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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB

(Mark one)

|x | Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------



For the Fiscal Year Ended December 31, 2004



or



| ̈ | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------



Commission File Number 0-30657



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RASER TECHNOLOGIES, INC.

(Name of small business issuer in its charter)



|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Utah                                                          |  | 87-0638510                          
|(State or other jurisdictionof incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                              |  |           
|--------------------------------------------- |  | ----------
|5152 North Edgewood Drive, Ste. 375 Provo, UT |  | 84604     
|(Address of principal executive offices)      |  | (Zip Code)



Issuers
telephone number: (801) 765-1200



Securities registered
under Section 12(b) of the Exchange Act:



None



Securities registered under Section 12(g) of the Exchange Act:



$0.01 par value common stock



$0.01 par value Series B preferred stock



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Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo ̈



Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ̈



State issuers revenues for its most recent fiscal year was $30,000



The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days was $63,000.



The number of shares outstanding of Registrants common stock as of
February 11, 2005 was 49,246,071 shares.



Transitional Small
Business Disclosure Format (check one): Yes ̈No x



DOCUMENTS INCORPORATED BY REFERENCE



None.



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Table of Contents



|         |  |                                                                                                                         |  |    
|-------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ---
|PART I   |  | 2                                                                                                                      
|         |  | ITEM 1. Description of Business                                                                                         |  | 2  
|         |  | ITEM 2. Description of Property                                                                                         |  | 16 
|         |  | ITEM 3. Legal Proceedings                                                                                               |  | 17 
|         |  | ITEM 4. Submission of Matters to a Vote of Security Holders                                                             |  | 17 
|         | 
|PART II  |  | 17                                                                                                                     
|         |  | ITEM 5. Market for Common Equity and Related Stockholder Matters                                                        |  | 17 
|         |  | ITEM 6. Managements Discussion and Analysis                                                                            |  | 18 
|         |  | ITEM 7. Consolidated Financial Statements                                                                               |  | 25 
|         |  | ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 25 
|         |  | ITEM 8A. Controls and Procedures                                                                                        |  | 25 
|         |  | ITEM 8B. Other Information                                                                                              |  | 26 
|         | 
|PART III |  | 26                                                                                                                     
|         |  | ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 26 
|         |  | ITEM 10. Executive Compensation                                                                                         |  | 29 
|         |  | ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 31 
|         |  | ITEM 12. Certain Relationships and Related Transactions                                                                 |  | 33 
|         |  | ITEM 13. Exhibits and Reports on Form 8-K                                                                               |  | 35 
|         |  | ITEM 14. Principal Accountant Fees and Services                                                                         |  | 36 
|         |  | SIGNATURES                                                                                                              |  | 37 
|         |  | Index to Consolidated Financial Statements                                                                              |  | F-1





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PART I



SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS



THIS ANNUAL REPORT ON FORM
10-KSB, INCLUDING THE MANAGEMENTS DISCUSSION AND ANALYSIS SECTION IN PART II, ITEM 6 OF THIS REPORT, AND OTHER MATERIALS ACCOMPANYING THIS ANNUAL REPORT ON FORM 10-KSB CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS RELATE TO OUR FUTURE PLANS, OBJECTIVES, EXPECTATIONS, INTENTIONS AND FINANCIAL PERFORMANCE AND THE
ASSUMPTIONS THAT UNDERLIE THESE STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS CONCERNING THE FOLLOWING: PERFORMANCE AND EFFICIENCY OF OUR TECHNOLOGY; OUR EXPECTATIONS REGARDING PRODUCT DEVELOPMENT; ABILITY
TO LICENSE OUR TECHNOLOGY; OUR EXPECTATIONS REGARDING OPERATING EXPENSES; OUR EXPECTATIONS REGARDING TECHNOLOGY LICENSE TERMS; RESEARCH AND DEVELOPMENT CAPABILITIES; OUR EXPECTATIONS CONCERNING RELATIONSHIPS WITH MANUFACTUERS, DISTRIBUTORS, AND
RESELLERS; ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY; OUR CORPORATE STRATEGY; OUR EXEPCTATIONS REGARDING REVENUES FROM LICENSING FEES AND ROYALTY PAYMENTS; LEVELS OF CAPITAL EXPENDITURES; OUR EXPECTATIONS REGARDING GOVERNMENT REGULATION;
COMMERCIAL ACCEPTANCE OF OUR TECHNOLOGY; STAFFING AND EXPENSE LEVELS; AND ADEQUACY OF OUR CAPITAL RESOURCES TO FUND OPERATIONS AND GROWTH. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE STATEMENTS. FOR A DETAILED DISCUSSION OF THESE RISKS AND UNCERTAINTIES, SEE THE RISK
FACTORS SECTION IN PART II, ITEM 6 OF THIS ANNUAL REPORT ON FORM 10-KSB. RASER TECHNOLOGIES, INC. UNDERTAKES NO OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF THIS ANNUAL REPORT
ON FORM 10-KSB.



|ITEM 1. | Description of Business
|------- | -----------------------



Overview



Raser Technologies, Inc., a Utah corporation (Raser and the Company) is a technology licensing company offering innovations in
electromagnetic technology for both electricity-to-motion and motion-to-electricity applications. Our technology licensing offerings include alternating current (AC) induction motors, controllers, alternators, integrated starter alternators and
generators along with other electromagnetic technologies in early stages of development. We offer our potential customers an opportunity to improve the performance of their systems through relatively minor changes to their existing mechanical
systems and control strategies. Our technology also affords our potential customers the opportunity to consider new products that were previously not practical to produce. We continually search for new technologies to add to our intellectual
property portfolio through our research and development efforts.



