 0.0%      
|Volatility                        |  | 111  113%                   |  | 111  115%
|Expected exercise life (in years) |  | 6.0                          |  | 6.0       

The risk-free interest rate is based on a yield curve of interest rates at the time of the grant
based on the contractual life of the option. Expected dividend yield is based on the Companys dividend history. Expected volatility is based on historical volatility for the Companys common stock. Expected exercise life is based on
management estimates of future attrition and early exercise rates, giving consideration to employee exercise behavior since filing of our S-8 registration statement for our Amended and Restated 2004 Long Term Incentive Plan on March 3, 2005.

During the three months ended March 31, 2006 we granted 10,000 shares of common stock and options to purchase an aggregate of 27,500
shares of common stock, to our employees. During the three months ended March 31, 2005 we granted options to purchase an aggregate of 182,000 shares of common stock to our employees and directors. The activity for stock options and warrants
during the first three months of 2006 is summarized as follows:



|                                |  |                   |  |                                |       |                          |   |           
|------------------------------- |  | ----------------- |  | ------------------------------ | ----- | ------------------------ | - | ----------
|                                |  | Number of Options |  | Weighted AverageExercise Price |       | Aggregate IntrinsicValue
|Outstanding at January 1, 2006: |  | 1,921,947         |  | $                              | 9.38  |                          |   |           
|Granted                         |  | 27,500            |  |                                | 15.81 |                          |   |           
|Exercised                       |  | 28,500            |  |                                | 4.32  |                          |   |           
|Expired or forfeited            |  |                  |  |                                | 0.00  |                          |   |           
|                                |  |                   |  |                                |       |                          |   |           
|Outstanding at March 31, 2006:  |  | 1,920,947         |  | $                              | 9.55  |                          | $ | 14,523,000
|                                |  |                   |  |                                |       |                          |   |           
|Exercisable at March 31, 2006:  |  | 1,159,064         |  | $                              | 5.82  |                          | $ | 12,526,000
|                                |  |                   |  |                                |       |                          |   |           

The total intrinsic value of options and warrants exercised in the three months ended
March 31, 2006 was approximately $352,000. The cash received from exercises of options and warrants was approximately $123,000.



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



The following tables summarize certain stock option and warrant information at March 31, 2006:

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



|                        |  |           |  |                                  |  |                                |       |                 |   |           
|----------------------- |  | --------- |  | -------------------------------- |  | ------------------------------ | ----- | --------------- | - | ----------
|Range of exercise price |  | Number    |  | Weighted averagecontractual life |  | Weighted averageexercise price |       | Intrinsic value
|$  3.00 - $5.10         |  | 1,034,500 |  | 6.55                             |  | $                              | 4.04  |                 | $ | 13,148,800
|$  6.00 - $9.10         |  | 121,947   |  | 5.23                             |  |                                | 8.05  |                 |   | 511,750   
|$12.05 - $17.20         |  | 497,500   |  | 9.55                             |  |                                | 15.15 |                 |   | 862,875   
|$18.25 - $25.95         |  | 267,000   |  | 8.95                             |  |                                | 21.13 |                 |   |          
|                        |  |           |  |                                  |  |                                |       |                 |   |           
|Total                   |  | 1,920,947 |  | 7.57                             |  | $                              | 9.55  |                 | $ | 14,523,425
|                        |  |           |  |                                  |  |                                |       |                 |   |           

Outstanding Options and Warrants Fully Vested and Exercisable



|                        |  |           |  |                                  |  |                                |       |                 |   |           
|----------------------- |  | --------- |  | -------------------------------- |  | ------------------------------ | ----- | --------------- | - | ----------
|Range of exercise price |  | Number    |  | Weighted averagecontractual life |  | Weighted averageexercise price |       | Intrinsic value
|$  3.00 - $5.10         |  | 963,667   |  | 6.41                             |  | $                              | 4.15  |                 | $ | 12,245,888
|$  6.00 - $9.10         |  | 92,197    |  | 4.17                             |  |                                | 8.21  |                 |   | 238,663   
|$12.05 - $17.20         |  | 32,000    |  | 9.48                             |  |                                | 15.65 |                 |   | 41,850    
|$18.25 - $25.95         |  | 71,200    |  | 8.94                             |  |                                | 20.95 |                 |   |          
|                        |  |           |  |                                  |  |                                |       |                 |   |           
|Total                   |  | 1,159,064 |  | 6.47                             |  | $                              | 5.82  |                 | $ | 12,526,401
|                        |  |           |  |                                  |  |                                |       |                 |   |           

The following table summarizes the non-vested stock options at March 31, 2006:

Non-Vested Option Grants



|                               |  |                   |   |  |                                             |      
|------------------------------ |  | ----------------- | - |  | ------------------------------------------- | -----
|                               |  | Number of Options |   |  | Weighted averageper option fairmarket value
|Non-vested at January 1, 2006: |  | 786,350           |   |  | $                                           | 13.13
|Granted                        |  | 27,500            |   |  |                                             | 13.50
|Vested                         |  | (51,967           | ) |  |                                             | 13.66
|Forfeited                      |  |                  |   |  |                                             | 0.00 
|                               |  |                   |   |  |                                             |      
|Non-vested at March 31, 2006:  |  | 761,883           |   |  | $                                           | 13.11
|                               |  |                   |   |  |                                             |      

The following table summarizes the non-vested stock awards at March 31, 2006:

Non-Vested Share Awards



|                                |  |                  |   |  |                                            |      
|------------------------------- |  | ---------------- | - |  | ------------------------------------------ | -----
|                                |  | Number of Shares |   |  | Weighted averageper share fairmarket value
|Outstanding at January 1, 2006: |  | 1,065,000        |   |  | $                                          | 4.54 
|Granted                         |  | 197,500          |   |  |                                            | 20.75
|Vested                          |  | (276,250         | ) |  |                                            | 4.16 
|Forfeited                       |  | (250,000         | ) |  |                                            | 3.15 
|                                |  |                  |   |  |                                            |      
|Outstanding at March 31, 2006:  |  | 736,250          |   |  | $                                          | 9.50 
|                                |  |                  |   |  |                                            |      



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



As of March 31, 2006, there was $9,930,139 (pre-tax) and $5,579,283 (pre-tax) of unrecognized
compensation expense related to non-vested stock option and stock award grants, respectively. This expense is expected to be recognized over a weighted average period of 1.8 years. As of March 31, 2006, the following table summarizes the
unrecognized compensation expense expected to be recognized in future periods.



|                   |  |                                          |           
|------------------ |  | ---------------------------------------- | ----------
|                   |  | Stock-basedcompensationexpense (pre-tax)
|Remainder of 2006: |  | $                                        | 7,438,781 
|2007               |  |                                          | 3,320,588 
|2008               |  |                                          | 2,009,209 
|2009               |  |                                          | 1,510,154 
|2010               |  |                                          | 1,221,083 
|2011               |  |                                          | 9,607     
|                   |  |                                          |           
|Total:             |  | $                                        | 15,509,422
|                   |  |                                          |           

D. Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock.

Series B Preferred Stock

In the third quarter of 2004 the Company sold 4,240.5 shares of Series B 7%, $.01 par value, convertible non-voting preferred stock (Series B
Preferred Stock) in exchange for net proceeds of approximately $3.9 million. As of both March 31, 2006 and December 31, 2005 there were no shares of Series B Preferred Stock outstanding. The offering price was $1,000 per share.

On January 20, 2005, all outstanding shares of Series B Preferred Stock were converted into common stock pursuant to the terms of the
Certificate of Designation.

Dividends

The holders of the Series B Preferred Stock were entitled to cumulative dividends at the rate of 7% of the value of their investment per year, payable quarterly in either cash or shares of the Companys common stock. The Company
elected to pay all dividends in cash during 2005. The Companys dividend obligation ceased upon conversion of all outstanding Series B Preferred Stock shares on January 20, 2005.

Warrants

Holders of shares of Series B Preferred
Stock were granted cash-only exercise warrants equal to 25% of the common stock issued to them upon conversion of their shares of Series B Preferred Stock at an exercise price of $8.55 per share. During 2005, 271,177 warrants were exercised by
holders of Series B Preferred Stock, providing approximately $2.3 million in cash to the Company. As of March 31, 2006, there were warrants to purchase 31,714 and 35,233 shares of the Companys common stock outstanding and available to the
preferred shareholders and investment bankers, respectively, from the Series B Preferred Stock offering.

Convertibility

Each share of Series B Preferred Stock was convertible into such number of shares of the Companys common stock determined by dividing the $1,000
price per share of the Series B Preferred Stock by $3.50.



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



During 2005 the remaining 1,133.5 Series B Preferred Stock shares were converted into 323,995 shares
of the Companys common stock.

Series C Preferred Stock

In the second quarter of 2005 the Company sold 20,000 shares of Series C, convertible preferred stock (Series C Preferred Stock) in exchange for net proceeds of approximately $18.4 million. The offering
price was $1,000 per share. All shares of Series C Preferred Stock were converted into common stock during 2005, and as of December 31, there were no shares of Series C Preferred Stock outstanding.

Dividends

There were no dividends associated with
the Series C Preferred Stock. In addition, the Company agreed that it would not pay any dividends out of any assets on any of its capital stock at any time prior to the maturity date for the Series C Preferred Stock.

Warrants

In connection with the issuance of the
Series C Preferred Stock, the Company issued warrants exercisable into 166,666 shares of common stock at an exercise price of $24.00 per share. The fair value of the warrants, based on the Black-Scholes option pricing model, was determined to be
$1,381,595. After allocating this amount to the warrants, and after allocating $37,117 to the redemption feature embedded derivative, the beneficial conversion feature of the Series C Preferred Stock was determined to be $4,249,992; resulting in a
combined deemed dividend and beneficial conversion feature of $5,668,704. This amount was reflected as additional net loss to compute net loss applicable to common shareholders.

The exercise price for the 166,666 outstanding warrants issued in connection with the Series C Preferred Stock financing was also determined to be
$18.192 per share. These warrants expired unexercised on August 2, 2005.

Convertibility

The shares of Series C Preferred Stock were convertible at the option of the holders into shares of common stock, and were initially convertible into
833,332 shares of common stock at an initial conversion price of $24.00 per share, which was calculated at a 9% discount to the average closing price of shares of the Companys common stock for the 10-trading day period ending on March 31,
2005. A total of 3,568 shares of Series C Preferred Stock were converted at a conversion price of $24.00 per share into 148,666 common shares during the second quarter of 2005.

Pursuant to the Certificate of Designation of the Preferences, Rights and Limitations of the Series C Preferred Stock (the Certificate of
Designation), all of the outstanding shares of Series C Preferred Stock were automatically converted into shares of the Companys common stock on July 3, 2005 (the Mandatory Conversion Date). Pursuant to the Certificate
of Designation, the conversion price at which the outstanding shares of Series C Preferred Stock were converted into common stock on the Mandatory Conversion Date was



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



equal to the average trading price of the Companys common stock during the ten day trading period beginning on June 20, 2005 and ending on
July 1, 2005, which was equal to $18.192 per share of common stock. Accordingly, 16,432 shares of Series C Preferred Stock were converted into 903,253 shares of our common stock on the Mandatory Conversion Date.

In accordance with the Share Contribution Agreement dated April 7, 2005 between the Company and Mr. Kraig T. Higginson, Executive Chairman
of the Companys Board of Directors, 218,587 common shares were transferred by Mr. Higginson to the Company to offset the dilutive effects of the conversion of shares of Series C Preferred Stock into shares of the Companys common
stock on the Mandatory Conversion Date. Since the Company did not pay any amount for these shares and the shares were not transferred as payment for any services, the transfer by Mr. Higginson was recorded as a reduction in the par value of the
Companys common stock with an offsetting amount in additional paid-in capital. Therefore, there was no net effect on stockholders equity.

E. Short-Term Investments

On December 31, 2005, we held certain investments in marketable debt securities as a means
of temporarily investing the proceeds from financings until the funds are needed for operating purposes. These investments were being accounted for as available for sale securities under Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. As a result, the investments are reflected at their fair value, based on quoted market prices, with unrealized gains and losses less
applicable deferred income taxes, recorded in accumulated other comprehensive income until the investments are sold, at which time the realized gains and losses are included in the results of operations.