We have developed several innovations in electric motors and controllers that increase torque, power and efficiency. We call our technology developments SymetronTMand label motors enhanced by the technology as SymetronTMenhanced motors. We have also applied our technologies to alternators and generators, where the efficiency of these motion-to-electricity systems can be improved. We believe our technology will have
an impact in several transportation markets, including rapidly emerging hybrid-electric vehicles, all-electric industrial traction, public transportation vehicles on wheels and rails, and recreational vehicle markets.



We plan to license our technology to motor and controller manufacturers,
automobile makers, the military, government, aerospace original equipment manufacturers (OEMs) and other systems integrators. In addition to charging a license fee for disclosure and use of our technology, we anticipate receiving
royalty payments for each device produced using our technology. We may also choose to arrange for contract manufacturing of our products for specific market segments in order to accelerate the adoption of SymetronTMtechnology.



To date, the U.S. Patent Office has issued one patent to us in the area of resonant motor technology, U.S. Patent No. 6,847,186. We have eleven patents
pending on a world-wide basis which define and develop the concepts of our core SymetronTMtechnologies.



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Raser was formed on July 18, 2003 and organized under the laws of the State of Utah as a successor to
Raser Technologies, LLC, a Utah limited liability company formed on October 28, 2002. On October 28, 2003, the company went public through a reverse merger with Wasatch Web Advisors, Inc. Raser currently has 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock authorized.



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 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 recently 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, we cannot assure an investor 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.



Industry Overview



Automotive Industry.



Growing global demand for power and transportation has met with an increasing concern over the use of fossil fuels. These
conflicts are borne out in the news in the form of rising fuel prices, Middle Eastern conflicts and environmental concerns such as air and noise pollution. Consumers are demanding vehicles that provide greater fuel economy for cost savings, and
governments are supporting moves toward energy independence.



The transportation industry is responding with incremental moves to create more fuel efficient vehicles and an emerging trend toward hybrid-electric vehicles. There is a continual move toward size reduction of vehicle systems in order to
generate primary and secondary weight savings which can provide greater passenger comfort or fuel savings. A desire for higher power density, more torque from a lighter weight motor system, is the goal in a vehicles drive train.



As auto makers and system integrators began applying electric motors to
vehicles, they found that the standard industrial electric motors available at the time lacked sufficient power for launch assist and acceleration. Stimulated by this movement toward electric vehicles, several companies have begun to adopt permanent
magnet motor designs in order to obtain improved performance in spite of higher manufacturing cost, scarce raw materials and worrisome failure modes.



Some recent introductions of hybrid-electric vehicles include the following:



| |  |  | The 2004 Toyota Prius, (car of the year at the 2004 New York Auto Show),
| | - |  | ------------------------------------------------------------------------



| |  |  | The 2004 Honda Civic Hybrid,
| | - |  | ----------------------------



| |  |  | The 2005 Lexus RX400H Hybrid, (the number one pre-ordered vehicle in the history of Lexus), and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The 2005 Ford Escape Hybrid (2005 North American truck of the year).
| | - |  | --------------------------------------------------------------------



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. Greater efficiency from an alternator is a goal consistent with a need for more power while producing less drag on the engine. Consistent with the trend toward viewing vehicles as
power sources, General Motors has announced the Silverado Contractor Truck for 2005. This truck takes advantage of an integrated starter alternator (ISA) technology which allows the owner to use the truck as a power generator.



Several automotive companies have reduced their research and development
capabilities, in a trend that leads them to rely increasingly on their supply chain for product and process innovations.



Public Transportation.



Governments have accelerated efforts to provide clean and cost-effective solutions to public transportation (buses, trolleybuses, rail systems and water
ferries), with several entities turning to hybrid electric or all electric public



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transportation systems. This trend can be seen in municipal electric rail systems and hybrid electric buses saving not only fuel consumption, but reducing
maintenance and operating costs. Rail transportation that currently uses Direct Current (DC) electric motors are converting to Alternating Current (AC) electric motors. Electric vehicles for public transportation meet the need to reduce urban
congestion while reducing air and noise pollution.



There is an
emerging trend in this market to redesign the traditional bus to take advantage of an all electric drive train as opposed to the traditional internal combustion engine and its traditional drive train.



Industrial Vehicles.



The trend in the industrial vehicles industry, which includes fork trucks, earth-moving and construction equipment, is to
move toward all electric vehicles in order to reduce the fumes and heat generated by vehicles that frequently operate in confined spaces and in close proximity to people. A constraint on the advancement of electric vehicles is the size and weight of
the batteries required to provide the power and range desired for effective operation of the vehicles. A need for higher torque and more efficient motors is evident.