All of the short-term investments were sold during the three months ended March 31, 2006. The interest yield on marketable securities averaged
approximately 4.4% during the three months ended March 31, 2006. We recorded a loss of $8,512 in the first quarter of 2006 related to the sale of these securities. At December 31, 2005 the estimated fair value of these securities was equal
to the approximated cost. All income generated from these investments was recorded as interest income.

Our investments are intended to
establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Concentration of credit
risk is managed by diversifying investments among a variety of high credit-quality issuers.

F. Note Receivable

During the first three months of 2006, the Company and Amp Resources, LLC (Amp Resources) entered into a promissory note (the
Note) pursuant to which the Company lent approximately $1.6 million to Amp Resources. The entire unpaid principal balance and accrued, but unpaid, interest under the Note shall be due and payable upon the earlier to occur of
March 1, 2007 or the achievement of certain other milestones involving certain geothermal power production projects of Amp Resources (the Geothermal Projects), including but not limited to the sale or financing of certain of the
Geothermal Projects or the sale or



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



assignment of contracts covering certain of the Geothermal Projects. Payments of principal or interest under the Note are subordinate to certain obligations
of Amp Resources.

The Note will accrue interest at a rate of 10% per annum, compounded annually, subject to adjustment. The principal
and interest of the Note may not be prepaid in whole or in part, without premium or penalty, without the prior written consent of the holders of two thirds of the equity interests of Amp Resources. The principal and interest on the Note is unsecured
and the Note is non-transferable and non-negotiable.

The Note includes events of default that include non-payment of principal or interest
when due and payable, certain bankruptcy events of Amp Resources and the issuance of certain writ or orders of attachment, levy or garnishment against or upon Amp Resources.

The Company recognized $11,688 of interest income on the Note in the first three months of 2006 and holds an interest receivable balance for the same
amount as of March 31, 2006.

G. Deferred Acquisition Costs

Costs incurred that are directly related to the completion of a proposed acquisition are deferred on the balance sheet and capitalized as part of the purchase price if the transaction is completed.

Consistent with this policy, approximately $162,000 of acquisition costs were deferred in the first quarter of 2006 in anticipation of the Amp Resources
acquisition.

H. Commitments

The
Company has a contractual obligation to pay $750,000 in investment banking fees to JP Morgan upon closing of the acquisition transaction with Amp Resources.

I. Supplemental Cash Information

We had no cash paid for interest expense and made no income tax payments in the three
months ended March 31, 2006 and 2005 respectively.



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RASER TECHNOLOGIES, INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements  continued

(Unaudited)



J. Subsequent Events

On April 6, 2006, the Company, Amp Resources, Highland Capital Partners VI Limited Partnership, Highland Capital Partners VI-B Limited Partnership, Highland Entrepreneurs Fund VI Limited Partnership and
SCP/AR, LLC (collectively, the Investors) entered into a promissory note (the Promissory Note) pursuant to which the Company may lend to Amp Resources an aggregate principal amount of up to $5 million (the Maximum
Principal Amount), including the $1.6 million previously loaned to Amp Resources. So long as Amp Resources is not in default under the Promissory Note and with agreement of the Company on amounts dispersed under the Promissory Note, Amp
Resources may draw from the Promissory Note up to the Maximum Principal Amount. As of April 30, 2006, Amp Resources has drawn approximately $3.8 million against the Maximum Principal Amount. The entire unpaid principal balance and accrued, but
unpaid, interest under the Promissory Note shall be due and payable upon the earlier to occur of March 1, 2007 or the achievement of certain other milestones involving certain geothermal power production projects of Amp Resources (the
Geothermal Projects), including but not limited to the sale or financing of certain of the Geothermal Projects or the sale or assignment of contracts covering certain of the Geothermal Projects. Payments of principal or interest under
the Promissory Note are subordinate to certain obligations of Amp Resources.

The Promissory Note will accrue interest at a rate of
10% per annum, compounded annually, subject to adjustment. The principal and interest of the Promissory Note may not be prepaid in whole or in part, without premium or penalty, without the prior written consent of the holders of two thirds of
the equity interests of Amp Resources. The principal and interest on the Promissory Note is unsecured and the Promissory Note is non-transferable and non-negotiable.

The Promissory Note provides that Amp Resources and the Company intend to secure the Promissory Note with all assets of Amp Resources. The Promissory Note also provides that Amp Resources and the Company intend to
(i) subordinate the Promissory Note (notwithstanding any security interest provided by Amp Resources) in all respects, including payment or priority, and including but not limited to right of payment, right of priority, right of set off, right
or initiation of proceedings to (A) any and all obligations of any kind of Amp Resources to (including rights of repayment, redemption, repurchase or extinguishment of obligation), and the rights of, the Investors, and (B) any and all
outstanding financial or other obligations owed by Amp Resources to the Investors (including but not limited to all amounts that are due to the Investors by reason of equity redemptions); and (ii) provide that payment on the Promissory Note is
pari passu with (A) any and all rights of Amp Capital Partners, LLC (Amp Capital) in and to any collateral they may have in Amp Resources or its subsidiaries and (B) any and all outstanding financial or other obligations owed
to Amp Resources by Amp Capital.

The Promissory Note includes events of default that include non-payment of principal or interest when due
and payable, certain bankruptcy events of Amp Resources and the issuance of certain writ or orders of attachment, levy or garnishment against or upon Amp Resources.



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

Cautionary
Statement Regarding Forward-Looking Statements

This section of our quarterly report should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements and related notes included elsewhere in this report. In addition to historical information, this quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our, and in some cases our customers or partners, future plans, objectives, expectations, intentions and financial performance and the assumptions
that underlie these statements. These forward-looking statements include, without limitation, statements concerning the following:



| |  |  | our pending transaction with Amp Resources, LLC;
| | - |  | ------------------------------------------------



| |  |  | our ability to satisfy closing conditions to close the acquisition with Amp Resources, LLC;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | our ability to retire Amp Resources, LLC indebtedness after closing;
| | - |  | --------------------------------------------------------------------



| |  |  | our ability to place the Amp Resources projects in service in time to qualify for production tax credits;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | our ability to repay indebtedness that we assume as part of the Amp Resources transaction within 12 months following the closing;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop products and technologies acceptable to industry, establish and maintain relationships with licensees and other users of our technology and products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to raise capital to fund our working capital needs or the working capital needs of Amp Resources should our transaction with Amp Resources close;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our research and development expenses;
| | - |  | --------------------------------------



| |  |  | our initial customer funding;
| | - |  | -----------------------------



| |  |  | our ability to manage our expected growth and to ensure the effectiveness of our internal controls;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | our beliefs regarding the size of the commercial markets for our technologies;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to develop, test and market commercial applications of our technologies;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our ability to develop prototypes incorporating our technologies for our customers and potential customers;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | our beliefs regarding potential efficiency improvements offered by the commercial applications of our technologies; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to secure and defend patents and the adequacy of our capital resources to fund operations and growth.
| | - |  | -----------------------------------------------------------------------------------------------------------------

These statements involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include those set forth in the following discussion and
under the caption Risk Factors in Part II, Item 1A of this quarterly report.

Although we believe that expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date of this quarterly filing to conform these
statements to actual results or changes in our expectations, except as required by law. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. You should carefully review
the risk factors described in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or SEC.

Our
annual reports on Form 10-KSB, quarterly reports on Form 10-QSB and Form 10-Q, current reports on Form 8-K and amendments to all such reports are available, free of charge, on our Internet website under Company-Investor Relations-SEC
Filings, as soon as reasonably practicable after we file electronically such material with, or furnish it to, the SEC. Our Internet website address is http://www.rasertech.com. Information on our website does not constitute a part of this
Quarterly Report on Form 10-Q.

Overview

We are a technology licensing company offering innovations in electromagnetic technology for both electricity-to-motion and motion-to-electricity applications. We have developed several innovations in electric motors and controllers that
allow for increased torque, power and efficiency, while controlling heat. We call our technology developments SymetronTMand label motors and controllers enhanced by the technology as SymetronTMenhanced motors and
controllers. We have also applied our technologies to



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##### Table of Contents

alternators and generators, where the efficiency of these motion-to-electricity systems can be improved. We also intend to acquire and develop companies and
technologies that are complementary to our existing technologies.

We believe our technology will have an impact in several transportation,
industrial and power generation markets. Targeted transportation markets including rapidly emerging hybrid-electric vehicles, all-electric industrial traction, public transportation vehicles on wheels and rails, and recreational vehicle markets. Our
first entries into transportation markets are likely to be with alternator or integrated starter-alternator technologies. Early targets for industrial market applications include heating, ventilation and air conditioning, (HVAC), fluid
pumps and fan motors where our motor drive technology could have an impact.

Within the transportation market, we are pursuing
opportunities in Alternators, Integrated Starter-Alternators, Industrial Traction Vehicles, Medium and Heavy-Duty Trucks and Automotive Hybrid Electric Vehicle Propulsion Drive Systems.

The Alternator Market is a large commodity market for mobile electric power. The consumer trend toward more comforts in transportation continues to
manifest itself in sound systems, navigation systems, and other powered features that increase demand on the vehicles power infrastructure. Approximately 6-8% of a vehicles fuel is used to power its electrical system. Greater efficiency
from an alternator would provide more power while producing less drag on the engine. We are developing our designs to offer value in standard alternators which comprise a large part of the market, and integrated starter-alternators
(ISAs) for the growing mild-hybrid market. The size of the opportunity in this market is significant since approximately 75 million alternators are produced globally each year, and the market is growing at a rate of approximately
2.5% annually. The targeted ISA market is relatively new and expected to grow at a rate of approximately 70% per year for the next several years. Cost and size are the main technical differentiators in the alternator market. We believe that our
SymetronTMtechnologies offer the possibility of smaller, less expensive alternators operating at higher efficiency
across the relevant RPM range as compared to current offerings.

The trend in the industrial vehicles market, which includes forklifts, is
moving toward all electric vehicles in order to reduce emissions indoors, and improve vehicle economy. In the electric forklift market, over the last few years, the inverter-driven AC induction motor has clearly been established as the technology of
choice due to its durability and operational economy. We believe that our high torque, high efficiency AC induction technology is ideally suited for this market. The forklift market is currently about 300,000 vehicles per year in North America
alone, and is projected to grow at approximately 2.9% through 2011. We believe that our motor and motor drive technologies will offer significant benefits in this traction drive application.

In Medium and Heavy-Duty Trucks (ranging from small delivery trucks to 18-wheel big rigs), new government regulations, particularly in the United States
and Europe, are driving companies to invest heavily in research and development with the goal of developing more environmentally friendly electrically-driven equipment. Sales growth, particularly in the United States in recent years, has been driven
by new engines created to meet emissions regulations. For fleet owners, fuel represents a large and growing percentage of overall expenses, which has risen dramatically during the current year. Approximately 1.5 million vehicles are
manufactured globally in this size range, and the market has been growing at an approximate rate of 3% per year rate for the past several years. In addition to alternators and ISAs mentioned above, we are developing our P2 drive motor for
potential integration into full Electric Vehicle propulsion systems including full and strong hybrid automotive vehicles.



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Hybrid Electric Vehicles are becoming increasingly popular in the United States with approximately 90,000
hybrid cars sold in 2004, and 1.5 million predicted sales by 2010. With gas prices expected to remain high, many consumers are opting for more fuel efficient cars such as hybrid vehicles. U.S. Government studies have shown that most consumers
average less than 50 miles per day for their personal driving. We believe that our SymetronTMAC induction motor
technologies can help to provide a solution in this market that includes a low cost, high mileage offering through a dual mode Plug-In Hybrid Electric Vehicle, (PHEV). We are a founding member of the Plug-In Hybrid Development
Consortium, which seeks to shorten the development cycle for new hybrid automobile offerings, thereby accelerating the commercialization of dual mode PHEV technology.

In the industrial sector, Heating, Ventilating and Air Conditioning, (HVAC) is one of the largest end-users of AC electric motors and variable frequency drives. Commercial HVAC motors fit our target
profile of applications that require variable-speed electric motors and could benefit from an increase in efficiency. The U.S. market for HVAC equipment is expected to show strong growth in both commercial and residential segments, and global growth
will likely be even stronger. It is predicted that the global and the North American market for HVAC AC Variable Frequency Drives will grow at a rate of 10.1% and 7.4% respectively in the next few years. Competition in the HVAC industry centers on
price and efficiency. We believe that our work on the SymetronTMmotor drive technology under the United States
Department of Energy grant being administered through Advanced Energy may afford us the opportunity to offer efficiency increases to existing motors in this industry.