Recreational Vehicles.



From marine vehicles to motorcycles to golf carts, there is an emerging trend in this industry that is favorable to an electric drive train solution.
Perhaps the most widely publicized opportunity is the operation of snowmobiles in Yellowstone National Park, where the need for safe, quiet and clean vehicle operation has received nationwide attention. The demand for quiet, reliable outdoor
recreational vehicles is increasing as consumers become aware of the increased satisfaction from the quiet alternative.



Military.



As the military transforms itself into a lighter weight, more mobile fighting force, the need for compact, highly efficient power consumption and power
generation will be critical. Military wheeled vehicles are trending toward hybrid electrical power systems that will allow for extended operation without the noise of an internal combustion engine, and the ability to generate power directly from the
engine using an Integrated Starter Alternator / Generator, (ISA). The advantages of this system to the military include a more effective rapid deployment force as the need to transport separate power generation units is diminished. In essence, the
military vehicle not only maintains its primary function, but also becomes a rolling generator. Military programs for which ISA technology may be considered include the High Mobility Multiple Wheeled Vehicle, (HMMWV or
Hummer) and the Future Tactical Truck System, (FTTS) and other multi-wheeled vehicles in the future combat system.



The Navy is also moving to more electric motors for on-board systems ranging from propulsion to targeting systems. Additional power requirements are being
driven by the increasingly electronic Navy and the air-conditioning needs for their electronic equipment cabinets.



Heating Ventilation and Air Conditioning, (HVAC).



Variable speed commercial heating and air conditioning motors fit our target profile of electromagnetic devices that require high electric loads and could
benefit from an increase in efficiency. Obviously, businesses are interested in reducing their energy consumption expense, and utilities have been offering rebates for the installation of energy saving technologies. We expect this trend to continue.



Aerospace.



There are several ground applications in the aerospace industry that can
benefit from clean, efficient electric power, ranging from support equipment to nose wheel drive applications on the jets themselves. The trend toward electric drive on the ground is being driven by the economics of electric power compared to high
fuel costs and cleaner air in the airport areas.



Power Generation.



Electric utilities continue to improve the efficiencies
of their systems, while encouraging the efficient use of power in homes and industries. Small improvements in efficiency for converting heat or motion to electrical energy are relentlessly pursued by power companies as they strain to satisfy growing
demand without adding the huge incremental capacity of a new plant.



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Industry Summary.



The underlying trend in the industries discussed above is toward higher efficiency in motors, alternators and generators; reduction in emissions for
fossil fuels; higher performance levels in terms of torque output from a given weight motor; and economical operation of the system from initial acquisition through the life cycle of the product.



The RaserTMSolution



SymetronTMEnhanced Motor Technologies



We have discovered innovations in alternating current (AC) induction motor
design and control methods which allow for operation with increased efficiency. This efficiency improvement increases the motors continuous power rating as well as decreases power consumption during periods of high torque output in a motor
that uses conventional materials and manufacturing processes. In mobile applications, higher torque will improve the responsiveness of the vehicle while the added efficiency extends the battery life and consequently the range of operation.



We believe our SymetronTMtechnologies are scalable and will apply to typical axial (cylindrical length greater than diameter) as well as pancake (cylindrical diameter greater
than length) shaped motors. We have also applied our concepts to alternators and generators (essentially running an electro magnetic motor in reverse), and have observed increases in efficiency which can address needs in a number of markets.



Raser management believes that these innovations have four
major benefits:



| |  |  | For a comparable power output, SymetronTMenhanced drive systems can be smaller in size and lighter in weight; this feature provides a higher power density.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The performance characteristics of SymetronTMadvanced motor technology make it a good candidate for hybrid electric vehicle applications where high torque is needed for vehicle launch assist.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Standard components and simplicity of design suggest that the estimated production costs for a SymetronTMenhanced motor and controller are anticipated to be equal to or less than those of current motors and controllers for a given power output.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Use of SymetronTMadvanced motor technology may
result in energy savings and consequently range extension in some applications due to its greater efficiencies at higher loads in intermittent torque applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Motor Programs and Their Applications



Axial Motor:The axial motor is an AC Induction motor packaged in an axial shape (a cylinder with length greater than diameter). We have
developed and tested unique technology for both the motor and its controller. Acting in concert with our controller, the SymetronTMenhanced motor can deliver improved continuous and intermittent or peak torque, at excellent efficiencies. The target applications for these motor systems are traction drive systems with high intermittent and variable torque
requirements. Target markets include hybrid-electric bus and truck motors, delivery trucks, industrial traction, elevators, and compressor motors for heating, ventilation, and air conditioning applications.



Pancake Motor: The pancake motor is an AC induction motor packaged in
a pancake shape (a cylinder with diameter greater than length). In this series of motors, the unique technology of the axial motor type acts in concert with pancake design features to produce a unique very high torque motor with a versatile shape
that can be applied to many hybrid-vehicle applications. We believe that our pancake shaped AC induction motor can deliver comparable performance to that of the best state-of-the-art permanent magnet motor, yet has the economy, durability and
scalability of an AC motor design, which we believe to be an advantage for mass production and broad application. The target applications for the AC pancake design include traction drives such as integrated transaxle assemblies, hub, and direct
drive fuel cell vehicles. Target markets include hybrid electric automobiles, trucks, industrial traction, and some industrial applications.