In the Power Generation market segment, we are targeting closing the acquisition of Amp Resources in the second quarter of 2006. The proposed acquisition involves risks and uncertainties that are more fully set forth
under the caption Risks Related to the Proposed Acquisition of Amp Resources under Risk Factors in Item 1A of Part II of this report.

The underlying trend in the markets discussed here is toward higher efficiency in motors, drive systems, alternators and generators; reduction in emissions from fossil fuels; higher performance levels in terms of
motor torque output; and economical operation of the system from initial acquisition through the life cycle of the product. We have identified other market opportunities, and we evaluate the opportunity associated with such markets on an ongoing
basis.

Risk Factors

An
investment in our common stock involves a high degree of risk. Investors are encouraged to carefully consider the information under Risk Factors set forth in Part II, Item 1A below before making an investment decision in our common
stock.

Moreover, investors should carefully consider that the public trading market for our common stock is limited and our common stock
has historically experienced significant volatility and our common stock is likely to experience significant price and volume fluctuations in the future. The limited trading volume of our common stock has in the past and is likely in the future, to
cause the stock price to fluctuate dramatically over short periods of time. Price levels of our common stock, as with other technology companies in the past, may not bear any relation to our past or present operating results or the underlying
intrinsic value of the Company. As a result, an investor cannot be assured that our stock price will continue to trade at current levels, that the current levels reflect the intrinsic value of the Company or that our stock price will not decline in
the future.



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##### Table of Contents

Sources of revenue

We expect to derive the large majority of our revenue from sales of technology licenses and collection of royalty payments. We are offering our technologies through our direct sales force as well as through selected
sales agents familiar with rotating electromagnetic technology and specific industries. We also derive revenue from engineering activities designed to demonstrate our technologies in specific applications.

We anticipate that the majority of our revenue will be generated in the United States until our technologies have been adopted and applied to specific
applications. Subsequently, we would expect to license our technologies to companies in Europe and Asia.

Licenses of our technology to
potential customers will typically result from the entry of the potential customer into our Test Demonstration Program. Our Test Demonstration Program involves four phases described as follows: (1) Paper Test  an initial indication of
engineered value to the customer which is provided through our computer modeling capabilities. (2) Install Test  a customer specific demonstration of the SymetronTMadvanced motor technology into a motor of the customers choosing. (3) System Test  an application specific installation of our technology
into the customers product. (4) License  an agreement whereby the customer will acquire specified rights to manufacture or use the SymetronTMadvanced motor technology. Many customers have joined the program, most of which are in early stages of Phase 1 or Phase 2 development. It is our intent to accelerate the progress of customers through
the Test Demonstration Program during 2006. We believe that we will be delivering prototypes to customers for installation tests during the remaining quarters of 2006.

Revenue recognition

Revenue is recognized when earned in accordance with applicable
accounting standards and guidance, including Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, as amended. Revenue recognition is more fully discussed below in Critical Accounting Policies.

Losses since inception and limited operating history

We have incurred significant costs to develop our technology and products, to recruit and train personnel for our engineering, sales, marketing, professional services and administration departments, and to build and promote our brand. As a
result, we have incurred significant losses since our inception and had an accumulated deficit of approximately $20.0 million as of March 31, 2006.

Our limited operating history makes the prediction of future operating results difficult. We believe that period-to-period comparisons of operating results should not be relied upon to predict future performance. Our
prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies in rapidly evolving markets.

Critical accounting policies

The policies
discussed below are considered by us to be critical to an understanding of our financial statements. The application of these policies places significant demands on the judgment of our management and, when reporting financial results, causes us to
rely on estimates about the effects of matters that are inherently uncertain. We describe specific risks related to these critical accounting policies below. Regarding all of these policies, we caution that future results rarely develop exactly as
forecasted, and the best estimates routinely require adjustment. Our critical accounting policies include the following:



| |  |  | Revenue recognition,
| | - |  | --------------------



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| |  |  | Valuation allowance against deferred income taxes,
| | - |  | --------------------------------------------------



| |  |  | Stock based compensation, and
| | - |  | -----------------------------



| |  |  | Business combinations.
| | - |  | ----------------------

Revenue
Recognition. We recognize revenue in accordance with SAB 104, as amended. Revenue recognition in accordance with SAB 104 can be complex. We expect to earn revenue through various sources. The primary sources of anticipated revenue are: fees
for engineering services, fees for the license of technology, and royalty fees.

Recognition of revenue related to engineering services
will depend on whether the revenue is contingent on deliverables by us in any way. If the fee is non-refundable, we have no specific milestones to meet, and there are no required performance criteria, we recognize the revenue as the cost is incurred
to complete the project on a percent of completion basis. If there are specific milestones that must be met before payment becomes due, we recognize the revenue at the completion of each milestone. Costs incurred to achieve the milestones are
deferred until the recognition of the related revenue unless such costs are determined not to be recoverable. If there are specific performance criteria, revenue is recognized when the customer agrees that the specific performance criteria have been
met. Costs incurred to achieve the performance criteria are deferred and recognized concurrent with the recognition of revenue unless they are determined to be unrecoverable. If the fee is entirely cost based, we recognize revenue as the cost is
incurred to complete the project.

Recognition of license fee revenue will occur when a signed agreement exists with the customer, the
price is fixed or determinable, we have delivered the license to the customer, collection of the license fee is reasonably assured, and we have no ongoing or future service obligation. If the license agreement requires us to provide services in
connection with the license over a period of time, the license fee revenue will be recognized ratably over the contractual period.

Recognition of royalty revenue will occur as soon as the production quantity on which the payment is to be based is known. It is anticipated that some customers may report production on a one month lag, resulting in revenue recognition
lagging customer production by one month.

Valuation Allowance Against Deferred Income Taxes. Deferred income tax assets and
liabilities are recorded when there is a difference between the financial reporting and tax treatment of financial transactions. We recorded a valuation allowance to offset the entire net deferred tax asset as of March 31, 2006 and
December 31, 2005. The valuation allowance was recorded due to the losses incurred and the uncertainties regarding the future taxable income and recoverability of such deferred tax assets. We will continue to evaluate the estimated
recoverability of deferred tax assets.

Stock Based Compensation. Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123R, Share-Based Payment (SFAS No. 123R). Under the revised standard, companies may no longer account for share-based compensation transactions, such as stock options, restricted stock, and
potential payments under programs such as the Companys Amended and Restated 2004 Long-Term Incentive Plan using the intrinsic value method as defined in APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
Instead, companies are required to account for such equity



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transactions using an approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service
period. Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied. However, compensation expense already recognized is not adjusted if market conditions are not met, such for
stock options which expire out-of-the-money, or options which expire unexercised. The new standard was adopted using the modified prospective method and beginning with the first quarter of 2006, the Company reflects compensation expense
in accordance with SFAS 123R transition provision. Under the modified prospective method, the effect of the standard is recognized in the period of adoption and in future periods. Prior periods have not been restated to reflect the impact of
adopting the new standard.

Stock options and warrants granted to non-employees for services are accounted for in accordance with SFAS
No. 123R which requires expense recognition based on the fair value of the options and warrants granted. We calculate the fair value of options and warrants granted by using the Black-Scholes option pricing model.

We have issued shares of common stock as payment for services and have entered into agreements to issue stock to certain employees over a specified
vesting period. Stock issued for services, to both employees and non-employees, is valued based on the fair value on the date the commitment to issue the stock has occurred. Expense is measured based on the value of the stock issued, or to be
issued, and is recognized as the required time passes for the individual to earn the specified shares of stock.

Business
Combinations. In the event that the anticipated acquisition of Amp Resources closes, it will be accounted for using the purchase method of accounting. Consideration would include the common stock and cash paid and the value of any options
assumed, less any cash acquired, and would exclude contingent employee compensation payable in cash and any debt assumed. Costs incurred in the process of completing the acquisition will be deferred on the balance sheet and capitalized if the
transaction is completed.

Consistent with this policy, approximately $162,000 of acquisition costs were deferred in the first quarter of
2006 in anticipation of the Amp Resources acquisition.

Results of Operations.

During the quarter ended March 31, 2006, we focused on further development of our core SymetronTMtechnologies and preparation for testing at customer locations. These efforts resulted in early stage evaluation of our technologies and are expected to lead
to licensing discussions in the coming months.

We continue to focus on three primary markets: transportation, industrial motors, and power
generation. A brief description of our efforts in each of these markets is included below.

Transportation Market

We continued to refine and develop our possible alternator designs during the first quarter. We have built and tested a working model for one of our
potential designs which produced 35% to 43% more electrical current at typical operating speeds as compared to an incumbent design of one of our target customers. We were able to maintain this performance improvement in higher temperature operating
conditions. We believe that our alternator design is scalable across the range of traditional transportation applications. Results of this test are reflected in the chart below.



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LOGO

We believe that ISAs will become an increasingly larger market over the coming years. ISAs offer the immediate
benefit of combining the starter and the alternator in existing vehicle configurations into one device. ISAs are considered mild hybrids in applications where an electric motor can be used for limited vehicle drive functions like launch
assist. We are in the process of developing ISAs for transportation applications in three general size categories: (1) less than 15kW, (2) 15 to 30kW and (3) over 30kW. We expect to begin initial customer demonstrations in the second
quarter of 2006. We tested our P-50 ISA design at an independent laboratory in the first quarter of 2006 with positive results as shown in the following table.



|                                |  |               |  |              
|------------------------------- |  | ------------- |  | -------------
|P-50 Performance Attributes     |  | Metric        |  | US           
|Peak torque                     |  | 230 Nm        |  | 170 lbs ft   
|Continuous torque @ rated speed |  | 120 Nm        |  | 89 lbs ft    
|Peak motor efficiency           |  | 94%          
|Continuous power @ rated speed  |  | 25 kW         |  | 34 hp        
|Peak power                      |  | 48 kW         |  | 64 hp        
|Power generation                |  | 20 kW        
|Speed Range                     |  | 0-5000 rpm   
|Torque per liter                |  | 28 Nm / liter
|Inlet coolant temperature       |  | 60 degrees C  |  | 140 degrees F
|Housing dimensions, L x OD      |  | 127mm x 295mm |  | 5 x 11.6   
|Nominal DC bus voltage          |  | 300 V         |  |              

Industrial Market

Our efforts to tailor our technology into a flexible modular (FLEXMODTM) controller
design under a grant from the United States Department of Energy (DOE) through our partner in this effort, Advanced Energy, continued throughout the first quarter of 2006. We believe that this electric motor drive technology



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will improve the efficiency of existing motors in a wide variety of industrial applications. We anticipate completion of this contract during the second
quarter of 2006.

Power Generation Market

On January 19, 2006, the Company entered into a definitive agreement (the Merger Agreement) to acquire Amp Resources, LLC, a private company with technologies focused on power generation.

Under the terms of the agreement, the Company has agreed to acquire Amp Resources and its portfolio of technologies for heat transfer and renewable power
generation. The Company will also assume ownership of multiple, long-term geothermal energy sales contracts with public and private utilities. It is anticipated that two or more of these power generation projects will be developed and placed in
service by December 2007, thereby qualifying for the Production Tax Credit (PTC) incorporated in the Energy Bill which passed in the fall of 2005.

Also under the agreement, Amp Resources equityholders will receive up to 10 million shares of the Companys common stock and approximately $38 million in cash. The Company will also assume Amp Resources liabilities and
approximately $50 million in debt, that the Company intends to retire within 12 months of closing. Upon the close of the transaction, Amp Resources equityholders will own approximately 16% of the Companys common stock on a fully diluted basis.

The transaction is subject to closing conditions, including regulatory approval, as well as the Company obtaining financing to fund the
repayment of approximately $38 million of indebtedness of Amp Resources at closing. The Company intends to finance the repayment of Amp Resources indebtedness through the sale of debt or equity securities, or possibly through other sources of
capital prior to the closing of this transaction, including the possible sale of some of the acquired assets coincident with the closing.