Alternators: We are currently testing the application of its technology to alternators for automobiles, trucks, buses and other vehicles through a
test demonstration program with a leading manufacturer of truck alternators. Our engineers have developed a unique design, which we expect to deliver more power out of an alternator by operating more efficiently than current state-of the-art
products. The target market for this technology is the transportation market.



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Integrated Starter Alternators: We are currently investigating the possible application of its
technology to integrated starter alternators. The Integrated Starter Alternator (ISA) is the combination of two devices, the starter motor and the alternator designed for hybrid integration in a truck or automobile. Raser plans to apply its pancake
AC induction motor technology together with its advanced alternator design to create an ISA. This combination can deliver a unique AC device designed to be integrated with an internal combustion engine and drive train for mild to medium hybrid
vehicle applications. Mild hybrids such as the General Motors Sierra truck reduce fuel consumption by turning off the engine during idle and stops, and provide a source of AC onboard mobile power generation, ideal for electric tools used by
contractors. Medium hybrids use a more powerful ISA to add launch assist for low speed assisted acceleration, further reducing fuel consumption. Target markets include hybrid electric automobiles, trucks, buses, and military vehicles.



Generators: Raser has been investigating the application of our
technology to the power generation markets. This work is in the early development stage, but shows promise. Significant development remains to be done before we can fully assess its market potential.



SymetronTMvalue proposition



As we approach licensing discussions with our potential customers, it will be critical to understand the value that SymetronTMtechnologies bring to a given product family and the manufacturer. The value will obviously vary with the application, but several core principles are expected to transcend multiple markets. The
SymetronTMvalue proposition includes:



| |  |  | Improved performance, added features and economy of operation for vehicle operators,
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Reliable and proven production methods for manufacturers that is scalable over a wide range,
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Quiet and clean operation of vehicles for sustainable growth of our cities and recreational areas, and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Cost effective increases in power generating capacity through efficiency gains.
| | - |  | -------------------------------------------------------------------------------



Business Strategy



Our objective is to achieve significant market share in the industries where a SymetronTMenhanced system can add value, increasing the market presence and profitability of our potential customers in the process. We are pursuing this objective
through the following key strategies:



| |  |  | Establish strong intellectual property rights. Our licensing strategy requires that we establish and maintain clear intellectual property rights to protect the investment of
our shareholders and the investment of our potential customers. We have enlisted the support of strong intellectual property lawyers with global experience to support us in this effort.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Establish close relationships with product designers. With the substantial performance improvements that are available through SymetronTMenhanced systems, it is imperative that we incorporate the improvements into product designs to maximize the long-term value of the technologies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Establish mutually beneficial relationships with motor manufacturers. Our key licenses will be with manufacturers of SymetronTMenhanced products. We also believe that motor manufacturers who experience a successful launch in one market will naturally want to adopt the technologies in
adjacent markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continue to develop new technologies. We believe that there are many more innovations that can be uncovered in the field of electromagnetic technology. A key to our long-term
strategy is discovering, protecting and commercializing these future innovations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Create test demonstration vehicles. We believe that demonstrating the technology in a variety of product applications is the best way to create customer and consumer interest
in the SymetronTMfamily of technologies.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Create an awareness of SymetronTMtechnology potential in government agencies.We believe that initiatives like the government Freedom Car program serve to accelerate the adoption of new technologies like
those
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | that we offer. Creating an awareness of the possibilities offered by our technology can lead to opportunities to develop, demonstrate and implement our
technologies in important new programs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Maintain a competitive cost structure.We maintain the infrastructure necessary to develop and deliver valuable electromagnetic technologies to our potential customers on a
timely and reliable basis. We maintain research and development capabilities and a small administrative staff to deliver superior customer value.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key Relationships



Original Equipment Manufacturer (OEM), and Motor and Controller Manufacturer Relationships. We have contacted and are in discussions with several
OEM and motor and controller manufacturing companies in the United States, Europe and in Asia. It is our practice to disclose the details of our innovations to a manufacturer only after we have entered into a license agreement with such
manufacturer. To date, we have not entered into any such license agreements, and all of our discussions to date have been focused on the improved performance of the machines rather than on the nature of the innovations involved. We have utilized
non-disclosure agreements as deemed appropriate in all of our customer and supplier relationships.



Supplier Relationships. We have also established relationships with key component suppliers for the mechanical devices that we assemble for test
demonstration vehicles and low volume production.



Government Relationships. We have obtained the support of key legislators who have demonstrated an interest in advancing the state-of-the-art in AC induction motors, and diminishing our dependence on foreign sourced fossil fuel
energy.



Sales and Marketing



Historically, we have focused our marketing efforts on industrial customers
at trade shows and industry events in which new product demonstrations are typical and expected. Because we feel that this is the best use of our resources to obtain commercial licenses for our SymetronTMtechnologies, we have not focused on retail consumer marketing activities to this date.