The Merger Agreement provides that either party may terminate the agreement if the proposed acquisition of Amp Resources has not closed by April 23, 2006 or, in the event that shareholder approval is required, May 31, 2006, except
that the right to terminate the Merger Agreement is not available to a party whose action of failure to act has been a principal cause of or resulted in the failure of the proposed acquisition of Amp Resources to occur on or before the end date and
such action or failure to act constitutes a breach of the Merger Agreement. Although we have recently entered into a non-binding letter of intent, which, if consummated, would permit us to satisfy the financing condition, because the financing
condition has not yet been satisfied, we face the risk that Amp Resources may seek to terminate the Merger Agreement at any time. In this regard, although AMP Resources initially signed an agreement to extend the Merger Agreement to June 15,
2006, AMP Resources has since indicated that it reserves the right to terminate the Merger Agreement prior to that time. While we do not concur with Amp Resources position that it has the right to terminate the Merger Agreement prior to
June 15, 2006, the resolution of that difference of opinion is uncertain. Therefore, we face the risk that we may be unable to satisfy the closing conditions prior to the end date or otherwise prior to AMP Resources seeking to terminate,
in which case the proposed acquisition of Amp Resources may not be consummated. In such a case, the management time we have devoted to the proposed transaction with Amp Resources would have been a distraction from our business, we may be unable to
recover the loans we have made to AMP Resources when due or otherwise, our stock price may decline and our business would otherwise be materially adversely affected. The proposed acquisition of Amp Resources involves other risks and uncertainties
that are more fully set forth under the caption Risks Related to the Proposed Acquisition of Amp Resources under Risk Factors in Item 1A of Part II of this report.

Spending

For the quarter ended March 31, 2006,
our recorded net loss was $3,040,715. During the first quarter of 2006, the monthly cash expenditure rate for operations decreased to approximately $0.4 million per month, from a rate of approximately $0.6 million per month in the fourth quarter of
2005, and relatively unchanged from the first quarter of 2005. Compared to the fourth quarter of 2005, the decrease is due to payment of approximately $0.8 million to J. P. Morgan for investment banking services. Compared to the first quarter of
2005, we have increased employee expense associated with higher employment levels offset by higher interest income.

As a company heavily
involved in research and development and without an established revenue stream, we have made use of equity-based compensation in several instances to conserve cash. The quarter ended March 31, 2006 included non-cash equity-based compensation
expenses to employees of approximately $1.4 million, and non-cash equity-based compensation of approximately $33,000 for contracted services. Of the equity-based employee compensation, approximately $0.6 million is related to stock grants, and
approximately $0.8 million is associated with the issuance of stock options to our employees. The quarter ending March 31, 2005 included non-cash equity-based compensation expenses to employees of approximately $0.4 million and non-cash
equity-based compensation of approximately $0.3 million for contracted services.



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Comparison of Periods Ended March 31, 2006 and 2005

Revenue

During the first quarter of 2006, we
recognized $33,736 of revenue from our contract with the U.S. Department of Energy through Advanced Energy. This contract allows for reimbursement of a percentage of our incurred costs, and is accounted for on a percent completion basis. We
recognized no revenue in the first quarter of 2005.

The contract with Advanced Energy to complete work for the U.S. Department of Energy
is expected to be completed in the second quarter of 2006.

Operating expenses

Cost of sales. We reported cost of sales for the quarter ended March 31, 2006 of $55,584. Cost of sales includes the labor, materials and
overhead expenses required to perform the work on our contract Advanced Energy.

General and administrative.General and
administrative expense increased from approximately $1.7 million in the first quarter of 2005 to approximately $2.4 million in the first quarter of 2006. The first quarter of 2006 included equity-based non-cash employee compensation expense of
approximately $1.1 million compared to equity-based non-cash employee compensation expense of approximately $0.7 million in the year-ago quarter. Other quarterly employment related cost increased by approximately $140,000 from the year-ago quarter
reflecting higher salaries and employment levels. Professional service expense also increase by approximately $30,000 in the first quarter of 2006 compared to the first quarter of 2005. Expenses related to depreciation and amortization in the first
quarter of 2006 were higher by approximately $39,000 and insurance expenses were approximately $30,000 lower compared to the year-ago quarter.

Research and development. A significant portion of our expenditures incurred are research and development oriented. All research and development expenditures are being recognized as expensed in the period in which they occur. Total
engineering expenses are split between cost of sales, and research and development based on the engineering effort expended and the material expense incurred during the quarter.

Research and development expenses were approximately $0.9 million in the first quarter of 2006, an increase of approximately $0.3 million from the first
quarter of 2005. Engineering expenses in the first quarter of 2006 included equity-based non-cash compensation expense of approximately $0.3 million compared to approximately $0.1 million in the first quarter of 2005. Other employee related expenses
increased by approximately $0.2 million compared to the prior year quarter, reflecting increased staffing levels and salary levels in our engineering organization. Project related purchases decreased by approximately $35,000 from the year-ago
quarter.

Interest and other income. Interest income was approximately $0.2 million in the first quarter of 2006, reflecting the
higher cash balances and higher commercial interest rates available as compared to the first quarter of 2005. We recorded a loss on sale of securities of $8,512 in the first quarter of 2006.

Liquidity and Capital Resources

Since inception, we
have funded our operations primarily through borrowings and equity investments. In the second quarter of 2005, we issued 20,000 shares of Series C preferred stock through a private offering for net proceeds of approximately $18.4 million. These
shares of Series C preferred stock were subsequently converted into 1,051,919 shares of common stock.



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Operating Activities. Our operating activities consumed approximately $1.2 million and
approximately $1.1 million of cash during the quarters ended March 31, 2006 and 2005, respectively. Cash consumed by operating activities in 2006 consisted primarily of a net loss of approximately $3.0 million, adjusted for approximately $1.4
million of stock-based compensation and stock issued for services. Accrued liabilities increased by approximately $1.1 million during the first quarter of 2006, reflecting a withholding tax payment in connection with the settlement of a former
employees grant of shares of approximately $1.0 million that was incurred late in the first quarter of 2006 and subsequently paid in early April.

Net cash consumed by operating activities in the first quarter of 2005 consisted primarily of a net loss of approximately $2.3 million, adjusted for approximately $0.8 million of stock-based compensation, and stock
and stock options issued for services. Accounts payable and accrued expenses increased by approximately $0.3 million during the first quarter of 2005.

Investing Activities.We purchased investments in marketable debt securities as a means of temporarily investing the proceeds from financings until the funds are needed for operating purposes. Due to the nature
of these investments, we consider it reasonable to expect that their fair market values will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash at short notice. Our investments are intended to
establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Concentration of credit
risk is managed by diversifying investments among a variety of high credit-quality issuers.

Investing activities consumed approximately
$1.3 million in 2006, reflecting disbursements under a promissory note receivable of approximately $1.6 million, offset by the sale of short-term investments of approximately $0.5 million. Additionally, we spent approximately $162,000 on legal
services related to our pending acquisition of Amp Resources.

We had capital expenditures of approximately $40,000 in the first three
months of 2006, compared to approximately $100,000 in the first three months of 2005. The higher capital spending in 2005 was primarily associated with establishing a new information technology infrastructure for the Company. Capital spending in
2006 was directed toward improving our technology center testing facilities.

Financing Activities. Financing activities provided
approximately $0.1 million and $2.2 million of cash in the quarters ending March 31, 2006 and 2005, respectively. Financing activity in 2006 consisted of the exercise of common stock options and warrants. Financing activity in 2005 consisted of
the exercise of common stock warrants.

As of March 31, 2006, we had stockholders equity of approximately $16.7 million and
approximately $15.5 million in cash and restricted cash. While we believe that our current cash on hand, together with cash we expect to receive in connection with warrant exercise and cash anticipated to be provided by customer sales, will be
sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the next 12 months, we will consider additional sources of equity financing in order to:



| |  |  | Complete the announced acquisition of Amp Resources,
| | - |  | ----------------------------------------------------



| |  |  | Provide flexibility in negotiating customer agreements,
| | - |  | -------------------------------------------------------



| |  |  | Accelerate the development of our technologies,
| | - |  | -----------------------------------------------



| |  |  | Enhance our intellectual property position,
| | - |  | -------------------------------------------



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| |  |  | Consider strategic acquisitions and collaborations,
| | - |  | ---------------------------------------------------



| |  |  | Meet the capital requirements for national stock exchanges, and
| | - |  | ---------------------------------------------------------------



| |  |  | Develop more demonstration vehicles and other applications.
| | - |  | -----------------------------------------------------------

To complete the acquisition of Amp Resources announced on January 19, 2006, we will have to provide $38 million of cash at closing and assume approximately $50 million in debt. We are exploring several options for financing this
transaction, including loans secured by the power plant assets and equity financing. We intend to close the acquisition transaction in the second quarter of 2006.

Balance Sheet Arrangements

As of March 31, 2006, we had no off-balance sheet arrangements as defined by
Item 303(a)(4)(ii) of SEC Regulation S-K.

Contractual Obligations and Commitments

We have a contractual obligation to pay $750,000 in investment banking fees to JP Morgan Chase & Co. upon closing of the acquisition transaction
with Amp Resources.

As of March 31, 2006, we did not have any letters of credit, guarantees, or repurchase obligations.



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

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

The interest rate contracts are held for purposes other than trading. They are used primarily to safeguard Company cash and earn a market rate of
interest.

As of March 31, 2006 the Company had approximately $15.1 million in cash and equivalents which is invested primarily in
money market accounts until needed for operating and other activities. Current money market rates are approximately 4.75%. If interest rates decline by 1%, the amount of interest earned on our money market balances would be approximately $150,000
lower over a twelve month period.

As of March 31, 2006 the Company had lent approximately $1.6 million in a note receivable to Amp
Resources. This note is at a fixed interest rate of 10% per annum, compounded annually. If we are unable to complete the conditions to closing in the required timeframe, there is a possibility that Amp Resources will default on the loans and we
could lose the entire amount invested.

We are exposed to credit loss in the event of nonperformance by counterparties on the above
instruments. Although nonperformance is possible, we do not anticipate nonperformance by any of these parties. Upon completion of the pending Amp Resources acquisition, a portion of the Amp Resources promissory note may be offset as part of the
purchase price.



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|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of disclosure controls and procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are currently
evaluating the impact on our internal controls over financial reporting for the contemplated acquisition of Amp Resources.

Pursuant to the
Sarbanes-Oxley Act of 2002 and rules of the Securities and Exchange Commission promulgated pursuant to that act, our management will be required to evaluate the effectiveness of our internal control over financial reporting as of December 31,
2006, and we are required to disclose managements assessment of the effectiveness of our internal control over financial reporting, including any material weakness (within the meaning of Public Company Accounting Oversight Board
(PCAOB) Auditing Standard No. 2) in our internal control over financial reporting. If our management concludes that there are one or more material weaknesses in our internal control over financial reporting, our management will not
be permitted to conclude that our internal control over financial reporting is effective. It is possible that the control deficiencies identified above or other control deficiencies, either individually or in combination, constitute
significant deficiencies (within the meaning of PCAOB Auditing Standard No. 2) or material weaknesses in our internal control over financial reporting. As a result, if we fail to adequately remediate these control deficiencies
before December 31, 2006, and if management or our auditors conclude that they give rise to or otherwise constitute material weaknesses, our management will not be permitted to conclude that our internal control over financial reporting is
effective.



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PART II. OTHER INFORMATION



|Item 1A. | Risk Factors.
|-------- | -------------

SET FORTH BELOW AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q, AND IN OTHER
DOCUMENTS WE FILE WITH THE SEC, ARE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY REPORT. BECAUSE OF THE FOLLOWING FACTORS, AS
WELL AS OTHER VARIABLES AFFECTING OUR OPERATING RESULTS, PAST FINANCIAL PERFORMANCE SHOULD NOT BE CONSIDERED A RELIABLE INDICATOR OF FUTURE PERFORMANCE, AND INVESTORS SHOULD NOT USE HISTORICAL TRENDS TO ANTICIPATE RESULTS OR TRENDS IN FUTURE
PERIODS.

Risks Related to the Proposed Acquisition of Amp Resources

Our proposed acquisition of Amp Resources is dependent upon the satisfaction of certain closing conditions, which could impede or delay the closing of the acquisition and result in significant expense.

On January 19, 2006, we entered into an Agreement and Plan of Acquisition with Amp Resources, LLC (the Merger Agreement).
Pursuant to the terms of the Merger Agreement, the completion of our acquisition of Amp Resources is subject to various closing conditions, including (i) the redemption of all of the outstanding Series B-1 membership interests of Amp Resources,
(ii) that we obtain funding from third parties in an amount sufficient to consummate the redemption of all of the outstanding Series B-1 membership interests of Amp Resources, (iii) customary regulatory approvals and (iv) expiration
of the applicable waiting period under the Hart-Scott-Rodino Act. We cannot assure you that we will be able to satisfy the closing conditions of the merger or that Amp Resources will not seek to terminate this agreement before the closing conditions
are satisfied.

In addition, the Merger Agreement provides that either party may terminate the agreement if the proposed acquisition of Amp
Resources has not closed by April 23, 2006 or, in the event that shareholder approval is required, May 31, 2006, except that the right to terminate the Merger Agreement is not available to a party whose action of failure to act has been a
principal cause of or resulted in the failure of the proposed acquisition of Amp Resources to occur on or before the end date and such action or failure to act constitutes a breach of the Merger Agreement. Although we have recently entered into a
non-binding letter of intent, which, if consummated, would permit us to satisfy the financing condition, because the financing condition has not yet been satisfied, we face the risk that Amp Resources may seek to terminate the Merger Agreement at
any time. In this regard, although AMP Resources initially signed an agreement to extend the Merger Agreement to June 15, 2006, AMP Resources has since indicated that it reserves the right to terminate the Merger Agreement prior to that time.
While we do not concur with Amp Resources position that it has the right to terminate the Merger Agreement prior to June 15, 2006, the resolution of that difference of opinion is uncertain. Therefore, we face the risk that we may be
unable to satisfy the closing conditions prior to the end date or otherwise prior to AMP Resources seeking to terminate, in which case the proposed acquisition of Amp Resources may not be consummated. In such a case, the management time we
have devoted to the proposed transaction with Amp Resources would have been a distraction from our business, we may be unable to recover the loans we have made to AMP Resources when due or otherwise, our stock price may decline and our business
would otherwise be materially adversely affected.

Further, any sale of equity or equity-linked securities in connection with financing of
the redemption of the outstanding Series B-1 membership interests of Amp Resources may be dilutive to our existing shareholders and any indebtedness that we incur in connection with such financing may result in the imposition of restrictions that
would impair our ability to operate our business. In addition, the satisfaction of the closing conditions could delay the closing of the merger and result in significant expense to us.

Any failure or delay by us or Amp Resources to satisfy one or more closing conditions or any adverse developments in Amp Resources business could
result in one of us seeking to terminate the agreement or cause us to re-negotiate the terms of the merger, which could require substantial time and expense and distract our management team from the operation of our existing business. In addition,
any adverse developments in Amp Resources business could hinder our ability to achieve the anticipated benefits of the Amp Resources acquisition.

Our proposed acquisition of Amp Resources may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention, which would have a material adverse impact on our business.

The proposed Amp Resources acquisition will result in significant expense to us and could disrupt our ongoing business and distract our management and
employees. We may have difficulty integrating the acquired technology, employees and operations in connection with the proposed Amp Resources acquisition. In addition, the key personnel of Amp Resources may decide not to work for us. The proposed
Amp Resources acquisition also involves risks associated with the acquired business, including environmental hazards, such as discharges of hazardous substances and historic disposal activities. In order to operate Amp Resources as a successful
business we will need to:



| |  |  | obtain necessary power generation equipment, governmental permits and approvals, electrical transmission agreements, water supply and wastewater discharge agreements, site
agreements and construction contracts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | effectively operate geothermal power plants, which are subject to numerous operational risks, including breakdown or failure of power generation equipment, transmission lines, and
performance below expected levels of output or efficiency;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | attract and retain key personnel and third party firms to complete construction of the plants in a timely and cost effective manner; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into and maintain power purchase agreements on commercially reasonable terms and secure the performance by the power purchasers of their contractual obligations under these
contracts.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of these risks, we may not be able to achieve the expected benefits of the Amp Resources acquisition.
If we are unsuccessful in completing or integrating the Amp Resources acquisition, we would be required to reevaluate our growth strategy and we may have incurred substantial expenses and devoted significant management time and resources in seeking
to complete and integrate the Amp Resources acquisition.

The successful integration of Amp Resources will require, among other things,
integration of Amp Resources operations, technologies, policies and personnel with our business. We may not achieve successful integration in a timely manner, or at all, and we may not realize the anticipated benefits and synergies of the
acquisition to the extent, or in the timeframe, anticipated. We will also face challenges inherent in efficiently managing an increased number of employees and operations, including the need to develop appropriate systems, policies, benefits and
compliance programs. The inability to manage the increased size and complexity of the combined company effectively could have a material adverse effect on our business after the acquisition.

The Amp Resources acquisition involves the acquisition of significant tangible and intangible assets. We currently record in our statements of operations
ongoing amortization of intangible assets, and may need to recognize similar charges in connection with the Amp Resources acquisition and possibly any future acquisitions. In addition, we may need to record write-downs from future impairments of
identified tangible and intangible assets and goodwill. These accounting charges would increase a reported loss, or reduce any future reported earnings. In addition, we will require additional funds to consummate the Amp Resources acquisition, which
may require us to incur debt or issue additional equity securities as consideration, which could cause our shareholders to suffer significant dilution.

Amp Resources will require substantial additional capital to support its operations and this capital may not be available on terms acceptable to us, if at all.

Each of Amp Resources geothermal power production projects under development or construction will require substantial capital investment. If we are able to consummate the acquisition with Amp Resources, we may
need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to capital raising activities and other
financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms
favorable to us if at all. If we are unable to obtain adequate financing on terms satisfactory to us, when we require it, our ability to support the business of Amp Resources and our ability to achieve the desired effects of the proposed merger with
Amp Resources will be significantly limited.

We may incur indebtedness in connection with the proposed acquisition of Amp Resources, which would likely
result in the imposition of restrictions that would impair our ability to operate our business.

In order to obtain sufficient funds to
redeem of all of the outstanding Series B-1 membership interests of Amp Resources as required pursuant to the Merger Agreement, we may incur a significant amount of debt, which could constrict our liquidity, result in substantial cash outflows, and
adversely affect our financial health and ability to obtain financing in the future. This debt may impair our ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes,
and a substantial portion of cash flows, if any, from our operations may be dedicated to the debt repayment, thereby reducing the funds available to us for other purposes and could make us more vulnerable to industry downturns and competitive
pressures. Any failure by us to satisfy our obligations with respect to these potential debt obligations would likely constitute a default under such credit facilities.

We may sell equity securities to finance the redemption of certain outstanding Series B-1 membership interests of Amp Resources, which will result in dilution to our existing shareholders.

The Merger Agreement requires us to redeem of certain outstanding Series B-1 membership interests of Amp Resources. In order to effect this redemption, we
will be required to raise additional capital, which may be accomplished through the issuance of additional equity securities. The issuance of additional shares of our equity securities would cause our shareholders to experience significant dilution.



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Our ability to utilize the net operating loss carry forwards acquired in connection with the Amp Resources acquisition
may be limited.

The federal net operating loss carry forwards acquired through the Amp Resources acquisition are subject to limitations
on how much may be utilized on an annual basis. The use of the net operating loss carry forwards may have additional limitations resulting from certain future ownership changes or other factors under Section 382 of the Internal Revenue Code. If
these net operating loss carry forwards are further limited, and we have taxable income which exceeds the available net operating loss carry forwards for that period, we would incur an income tax liability even though net operating loss carry
forwards may be available in future years prior to their expiration, and our future cash flow, financial position and financial results may be negatively impacted.

We may not complete the construction of all four Amp Resources geothermal resource projects in time to qualify for the tax credits provided for in the 2005 Energy Bill.

The Energy Bill of 2005 provided for production tax credits on new energy production from geothermal power plants that are placed in service prior to
January 1, 2008. Recently introduced federal legislation has proposed to extend the placed in service deadline by up to three years, but there is no guarantee that this legislation will pass, or if it passes, that the geothermal projects being
acquired will qualify for the production tax credits. The acquisition agreement with Amp Resources includes representations that all four of these plants can be constructed and placed in service by December of 2007. However, construction of power
plants is an expensive and complicated activity, requiring the coordination of many contractors, securing of government permits and securing of land and water rights from both private landowners and government agencies. The failure to complete the
activities required to place the plants in service prior to January 1, 2008, would preclude us from obtaining the Energy Bill tax credits, which would likely have a negative impact on our financial results and a material adverse effect on our
business. The financial implications of failing to meet the Energy Bill deadline, or the perception that such deadline will not be met, could cause the trading price of our common stock to decline.

Upon completion of the proposed acquisition of Amp Resources, our business will be more complex, putting strains on management, and potentially requiring management
changes for us to be successful.

If we are able to consummate the acquisition with Amp Resources, upon completion of such acquisition
and throughout an intense construction period, the management issues encountered will be more complex and may require us to make management changes including hiring additional people, and replacing some key positions. The occurrence of key personnel
changes or the perception that key personnel will be added or replaced could have a negative effect on our financial results and the trading price of our common stock.

Risks Related to our Business and Ownership of our Common Stock

We have limited operating experience, are not
currently profitable, expect to continue to incur net losses in the near future, and may never achieve or maintain profitability. If we cannot achieve and maintain profitability, our stock price is likely to decline.

We are a technology licensing company with a limited operating history, and from our inception, we have had very limited revenue from operations. Our
early stage of development means that there is limited historical information available upon which you can base your evaluation of our business and prospects, and that we have less insight into how market and technology trends may affect our
business. The revenue and income potential of our business is unproven and the market we are addressing is very competitive and rapidly evolving. You should consider and evaluate our business and prospects in light of the risks, expenses, challenges
and uncertainty that we face as an early stage company seeking to develop new technology and products in a competitive and rapidly evolving market.

Since our inception, we have incurred significant net losses, including a net loss of approximately $3.0 million for the quarter ended March 31, 2006. As a result of ongoing operating losses, we had an accumulated deficit of
approximately $17.0 million as of March 31, 2006. Our losses have resulted principally from research and development and general and administrative expenses associated with our operations. We expect to incur additional losses for the next
several quarters. We cannot assure an investor that we will be able to successfully develop new technology or products, or if developed, that this technology or any products will be commercially viable. We expect to incur substantial additional
operating losses as a result of increases in expenses for research and product development, manufacturing, and selling, general and administrative costs. In addition, we continue to incur significant expenses to comply with our obligations as a
public company. We may never achieve profitability. We are likely to need additional funding for our operations and we cannot assure you that it will be available on commercially reasonable terms, if at all. Our ability to achieve profitability will
depend upon many factors, including our ability to:



| |  |  | develop commercially viable technology by designing and engineering the SymetronTMmotor, controller, alternator, integrated starter alternator and generator technologies for license on a commercial scale;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | convince our potential customers of the benefits of our technology or products, if any;
| | - |  | ---------------------------------------------------------------------------------------



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| |  |  | establish relationships with motor manufacturers, automobile manufacturers, the military, government, and other systems integrators for the license or sale of our products, if any;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | avoid infringing and successfully defend any allegations of infringing the intellectual property rights of others;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | defend our intellectual property from infringement by others;
| | - |  | -------------------------------------------------------------



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



| |  |  | hire, train and retain qualified personnel.
| | - |  | -------------------------------------------

We may be unable to
successfully license our intellectual property. If we cannot successfully license our intellectual property, we will not be able to generate revenues, our stock price will decline and we may be unable to continue operating.

Our current long-term business strategy is based almost entirely upon the licensing of our intellectual property, specifically SymetronTM, to electric motor, controller, alternator and generator manufacturers, suppliers and system integrators. We expect the sales
cycle with respect to the license of our technology to be lengthy and there can be no assurance that we will achieve license sales in the time frames that we expect. If we are unable to successfully license our intellectual property or technology to
these businesses or others, we will be unable to generate revenues under our current business model, our stock price would likely decline, and we may be unable to continue operating or would be required to develop a new long-term business strategy.

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

We may enter into strategic transactions that result in significant cost and expense, but do not produce
additional revenues.