As of December 31, 2004, we had four employees involved in the sales and marketing process. Most of our advertising budget
is spent on test demonstration vehicles and trade shows.



Product
Development



We are engaged in an ongoing process of
developing and demonstrating new applications for our core technology innovations. These include the periodic introduction of new motor and generator related technologies, application of our technologies to manufacturers test applications,
testing and performance evaluations of these technologies and participation in design and engineering of related Original Equipment Manufacturer (OEM) projects.



We have demonstrated and validated several applications of its technologies in dynamometer testing at independent motor labs.



We have devoted considerable effort throughout 2004 to further develop our
various technologies and to identify and develop appropriate independent test facilities to refine, characterize and further verify our technology. Characterization of the technology is the process by which we describe the performance levels that
can be achieved over a range of likely operating conditions. This data provides a performance description that is useful to the customer in understanding the capabilities of the motor without revealing the intellectual property underlying the
improved performance levels. We anticipate that the data and experience gained through this base-lining activity should result in an improved description of SymetronTMcapabilities, and consequently, an enhanced value proposition for our potential customers. We will continue to research and develop our technologies in order
to enhance and expand on our core technologies throughout 2005.



We are working with several government offices and agencies to secure funding for the demonstration of our SymetronTMtechnology in various prototype applications. Our expectation is to sign one or more funded contracts for this development work in the first half of 2005.



We are developing several test demonstration vehicles for use at trade shows and for customer demonstrations. Work on these
vehicles will continue throughout the year.



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Axial Motors



In order to demonstrate its technology, Raser first enhanced a standard industrial National Electrical Manufacturers Association (NEMA) 184T motor. The
184T NEMA frame motor represents a very common and versatile motor size. In independent testing, this motors rated torque and horsepower was increased significantly, while increasing operating efficiency in operating ranges that will be
important to improving product performance in end use applications. Similar results were obtained with tests performed on a 145T NEMA frame motor demonstrating the scalability of our technology. We will be performing additional scalability tests in
2005.



Electric Hybrid Snowmobile



In order to help find a solution to the controversy over two-stroke
combustion engine powered snowmobiles in Yellowstone National Park, Raser converted a conventional snowmobile to a hybrid electric snowmobile powered by a SymetronTMEnhanced electric motor. We are continuing discussions with U.S. National Parks and the Yellowstone Clean Cities chapter regarding funding for the testing of clean, quiet snowmobiles for use in
Yellowstone National Park.



Electric Utility Truck



In a test demonstration of a SymetronTMadvanced motor technology, we replaced the factory electric motor in a utility truck and improved the performance with a three times improvement in
torque and horsepower. This demonstration also confirmed performance in a systems application.



Pancake Motors



Many
applications, including hybrid vehicles, sometimes require flat or integrated style motors. Raser began research and development on a pancake series of motors designed to produce the high torque needed by hybrid electric vehicles without using
expensive permanent magnet materials. This type of motor also has application possibilities in new hybrid vehicles that require integrated starter/generators or alternators. We performed initial testing late in 2004 and expect to test and further
describe our pancake motor design in the first half of 2005.



Alternators



We are testing the application of our technology to
alternators for automobiles, trucks, buses and other vehicles through a test demonstration program with a leading manufacturer of truck alternators. Our engineers have developed a unique design, which we expect to deliver more power out of an
alternator by operating more efficiently than current state-of the-art products. The target market for this technology is the transportation market.



Integrated Starter Alternators



We are investigating the possible application of our technology to Integrated Starter Alternators (ISA). The ISA is the combination of two devices, the
starter motor and the alternator designed for hybrid integration in a truck or automobile. We plan to apply our pancake AC induction motor technology together with our advanced alternator design to create an ISA. This combination can deliver a
unique AC device designed to be integrated with an internal combustion engine and drive train for mild to medium hybrid vehicle applications. We have completed conceptual designs for the target markets, which include hybrid electric automobiles,
trucks, buses, and military vehicles.



Power Generation



Power generation through turning motion into energy has many applications,
from industrial power generation to alternators in on-road and off-road vehicles. We are currently in the process of applying the concepts of SymetronTMand developing new concepts to increase the efficiency of the power generation process.



In addition to these test demonstrations, we will continue to announce results from test programs when appropriate and to join with manufacturers to
install and test SymetronTMtechnologies.



Fulfillment Operations



Licensing. We are offering potential licensees of our technology a choice of full-licensing or a phased license approach. A full license grants the
potential customer the right to manufacture products using a designated SymetronTMtechnology, while the phased
approach allows for partial disclosure of the technology for a partial license fee payment. In



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either case, a full license must be purchased prior to infusing our technology into products. We expect that the early adopters of our SymetronTMtechnologies may opt for the phased approach, and that later adopters will proceed directly to a full license.



We expect that licenses will be restricted with respect to specific
technologies, time, product families, geographic sales regions, assignment rights, foreign manufacturing rights and other key terms that are significant to each situation. We recognize that limited exclusivity rights may be necessary for early
adopters of the technology.



Royalties.We expect to
receive royalty payments based on quantities produced which incorporate the SymetronTMfamily of technologies.



Payment Terms. As a general policy, we expect payment
of the license fee up front, and royalty payments on a monthly basis as determined by the quantities produced by our potential customers and other scheduled minimum payments.



Competition



We have encountered aggressive competition in all areas of our business activity. We have been primarily focused in the area of Electric and Hybrid
Vehicle Markets in order to establish a long-term position as this marketplace evolves from its infancy. We believe that the competition in electric motors is based predominantly on:



| |  |  | Efficiency,
| | - |  | -----------



| |  |  | Power density,
| | - |  | --------------



| |  |  | Peak torque, and
| | - |  | ----------------



| |  |  | Cost of production.
| | - |  | -------------------



We believe that the competition in alternators and generators is based predominantly on:



| |  |  | Efficiency, and
| | - |  | ---------------



| |  |  | Cost of production.
| | - |  | -------------------



There are several companies that license technology in the markets in which we compete. Some of the more notable of these companies are:



| |  |  | Lynx Motion Technologies, a subsidiary of Kinetic Art & Technology Corp.
| | - |  | ------------------------------------------------------------------------



| |  |  | Light Engineering, Inc.
| | - |  | -----------------------



| |  |  | AC Propulsion, Inc.
| | - |  | -------------------



Our primary competitors are product manufacturers that have invested not only in technology development and innovation, but also in factories to produce
their products. Notable competitors that manufacture high-performance electric motors are:



| |  |  | UQM Technologies, Inc.
| | - |  | ----------------------



| |  |  | Solectria, Inc.
| | - |  | ---------------



| |  |  | AC Propulsion, Inc.
| | - |  | -------------------



| |  |  | Enova Systems, Inc.
| | - |  | -------------------



The markets in which we compete are intensely competitive. As the market for high performance electromagnetic devices grows, we believe that companies
involved in electromagnetic technology and motor production will increase their efforts to develop products that compete with our SymetronTMtechnologies. We are unable to anticipate which other companies are likely to offer products or technologies in the future that will compete with the technologies we provide.



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In addition, some of our current and potential competitors have greater brand recognition, longer
operating histories, larger customer bases and significantly greater financial, marketing and other resources than us, and may enter into strategic or commercial relationships with larger, more established and well-financed companies. Some of our
competitors could devote greater resources to marketing and promotional campaigns and devote substantially more resources to their research and development efforts than our Company. New technologies and the continued enhancement of existing
technologies also may increase competitive pressures on us. We cannot assure you that we will be able to compete successfully against current and future competitors or address increased competitive pressures. See Risk Factors below in
Part I, Item 1 of this report.



Intellectual Property



Our patented and patent pending technologies and similar intellectual
property are critical to our success. We rely on a combination of laws and contractual restrictions with our employees, customers, suppliers, affiliates and others to establish and protect our proprietary rights. We typically apply for patent
protection for our key technologies on a global basis. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without authorization. In addition, we cannot assure you that others
will not independently develop substantially similar intellectual property.



To date, the U.S. Patent Office has issued one patent to us in the area of resonant motor technology, U.S. Patent No. 6,847,186. We have eleven patents pending on a world-wide basis which define and develop the
concepts of our core SymetronTMtechnologies. We cannot assure you that potential customers will find value in the
granted patent or be willing to pay a license for its use. The pending patents may or may not be issued in the future.



Although we are pursuing the registration of our key trademarks in the United States, some of our trade names may not be eligible to receive trademark
protection. In addition, effective trademark protection may not be available or may not be sought by us in every country in which our technologies and products are made available, including the United States.



From time to time, we may be subject to legal proceedings and claims in the
ordinary course of our business, including claims of alleged ownership infringement of trademarks and other intellectual property rights of third parties by us. We are not aware of any such claims or the threat of such claims at this time.



Third parties may in the future, recruit our employees who
have had access to our proprietary technologies, processes and operations. These recruiting efforts expose us to the risk that such employees will misappropriate our intellectual property.



Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Any litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and technical
resources, any of which could materially harm our business. See Risk Factors below in Part I, Item 1 of this report.



Government Regulation



The initial progress of our technologies in the hybrid-electric vehicle market may be somewhat dependent on government regulations for activities such as
standards for Corporate Average Fuel Economy (CAFÉ) and the Clean Air Act. As manufacturers and cities strive to comply with these regulations, they may be more inclined to adopt our technologies. Any delays in implementation or relaxing of
the standards could lessen the incentive to adopt our technologies.



In addition, new government initiatives such as the Freedom Car could play a significant role in accelerating the adoption of our technologies in the automotive and other related transportation industries. The Freedom Car
initiative is a public-private partnership, geared towards developing a hydrogen fueled vehicle of the future, which will focus on the research needed to develop technologies such as fuel cells and hydrogen from domestic renewable sources.



All of our services are subject to federal and state consumer
protection laws including laws protecting the privacy of consumer non-public information and regulations prohibiting unfair and deceptive trade practices.