Our success depends on our ability to execute our business strategy of licensing our intellectual property to
electric motor and controller manufacturers, suppliers and system integrators. Our strategy of licensing our intellectual property or technology may involve entering into strategic transactions. In executing these strategic transactions, we may
expend significant financial and management resources and incur other significant costs and expenses. There is no assurance that the execution of these strategic transactions will result in additional revenues. Any failure to enter into strategic
transactions that lead to additional revenues could harm our business, prospects, financial condition and results of operations.

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

In addition to our proposed acquisition of
Amp Resources, we may pursue the acquisition of new or complementary business or technologies. Acquisitions could result in difficulties assimilating acquired operations and products, and result in the diversion of capital and managements
attention away from other



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business issues and opportunities. Integration of acquired companies may result in problems related to integration of technology and management teams. We may
not successfully integrate acquisitions, personnel or products that we may acquire in the future. If we fail to successfully integrate acquisitions, our business could be materially harmed. Furthermore, acquisitions of new or complementary
businesses or technologies could also result in changes to our business or operating model. In addition, any acquisitions may not be successful in achieving our desired strategic objectives, which would also cause our business to suffer.
Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as acquired in-process research and development, impairment of goodwill or the recording of
deferred stock-based compensation. We may issue company stock as consideration for acquisitions, joint ventures or other strategic transactions, and the use of common stock as purchase consideration will dilute each of our current stockholders
interest.

We may be unable to successfully obtain research and development funding opportunities from military and government programs.

Our near term strategy includes research and development funding opportunities from military and government programs. If we cannot successfully obtain
research and development funding opportunities from military and government programs, or meet deadlines imposed under those programs, we may have less funding which could make it more difficult to sustain our long term licensing strategy, our stock
price could decline and we may be unable to continue operating or would be required to develop a new near-term business strategy.

We are likely to need
to raise additional capital in the future and if we are unable to secure adequate funds on terms acceptable to us, we will be unable to support our business requirements or build our business.

On September 24, 2004, we consummated a preferred stock equity financing transaction in which we raised an aggregate of $4,240,500 (before aggregate
offering expenses of approximately $0.3 million). On April 11, 2005, we completed an additional preferred stock equity financing transaction in which we raised an aggregate of $20,000,000 (before aggregate expenses of the offering of
approximately $1.6 million). Our future capital needs depend on many factors, including the timing of our development efforts and the successful commercial licensing of our technologies. We will likely need to raise additional capital to further
develop and market our technologies and continue our operations. For example, we will need to raise additional capital in connection with the pending acquisition of Amp Resources. If we are unable to raise capital to fund our business, we may be
forced to curtail or suspend all or a material part of our business operations, in which case our stock price would likely decline.

If we
raise additional capital through the issuance of equity or securities convertible into equity, our shareholders may experience dilution. Those securities may have rights, preferences or privileges senior to those of the holders of the common stock.
For example, in our September 2004 financing, we issued Series B Convertible preferred stock which included a 7% dividend and anti-dilution protection to account for certain future dilutive issuances, if any. In addition, in our recent financing, we
issued Series C Convertible preferred stock which included anti-dilution protection to account for certain future dilutive issuances, if any. In addition, the Series C Convertible preferred stock issued in our recent financing was converted into
1,051,919 shares of common stock. Additional financing may not be available to us on favorable terms, if at all. If we are unable to obtain financing, or to obtain it on acceptable terms, we may be unable to successfully support our business
requirements or build our business.



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

The market price for our common stock has experienced significant price and volume volatility in recent periods and is likely to continue to experience significant volatility in the future. Such volatility may cause
investors to experience dramatic declines in our stock price from time to time, may impair our ability to raise additional capital and may otherwise harm our business.

Our stock price has in the past and is likely in the future to experience significant volatility as a result of numerous factors, many of which are outside of our control, including, but not limited to the following:



| |  |  | changes in market valuations or earnings of our competitors or other technology companies;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | actual or perceived developments in our business or in the markets we seek to address;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | fluctuations in our operating results;
| | - |  | --------------------------------------



| |  |  | changes in financial estimates or investment recommendations by securities analysts who follow our business;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | technological advances or introduction of new products by us or our competitors;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the loss of key personnel;
| | - |  | --------------------------



| |  |  | the high costs associated with transfer and relocation of new personnel;
| | - |  | ------------------------------------------------------------------------



| |  |  | our sale of common stock or other securities in the future;
| | - |  | -----------------------------------------------------------



| |  |  | additional dilution that could result from adopted employee compensation plans of acquired companies;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | public announcements regarding material developments in our business, including acquisitions or other strategic transactions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | public announcements regarding material transactions or other developments involving our strategic partners, customers or competitors that are perceived by the market to affect our
business prospects;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | intellectual property or litigation developments;
| | - |  | -------------------------------------------------



| |  |  | changes in business or regulatory conditions;
| | - |  | ---------------------------------------------



| |  |  | trading patterns of holders of our common stock;
| | - |  | ------------------------------------------------



| |  |  | the trading volume of our common stock;
| | - |  | ---------------------------------------



| |  |  | short-selling and similar activities with respect to our common stock; and
| | - |  | --------------------------------------------------------------------------



| |  |  | disruption in the geopolitical environment, including war in the Middle East or elsewhere or acts of terrorism in the United States or elsewhere.
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Moreover, the volatility in our stock price has been exacerbated by having relatively limited trading
volume, which can cause significant price movements in our stock price to result from even modest volumes of trading activity. As such, we cannot assure you that our stock price will continue to trade at current price levels in the future or that
recent price levels reflect our intrinsic value. In addition, following periods of volatility in the market price of a companys securities, a company can face increased risk that securities litigation or governmental investigations or
enforcement proceedings may be instituted against it. Any such litigation, and investigation or other procedures, regardless of merits, could materially harm our business and cause our stock price to decline due to potential diversion of management
attention and harm to our business reputation. As a result, before making an investment decision in our common stock, investors are urged to consider carefully the risks associated with investing in a stock like ours that has experienced recent
price and volume volatility and is likely to continue to experience significant such volatility in the future.

The listing of our shares of common
stock on NYSE Arca may result in increased trading volume volatility with respect to our common stock, which may cause a decrease in our stock price.

For most of the 2005 fiscal year, our common stock traded on the Over the Counter Bulletin Board. On November 3, 2005, shares of our common stock began trading on ArcaEx, under the ticker symbol of
RZ. Prior to the listing of our common stock on ArcaEx, there had been a limited public market for our common stock. On March 7, the NYSE Group, Inc., a for-profit, publicly-owned company, was formed out of the merger of the New
York Stock Exchange and Archipelago Holdings, Inc. The listing of our common stock on NYSE Arca may result in increased trading volume volatility with respect to our shares of common stock. Increased trading volume volatility with respect to our
shares of common stock may cause greater volatility in our stock price, which may result in a lower market price for our common stock. In the past, following periods of volatility in the market price of a public companys securities, securities
class action litigation has often been instituted against that company. Such litigation could result in substantial cost and a diversion of managements attention and resources.

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

In October of 2005 we received approval to list shares of our common stock on ArcaEx and on November 3, 2005, shares of our common stock began
trading on ArcaEx. On March 7, the NYSE Group, Inc., a for-profit, publicly-owned company, was formed out of the merger of the New York Stock Exchange and Archipelago Holdings, Inc. Pursuant to the Sarbanes-Oxley Act of 2002, national
securities exchanges, including NYSE Arca, have adopted more stringent listing requirements. Even though we have been approved to list shares of common stock on NYSE Arca, we cannot assure you that we will be able to maintain our compliance with all
of the listing standards of the NYSE Group, or that we will be able to maintain our listing with NYSE Arca as a member of the NYSE Group. Any failure by us to maintain our listing on NYSE Arca could materially harm our business and cause our stock
price to decline.

We do not have an active, liquid trading market for our common stock and you may have difficulty selling your shares.

Our common stock has for much of our history been treated as a penny stock as that term is defined in SEC Rule 3a51-1. Section 15(g)
of the Exchange Act and Rule 15g-2 of the Securities and Exchange Commission require broker and dealers effecting transactions in any penny stock for or with the account of a customer to provide the customer with a document disclosing the risks of
investing in penny stocks and to obtain a manually signed and dated written receipt of the document before making any transaction in a penny stock for the customers account.



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In addition, SEC Rule 15g-9 prohibits broker and dealers from selling penny stocks or effecting the
purchase of penny stocks unless the broker or dealer has approved the investors account for transactions in penny stocks by obtaining, among other things, information concerning the investors financial situation, investment experience
and investment objectives and making a determination as to whether transactions in penny stocks are suitable for the investor in accordance with SEC rules and regulations.

In the past, compliance with these requirements have made it difficult to establish an active, liquid trading market in our common stock, and you may
have difficulty selling your shares. Historically, the public market for our common stock has been very limited. For example, the average reported volume of trading in our common stock over the January through March 2006 period was approximately
44,000 shares per day.

For most of the 2005 fiscal year, our common stock traded on the Over the Counter Bulletin Board (OTC:BB). In
October of 2005 we received approval to list shares of our common stock on ArcaEx, and on November 3, 2005 shares of our common stock began trading on that exchange under the ticker symbol of RZ. On March 7, the NYSE Group, Inc., a
for-profit, publicly-owned company, was formed out of the merger of the New York Stock Exchange and Archipelago Holdings, Inc. We cannot predict that an active, liquid trading market will develop or that the market will be able to sustain
transactions by larger institutional investors. Accordingly, investors may have difficulty accumulating a significant position in our stock or in selling a substantial number of shares in a short period of time.

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

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 and the
Sarbanes-Oxley Act of 2002. These requirements may place a strain on our systems and resources. The Securities Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial
condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are currently reviewing and further documenting our internal control
procedures. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required.

In February 2005, our management and Audit Committee were notified by our independent accountants, Tanner LC, of deficiencies that existed in the design
or operation of our internal control over financial reporting that it considered to be material weaknesses. The deficiencies related to internal control and disclosure control over stock-based compensation, reporting of equity
transactions and certain disclosures in the footnotes to the consolidated financial statements. The deficiency in our internal control over stock-based compensation and equity transactions related to the failure to properly record issuances of
stock, the failure to timely report certain transactions on Forms 3, 4, or 5, and the failure to properly itemize equity transactions in the statement of stockholders equity. The deficiency in our disclosure controls was related to the stock
option disclosures required by Statement of Financial Accounting Standards (SFAS) No. 148.

The deficiencies were detected in the
audit process and were appropriately recorded and disclosed in our annual report on Form 10-KSB for 2004. We have taken several steps during 2005 to improve our internal controls over financial reporting, however we cannot assure you that the
revised controls and procedures will be effective in remedying all of the identified deficiencies. If we fail to adequately address these deficiencies, it could have a material adverse effect on our business, results of operations and financial
condition. Ultimately, if not corrected, these deficiencies could prevent us from releasing our financial information and Securities and Exchange reports in a timely manner, making the required certifications



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regarding, and complying with our other obligations with respect to, our consolidated financial statements and internal controls under the Sarbanes-Oxley
Act. Any failure to maintain the adequacy of our internal control over financial reporting and provide accurate financial statements may subject us to litigation and would cause the trading price of our common stock to decrease substantially.
Inferior controls and procedures could also subject us to a risk of delisting by a national exchange and cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common
stock.

Our major shareholder and Executive Chairman of the Board of Directors, Kraig T. Higginson, has in the past used his personal ownership of
shares in the Company to benefit the Company without compensation.

Mr. Higginson has in the past provided some of his beneficially
owned shares to employees of the Company in lieu of direct employment arrangements between the Company and the employee. He also pledged his personal holdings in a Share Contribution Agreement in connection with the Companys Series C Preferred
Stock offering in April 2005. Mr. Higginson is under no obligation to pledge his personal ownership position for the benefit of the Company in the future. The cessation of his actions to support Company initiatives with his personal holdings or
the perception that this cessation could occur might have a negative effect on the financial performance of the Company and consequently on the trading price of our common stock.

We are deploying new technology and, to date, we have not yet commercially licensed our technologies and we may not be able to successfully develop other technologies.