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Research and Development



In 2004, we spent $1,634,541 on research and development activities. In 2003, Raser spent $406,148 on research and development activities. In the
future we anticipate receiving government contracts to support the application of our core SymetronTMTechnologies
to specific government end uses. We do not expect that any of our research and development costs will be borne directly by customers.



Currently, several new applications of SymetronTMtechnology are in research and development stages. We are in the process of more fully characterizing our existing patented technologies, tailoring our technology to specific customer applications,
and developing related ideas that we believe will be patentable.



Employees



As of December 31, 2004, we had 17 full-time employees,
including 9 in engineering and 4 in sales and marketing and 4 in our executive and administrative department. We have never had a work stoppage, and none of our employees are represented by a labor union. We consider our employee relationships to be
positive.



Risk Factors



Set forth below and elsewhere in this annual report on Form 10-KSB, 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 annual 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.



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 could decline.



We are a research and development 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 $6,976,075 for the year ended December 31, 2004. As a result of ongoing operating losses, we had an accumulated deficit of $8,051,896 as of December 31, 2004. 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 and charging systems technology for license on a commercial scale;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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| |  |  | 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 or technology. If we cannot successfully license our intellectual property, we will not be able to
generate revenues, our stock price would 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 or technology, specifically
SymetronTM, to electric motor and controller 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 decline, and we may be unable to continue operating or would be required to develop a new long-term business strategy.



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, 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
expenses of the offering estimated at $344,000). Our future capital needs depend on many factors, including the timing of our development efforts and the successful commercial licensing of our technology. We are likely to need to raise additional
capital to further develop and market our technology and continue our operations. 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 recent financing we issued preferred stock which included a 7% dividend, anti-dilution protection and a liquidation preference. 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.



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 stockholders.



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.



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. 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, such as



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actual or perceived developments in our business or in the markets we seek to address or the trading patterns of holders of our stock. 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 the intrinsic value of the company. 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 the companys 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 that has experienced recent price and volume volatility and is likely to continue to experience significant such volatility in the future.



If we are unable to effectively and efficiently eliminate the deficiencies that have been
identified in our internal controls and procedures, 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 controls 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 controls 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 + Co., 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 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 SFAS No. 148. (See Item 8A Controls and Procedures for a further discussion of these deficiencies.)



While the unrecorded transactions and disclosure deficiencies were detected in the audit process and have been appropriately recorded and disclosed in
this report, the deficiencies, if not addressed, could result in accounting errors and cause future restatements of our financial statements. In order to address these deficiencies, we are improving our internal control over financial reporting and
disclosure controls and procedures. While we are committed to addressing these deficiencies by improving our controls and procedures, we cannot assure you that we will be able to successfully implement the revised controls and procedures or that our
revised controls and procedures will be effective in remedying all of the identified deficiencies. The implementation of these improvements may not be successfully completed in a timely manner or at all, and unanticipated factors may hinder the
effectiveness of these improvements. 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 regarding, and complying with our other obligations with respect to, our 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 cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.



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



Our SymetronTMmotor and controller technology is new and commercially unproven. We
are still in the early stages of commercializing our technology in automotive, industrial and military applications. Our technology has not yet been durability tested for long-term applications and we can provide no assurance that it will prove
suitable for automotive, industrial and military applications. 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,



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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 automotive, industrial and military applications, 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.



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 and motor controllers is intensely competitive. We believe our potential technology will face significant competition from
existing manufacturers in our current target markets, including large motor and automobile 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:



Size and resources. 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.



Name recognition. 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.



Access to information. Our potential partners may have better access to information regarding their own manufacturing processes, which may enable them to develop electric motor and motor control 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. We do not
have key person life insurance for any of our executive officers 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.



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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 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 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 patents that we may seek 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 expect that 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 associated with defending 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 Rasers 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 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 Corporate Average Fuel Economy (CAFÉ) 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.



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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 company 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.



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 October through December period was approximately 90,000 shares per day.



Our common stock currently trades on the Over the Counter Bulletin Board (OTC:BB). We have filed an application to be listed on the American Stock Exchange (AMEX). We do not know whether or when AMEX will approve our
application. In addition, if AMEX approves our application, 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.



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 one
year restriction under Rule 144 in the fourth quarter of 2004. Approximately 5.9 million shares were listed as Free Trading Shares as of February 11, 2005, up from approximately 2.2 million in the third quarter of 2004 and approximately
3.8 million at the end of 2004. The occurrence of such sales, or the perception that such sales could occur, may cause our stock price to decline.



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



|ITEM 2. | Description of Property.
|------- | ------------------------



We currently lease approximately 5,300 square feet of office space located at 5152 North Edgewood Drive, Suite 375, Provo, Utah. We pay monthly rent of
approximately $7,200. We also lease a 3,200 square foot testing facility in Orem, Utah for approximately $1,300 per month. Both leases expire in September 2005 and both facilities are in good condition.



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|ITEM 3. | Legal Proceedings.
|------- | ------------------



Raser is not the subject of any pending legal proceedings and, to the knowledge of management, no proceedings are presently contemplated against Raser by
any federal, state or local governmental agency.



|ITEM 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------



There were no matters submitted to voters during the fourth quarter of the fiscal year ended December 31, 2004.