Our SymetronTMtechnologies are new and commercially unproven. We are still in the early stages of commercializing our technology in automotive, industrial and power generation applications. While we have completed some laboratory testing, our technologies have
not yet been durability tested for long-term applications and we can provide no assurance that they will prove suitable for our target market segments. Our potential product applications require significant and lengthy product development efforts,
and to date, we have not developed any commercially available products. During our product development process, we may experience technological issues that we may be unable to overcome. Because of these uncertainties, none of our potential
technology may be commercially licensed. If we are not able to successfully license our technology, we will be unable to generate revenue or build a sustainable or profitable business.

We will need to achieve commercial acceptance of our technology to obtain licensing revenue and achieve profitability.

Even if our technology is a technical success, we may not successfully develop licensing arrangements with potential customers or commercially viable products on a timely basis, if at all. It may be years before our
technology is proven viable for our target market segments, if at all, and even longer before we have licensing arrangements in place. Superior competitive technologies may be introduced or potential customer needs may change resulting in our
technology or products being unsuitable for commercialization. Our revenue growth and achievement of profitability will depend substantially on our ability to introduce new technology into the marketplace that we are able to successfully
commercialize. If we are unable to cost effectively achieve commercial acceptance of our technology, our business will be materially and adversely affected. Even if our potential technology achieves commercial acceptance, the size of the potential
markets for our technology may prove to be insufficient to permit us to generate significant revenue or achieve profitability.



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Technological advances in our industry could render our technology and products obsolete, which would harm our
business.

Our failure to further refine our technology and develop and introduce new products could cause our technology to become
obsolete, which would harm our business. Our industry is rapidly evolving and competitive. We will need to invest significant financial resources in research and development to keep pace with technological advances in the industry and to effectively
compete in the future. Our development efforts may be rendered obsolete by the technological advances of others and other technologies may prove more advantageous than our technology, including advances developed internally by our potential
customers and partners.

We face competition from companies in multiple industries, as well as from the internal efforts of potential partners and, if
we fail to compete effectively, our business would suffer.

The market for electric motors, alternators, ISAs and motor controllers is
intensely competitive. We believe our potential technology will face significant competition from existing manufacturers in our current target markets, including motor, controller, alternator, generator and transportation vehicle manufacturers. We
may also face significant competition from our future partners. If our potential partners improve or develop technology that competes directly with our technology, our business would be harmed. We also face numerous challenges associated with
overcoming the following:



| |  |  | Our competitors, as well as our potential partners, may have access to substantially greater financial, engineering, manufacturing and other resources than we do, which may enable
them to react more effectively to new market opportunities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Many of our competitors and potential partners have greater name recognition and market presence than we do, which may allow them to market themselves more effectively to new
customers or partners.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our potential partners may have better access to information regarding their own manufacturing processes, which may enable them to develop products that can be more easily
incorporated into the partners products.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We rely on key personnel and the loss of key personnel or the inability to attract, train,
and retain key personnel could have a negative effect on our business.

We believe our future success will depend to a significant
extent on the continued service of our executive officers and other key personnel. Of particular importance to our continued operations are our executive management and technical staff. We do not have key person life insurance for any of our other
executive officers, technical staff or other employees. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decide to join a competitor or otherwise compete directly or indirectly with us, our
business could be harmed. Our future success also depends on our ability to attract, train, retain and motivate highly skilled technical personnel. Competition for personnel is intense, and qualified technical personnel are likely to remain a
limited resource for the foreseeable future. We may not be successful in attracting, training, retaining and motivating personnel in the future, which would impair our ability to maintain and grow our business.

We rely on our intellectual property rights, and our inability to protect these rights could impair our competitive advantage, divert management attention, require
additional development time and resources or



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cause us to incur substantial expense to enforce our rights, which could harm our ability to compete and generate revenue.

Our success is dependent upon protecting our proprietary technology. We rely primarily on a combination of copyright, patent, trade secret and trademark
laws, as well as confidentiality procedures and contractual provisions to protect our proprietary rights. These laws, procedures and provisions provide only limited protection. We have applied for patent protection on most of our key technologies.
However, we cannot be certain that our pending patent applications will result in issued patents or that the claims allowed are or will be sufficiently broad to protect the inventions derived from our technology or prove to be enforceable in actions
against alleged infringers. Also, additional patent applications that we may file for our current and future technologies may not be issued.

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

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

If third parties assert that our technologies or products infringe their
intellectual property rights, our reputation and ability to license our technology or sell any products could be harmed. In addition, these types of claims could be costly to defend and result in our loss of significant intellectual property rights.

We may be subject to infringement claims, whether the claims have merit or not, as the number of products and competitors in our
industry segment grows, and the functionality of products in different industry segments overlaps. If third parties assert that our current or future products infringe their proprietary rights, there could be costs and damages associated with these
claims, whether the claims have merit or not, which could harm our business. Any future claims could harm our relationships with existing customers and may deter future customers from licensing our products. In addition, in any potential dispute
involving our intellectual property, our customers or distributors of our products could also become the target of litigation, which could trigger indemnification obligations in certain of our license and service agreements. Any such claims, with or
without merit, could be time consuming, result in costly litigation, including costs related to any damages we may owe resulting from such litigation, cause product shipment delays or result in loss of intellectual property rights which would
require us to obtain licenses which may not be available on acceptable terms or at all.

We could incur significant expenses if products built with our
technology contain defects.

Products such as those built with our technology are subject to product liability lawsuits for any defects
that they may contain. Detection of any significant defects may result in, among other things, loss of, or delay in, market acceptance and sales of our products, diversion of development resources, injury to our



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reputation, or increased service and warranty costs. A material product liability claim could harm our business, result in unexpected expenses and damage our
reputation.

The markets for our technologies are heavily influenced by federal, state and local government regulations and policies.

The progress of our technologies may be dependent on government regulations such as standards for CAFE and the Clean Air Act. Any delays in implementation
or relaxing of these standards could have a negative impact on the demand for our products and services. Any new government regulations or policies pertaining to our technologies may result in significant additional expenses to us and our potential
customers and could cause a significant reduction in demand for our technologies.

Shareholders that are neither directors nor officers will have little
ability to influence the direction of our business.

Our directors, officers and other key employees collectively are holders of more
than 51% of our common stock. As a result, these shareholders, if they act together, will be able to exert a significant degree of influence over our management and over matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. In addition, sales of significant amounts of shares held by our directors and officers, or the prospect of such sales, could adversely affect the market price of our common stock. Managements
concentrated stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our shareholders from realizing a premium
over the price they paid for our stock.

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

The market price of our common stock could decline as a result of the resale of shares of common stock that were previously restricted under Rule 144.
Approximately 42 million shares of Rule 144 stock passed the two year restriction under Rule 144 in the fourth quarter of 2005. As holders of these restricted shares file with the Securities and Exchange Commission to have the legends removed
from their common stock certificates in accordance with Rule 144, the filings are reported as insiders preparing to sell shares, regardless of the inside knowledge of the shareholder and regardless of their intention. Approximately 16.1 million
shares were free of restrictive legend as of March 31, 2006 up from approximately 3.8 million and 11.5 million at the end of 2004 and 2005, respectively. The occurrence of such sales, or the perception that such sales could occur, may
cause our stock price to decline.

Any additional financing that we choose to undertake may be completed through the issuance of additional
shares that would be dilutive to current common shareholders. The dilutive effect of such a financing may cause our stock price to decline.

We are
exposed to market risk related to changes in interest rates.

We do not use derivative financial instruments in our non-trading
investment portfolio. We maintain a portfolio of highly liquid cash equivalents typically maturing in three months or less as of the date of purchase. We place our investments in instruments that meet high credit quality standards, as specified in
our investment policy guidelines.

We also maintain short-term investments, which are all classified as available for sale, and have been
recorded at fair value, which approximates cost. Short-term investments include certificates of deposit,



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auction rate certificates, auction rate preferred securities, municipal preferred securities and mutual funds. The auction rate securities are
adjustable-rate securities with dividend rates that are reset periodically by bidders through periodic Dutch auctions generally conducted every 7 to 49 days by a trust company or broker/dealer on behalf of the issuer. We believe these
securities are highly liquid investments through the related auctions; however, the collateralizing securities have stated terms of up to thirty (30) years. These instruments are rated BBB+ or higher by Standard & Poors Ratings
Group, or equivalent. Our short-term investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our
investment guidelines and market conditions. Given the short-term nature of these investments, and that we have no borrowings outstanding other than short-term letters of credit, we are not subject to significant interest rate risk.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any dividends on our common stock. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends
in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

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

Generally accepted
accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret
appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our historical or future financial results. For example, prior to January 1, 2006, we were not required to record stock-based
compensation charges if the employees stock option exercise price is equal to or exceeds the deemed fair value of the underlying security at the date of grant. However, effective January 1, 2006 we are required to record the fair value of
stock options as an expense in accordance with recent accounting pronouncements.



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##### Table of Contents

|Item 5. | Other Information.
|------- | ------------------

On January 15, 2006, the Company entered into an Amended Restricted
Stock Grant Agreement (the Ritter Amendment) by and between the Company and John C. Ritter, amending the Restricted Stock Grant Agreement dated as of February 23, 2004 by and between the Company and Mr. Ritter (the Ritter
Agreement). The Ritter Amendment provides for the separation of Mr. Ritter from the Company. Under the Ritter Amendment, Mr. Ritter received 250,000 shares on March 28, 2006 in recognition of past service to the Company, that
were issued as net shares. The net share issuance resulted in 150,707 common shares being issued to Mr. Ritter, and 99,293 shares being withheld to cover the employee portion of payroll tax withholding. In addition, Mr. Ritter received
salary continuation through the end of March, 2006 and will receive 187,500 common shares between May 3 and December 6, 2006.

On
January 31, 2006, the Company entered into an Amended At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement (the Dwyer Amendment) by and between the Company and William Dwyer,
amending the At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement, effective as of August 1, 2004 by and between the Company and Mr. Dwyer (the Dwyer Agreement). The Dwyer
Amendment provides for the delay of vesting of 175,000 shares of the Companys common stock to be issued to Mr.



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Dwyer pursuant to the Dwyer Agreement (the Dwyer Shares) until the earlier of a secondary offering by the Company or certain specified dates
between August 1, 2006 and December 31, 2006. The Dwyer Amendment further provides for a revised vesting schedule for 100,000 shares that were to vest in a lump sum on August 1, 2007, and for the grant of 5,000 additional shares to
vest in December of 2006. The foregoing description of the Dwyer Amendment does not purport to be complete and is qualified in its entirety by reference to the Dwyer Amendment, a copy of which is filed as an exhibit hereto and is hereby incorporated
herein by reference.

On January 31, 2006, the Company entered into an Amended Restricted Stock Grant Agreement (the Fehr
Amendment) by and between the Company and Timothy D. Fehr, amending the Restricted Stock Grant Agreement dated as of February 25, 2004 by and between the Company and Mr. Fehr (the Fehr Agreement). The Fehr Amendment
provides for the delay of vesting of 100,000 shares of the Companys common stock to be issued to Mr. Fehr pursuant to the Fehr Agreement (the Fehr Shares) until the earlier of a secondary offering by the Company or certain
specified dates between February 15, 2006 and December 31, 2006. The Fehr Amendment further provides for a revised vesting schedule for 150,000 shares that were to vest in a lump sum on February 1, 2007. The foregoing description of
the Fehr Amendment does not purport to be complete and is qualified in its entirety by reference to the Fehr Amendment, a copy of which is filed as an exhibit hereto and is hereby incorporated herein by reference.



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



| | (a) | Exhibits
| | --- | --------



|              |  |                                                                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                           
|2.1A          |  | Agreement and Plan of Reorganization dated October 2, 2003 among Wasatch Web Advisors Inc., Raser Technologies Inc. and the stockholders of Raser Technologies Inc.                               
|              | 
|2.2P          |  | Agreement and Plan of Acquisition, dated January 19, 2006, by and among Raser Technologies, Inc., Amp Resources, LLC, Power Acquisition Corp. and John H. Stevens, as Equityholder
Representative.
|              | 
|3.1BC         |  | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.                                                                                        
|              | 
|3.2H          |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                    
|              | 
|3.3N          |  | Amended and Restated Articles of Incorporation of the Registrant                                                                                                                                  
|              | 
|4.1H          |  | Specimen Common Stock Certificate.                                                                                                                                                                
|              | 
|4.2D          |  | Registration Rights Agreement, dated as of July 22, 2002, among the Registration and the Purchasers (as defined therein).                                                                         
|              | 
|4.3H          |  | Form of Debenture.                                                                                                                                                                                
|              | 
|4.4K          |  | Form of Warrant                                                                                                                                                                                   
|              | 
|4.5K          |  | Registration Rights Agreement dated April 4, 2005 by and between the registrant and certain entities identified therein.                                                                          
|              | 
|4.6K          |  | Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock.                                                                                        
|              | 
|10.1E         |  | Securities Purchase Agreement dated July 22, 2004, among the Registrant and the Purchasers (as defined therein).                                                                                  
|              | 
|10.2F         |  | Form of Warrant to Purchase Shares of the Registrants Common Stock.                                                                                                                              
|              | 
|10.3G         |  | Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                                               
|              | 
|10.4H         |  | Form of Option Agreement for the Amended and Restated 2004 Long Term Incentive Plan.                                                                                                              
|              | 
|10.5I         |  | Restricted Stock Grant Agreement dated as of February 23, 2004 between the registrant and John C. Ritter, President.                                                                              



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|              |  |                                                                                                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                       
|10.6I         |  | Restricted Stock Grant Agreement dated as of February 26, 2004 between the registrant and Timothy D. Fehr, Chief Technical Officer.                                                                           
|              | 
|10.7I         |  | At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement effective as of August 1, 2004 between the registrant and William Dwyer, Chief
Financial Officer.
|              | 
|10.8J         |  | At Will Employment Agreement dated January 31, 2005 between the registrant and Brent M. Cook, Chief Executive Officer.                                                                                        
|              | 
|10.9K         |  | Securities Purchase Agreement dated April 4, 2005 by and between the registrant and certain entities identified on the Schedule of Buyers therein.                                                            
|              | 
|10.10L        |  | Amended Restricted Stock Grant Agreement dated April 29, 2005 by and between the registrant and John C. Ritter.                                                                                               
|              | 
|10.11M        |  | Lease Agreement by and between the registrant and EsNET Properties L.C., effective as of March 11, 2005.                                                                                                      
|              | 
|10.12O        |  | Second Amended Restricted Stock Grant Agreement dated July 12, 2005 by and between the registrant and John C. Ritter.                                                                                         
|              | 
|10.13O        |  | Third Amended Restricted Stock Grant Agreement dated July 29, 2005 by and between the registrant and John C. Ritter.                                                                                          
|              | 
|10.14O        |  | Amended At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement dated July 29, 2005 by and between the registrant and William
Dwyer.                     
|              | 
|10.15O        |  | Amended Restricted Stock Grant Agreement dated July 29, 2005 by and between the registrant and Timothy D. Fehr.                                                                                               
|              | 
|10.16         |  | Fifth Amended Restricted Stock Grant Agreement dated January 15, 2006 by and between the registrant and John C. Ritter.                                                                                       
|              | 
|10.17         |  | Amended At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement dated January 31, 2006 by and between the registrant and William
Dwyer.                  
|              | 
|10.18         |  | Amended Restricted Stock Grant Agreement dated January 31, 2006 by and between the registrant and Timothy D. Fehr.                                                                                            
|              | 
|31.1          |  | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a).                                                                                                                             
|              | 
|31.2          |  | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).                                                                                                                             
|              | 
|32.1          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                      

---

|A | Incorporated by reference to Exhibit 2 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on October 14, 2003.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|B | Incorporated by reference to Exhibit 3.2 filed with the registrants Form 10-SB/A (File No. 000-30657) on June 1, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------



|C | Incorporated by reference to Exhibit 10.5 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|D | Incorporated by reference to Exhibit 10.6 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|E | Incorporated by reference to Exhibit 10.1, Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4 filed with the registrants Current Report on Form 8-K (File
No. 000-30657) on July 28, 2004.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|F | Incorporated by reference to Exhibit 10.7 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|G | Incorporated by reference to Appendix B filed with the registrants Schedule 14C Information Statement (File No. 000-30657) on May 14, 2004.
|- | --------------------------------------------------------------------------------------------------------------------------------------------



|H | Incorporated by reference to Exhibit 3.1B, Exhibit 3.2, Exhibit 4.1, Exhibit 4.3 and Exhibit 10.4 filed with the registrants Form 10-QSB (File No. 000-30657) on
August 13, 2004.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|I | Incorporated by reference to Exhibit 10.5, Exhibit 10.6, and Exhibit 10.7 filed with the registrants Form 10-QSB (File No. 000-30657) on November 9, 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|J | Incorporated by reference to Exhibit 10.8 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on February 4, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------------------------



|K | Incorporated by reference to Exhibit 4.4, Exhibit 4.5, Exhibit 4.6 and Exhibit 10.9 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on
April 7, 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|L | Incorporated by reference to Exhibit 10.10 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on May 5, 2005.
|- | --------------------------------------------------------------------------------------------------------------------------------------



|M | Incorporated by reference to Exhibit 10.11 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on May 24, 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|N | Incorporated by reference to Exhibit 3.3 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 8, 2005.
|- | -------------------------------------------------------------------------------------------------------------------------------------



|O | Incorporated by reference to Exhibit 10.12, Exhibit 10.13, Exhibit 10.14 and Exhibit 10.15 filed with the registrants Form 10-QSB (File No. 000-30657) on November 14,
2005.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|P | Incorporated by reference to Exhibit 2.2 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on January 25, 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES

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



|             |  |  |  |                                                    
|------------ |  |  |  | ---------------------------------------------------
|             |  |  |  | RASER TECHNOLOGIES, INC.                           
|             |  |  |  | (Registrant)                                       
|             |  | 
|May 15, 2006 |  |  |  | /s/ Brent M. Cook                                  
|(Date)       |  |  |  | Brent M. Cook, Chief Executive Officer and Director
|             |  | 
|May 15, 2006 |  |  |  | /s/ William Dwyer                                  
|(Date)       |  |  |  | William Dwyer, Chief Financial
Officer             



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##### Table of Contents

EXHIBIT INDEX



| | (a) | Exhibits
| | --- | --------



|              |  |                                                                                                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                       
|2.1A          |  | Agreement and Plan of Reorganization dated October 2, 2003 among Wasatch Web Advisors Inc., Raser Technologies Inc. and the stockholders of Raser Technologies Inc.                                           
|              | 
|2.2P          |  | Agreement and Plan of Acquisition, dated January 19, 2006, by and among Raser Technologies, Inc., Amp Resources, LLC, Power Acquisition Corp. and John H. Stevens, as Equityholder
Representative.            
|              | 
|3.1BC         |  | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.                                                                                                    
|              | 
|3.2H          |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                
|              | 
|3.3N          |  | Amended and Restated Articles of Incorporation of the Registrant                                                                                                                                              
|              | 
|4.1H          |  | Specimen Common Stock Certificate.                                                                                                                                                                            
|              | 
|4.2D          |  | Registration Rights Agreement, dated as of July 22, 2002, among the Registration and the Purchasers (as defined therein).                                                                                     
|              | 
|4.3H          |  | Form of Debenture.                                                                                                                                                                                            
|              | 
|4.4K          |  | Form of Warrant                                                                                                                                                                                               
|              | 
|4.5K          |  | Registration Rights Agreement dated April 4, 2005 by and between the registrant and certain entities identified therein.                                                                                      
|              | 
|4.6K          |  | Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock.                                                                                                    
|              | 
|10.1E         |  | Securities Purchase Agreement dated July 22, 2004, among the Registrant and the Purchasers (as defined therein).                                                                                              
|              | 
|10.2F         |  | Form of Warrant to Purchase Shares of the Registrants Common Stock.                                                                                                                                          
|              | 
|10.3G         |  | Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                                                           
|              | 
|10.4H         |  | Form of Option Agreement for the Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                          
|              | 
|10.5I         |  | Restricted Stock Grant Agreement dated as of February 23, 2004 between the registrant and John C. Ritter, President.                                                                                          
|              | 
|10.6I         |  | Restricted Stock Grant Agreement dated as of February 26, 2004 between the registrant and Timothy D. Fehr, Chief Technical Officer.                                                                           
|              | 
|10.7I         |  | At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement effective as of August 1, 2004 between the registrant and William Dwyer, Chief
Financial Officer.
|              | 
|10.8J         |  | At Will Employment Agreement dated January 31, 2005 between the registrant and Brent M. Cook, Chief Executive Officer.                                                                                        
|              | 
|10.9K         |  | Securities Purchase Agreement dated April 4, 2005 by and between the registrant and certain entities identified on the Schedule of Buyers therein.                                                            
|              | 
|10.10L        |  | Amended Restricted Stock Grant Agreement dated April 29, 2005 by and between the registrant and John C. Ritter.                                                                                               
|              | 
|10.11M        |  | Lease Agreement by and between the registrant and EsNET Properties L.C., effective as of March 11, 2005.                                                                                                      
|              | 
|10.12O        |  | Second Amended Restricted Stock Grant Agreement dated July 12, 2005 by and between the registrant and John C. Ritter.                                                                                         
|              | 
|10.13O        |  | Third Amended Restricted Stock Grant Agreement dated July 29, 2005 by and between the registrant and John C. Ritter.                                                                                          
|              | 
|10.14O        |  | Amended At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement dated July 29, 2005 by and between the registrant and William
Dwyer.                     
|              | 
|10.15O        |  | Amended Restricted Stock Grant Agreement dated July 29, 2005 by and between the registrant and Timothy D. Fehr.                                                                                               



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##### Table of Contents

|              |  |                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                     
|10.16         |  | Fifth Amended Restricted Stock Grant Agreement dated January 15, 2006 by and between the registrant and John C. Ritter.                                                                     
|              | 
|10.17         |  | Amended At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement dated January 31, 2006 by and between the registrant and William
Dwyer.
|              | 
|10.18         |  | Amended Restricted Stock Grant Agreement dated January 31, 2006 by and between the registrant and Timothy D. Fehr.                                                                          
|              | 
|31.1          |  | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a).                                                                                                           
|              | 
|31.2          |  | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).                                                                                                           
|              | 
|32.1          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                    

---

|A | Incorporated by reference to Exhibit 2 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on October 14, 2003.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|B | Incorporated by reference to Exhibit 3.2 filed with the registrants Form 10-SB/A (File No. 000-30657) on June 1, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------



|C | Incorporated by reference to Exhibit 10.5 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|D | Incorporated by reference to Exhibit 10.6 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|E | Incorporated by reference to Exhibit 10.1, Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on
July 28, 2004.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|F | Incorporated by reference to Exhibit 10.7 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 28, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|G | Incorporated by reference to Appendix B filed with the registrants Schedule 14C Information Statement (File No. 000-30657) on May 14, 2004.
|- | --------------------------------------------------------------------------------------------------------------------------------------------



|H | Incorporated by reference to Exhibit 3.1B, Exhibit 3.2, Exhibit 4.1, Exhibit 4.3 and Exhibit 10.4 filed with the registrants Form 10-QSB (File No. 000-30657) on
August 13, 2004.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|I | Incorporated by reference to Exhibit 10.5, Exhibit 10.6, and Exhibit 10.7 filed with the registrants Form 10-QSB (File No. 000-30657) on November 9, 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|J | Incorporated by reference to Exhibit 10.8 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on February 4, 2005.
|- | ------------------------------------------------------------------------------------------------------------------------------------------



|K | Incorporated by reference to Exhibit 4.4, Exhibit 4.5, Exhibit 4.6 and Exhibit 10.9 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on
April 7, 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|L | Incorporated by reference to Exhibit 10.10 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on May 5, 2005.
|- | --------------------------------------------------------------------------------------------------------------------------------------



|M | Incorporated by reference to Exhibit 10.11 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on May 24, 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|N | Incorporated by reference to Exhibit 3.3 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on July 8, 2005.
|- | -------------------------------------------------------------------------------------------------------------------------------------



|O | Incorporated by reference to Exhibit 10.12, Exhibit 10.13, Exhibit 10.14 and Exhibit 10.15 filed with registrants Form 10-QSB (File No. 000-30657) on November 14, 2005.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|P | Incorporated by reference to Exhibit 2.2 filed with the registrants Current Report on Form 8-K (File No. 000-30657) on January 25, 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------



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