PART II



|ITEM 5. | Market for Common Equity and Related Stockholder Matters.
|------- | ---------------------------------------------------------



Market Information.



There is no established trading market for our shares of common stock. Our common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the NASD) under the symbol RSTG.



Set forth below are the high and low closing bid prices for our common stock for each quarter of 2004 and 2003. Bid prices were obtained from Pink Sheets,
LLC, formerly known as the National Quotation Bureau, LLC for the period January 1, 2003 through November 7, 2003. Beginning November 10, 2003 closing prices were obtained from the Nasdaq trading system.



|                                   |  |     |     |      |   |     
|---------------------------------- |  | --- | --- | ---- | - | ----
|Fiscal 2003                        |  | Low |     | High
|Quarter ended March 31, 2003       |  | $   | .03 |      | $ | .04 
|Quarter ended June 30, 2003        |  |     | .04 |      |   | .05 
|Quarter ended September 30, 2003 * |  |     | .05 |      |   | .05 
|Quarter ended December 31, 2003    |  |     | .05 |      |   | 3.25



|                                 |  |     |      |      |   |     
|-------------------------------- |  | --- | ---- | ---- | - | ----
|Fiscal 2004                      |  | Low |      | High
|Quarter ended March 31, 2004     |  | $   | 2.60 |      | $ | 3.75
|Quarter ended June 30, 2004      |  |     | 3.25 |      |   | 7.25
|Quarter ended September 30, 2004 |  |     | 4.35 |      |   | 7.60
|Quarter ended December 31, 2004  |  |     | 4.11 |      |   | 8.55

---

|* | 2 for 1 stock split became effective on September 19, 2003.
|- | -----------------------------------------------------------



These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.



Holders.



As of February 11, 2005, there were approximately 250 holders of record of our common stock. This does not include an
indeterminate number of shareholders who may hold their shares in street name.



Dividends.



The Company
has never declared or paid any cash dividends with respect to its common stock. The Company currently anticipates that it will retain all future earnings for the operation and expansion of its business and does not intend to declare dividends in the
foreseeable future. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.



Securities Authorized For Issuance under Equity Compensation Plans.



The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Part III, Item 11
of this Annual Report on Form 10-KSB.



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Sales of Unregistered Securities During the Past Three Years.



In January 2001, the Company issued 44,000 shares of its common stock to 13
individuals for cash totaling $1,540.



In July 2003, the
Company executed an Agreement and Plan of Merger by which Raser Technologies, LLC, the predecessor to the Company, was merged with the Company, with the Company being the surviving entity (the Plan). Under the Plan, each one percent
ownership interest in Raser Technologies, LLC, was converted into 360,000 shares of common stock of the Company.



On October 14, 2003, we issued 38,950,000 shares of common stock to the Raser common shareholders and 300,000 shares of preferred stock to the Raser
preferred shareholders in connection with the reverse acquisition of Wasatch Web Advisers, Inc., a Utah corporation (WWA) by Raser Technologies, Inc. In connection with this transaction, WWA also issued 540,000 shares of common stock as
settlement of debt and 2,967,286 shares of common stock for consulting services.



In 2003, we issued 930,000 shares of Series A Convertible Preferred Stock in a private offering in exchange for aggregate net proceeds of $930,000.



On December 19, 2003, we issued 1,550,000 shares of common stock to 28 investors upon conversion of shares of Series A
convertible Preferred Stock.



From February to June, 2004, we
sold 522,300 shares of our common stock to certain accredited investors, at a price of $2.00 per share.



In the third quarter of 2004, we issued 4,240.5 shares of Series B Convertible Preferred Stock (the Shares) to 18 investors in exchange for
aggregate proceeds of $4,240,500. The Shares were converted to 1,211,571 shares of the Companys common stock pursuant to the Securities Purchase Agreement and the Certificate of Designation of Preferences, Rights and Limitations of Series B
Convertible Preferred Stock.



We believe that the offer and
sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 3(a)(9), 4(2) and 4(6) thereof, and Rule 506 of Regulation D under the Securities Act.



Use of Proceeds



In the third quarter of 2004, we issued 4,240.5 shares of Series B convertible Preferred Stock in exchange for aggregate
proceeds of $4,240,500 (the Offering). The common stock into which these shares are convertible was subsequently registered with the Securities and Exchange Commission through a SB-2 registration statement which became effective on
October 6, 2004. We have used and intend to continue to use the proceeds of the Offering for working capital and general corporate purposes, including expanding our efforts to license our technology and continuing our research and development.
Pending use for these or other purposes, we intend to invest the proceeds of the Offering in short-term interest-bearing, investment-grade securities.



|ITEM 6. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



THE FOLLOWING MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN PART II, ITEM 7 OF THIS ANNUAL REPORT ON FORM 10-KSB. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS, AS SET FORTH UNDER SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING DISCUSSION AND UNDER THE CAPTION RISK FACTORS OF PART I, ITEM 1 OF THIS REPORT AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-KSB. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO A YEAR REFLECT OUR FISCAL YEAR THAT ENDS ON DECEMBER 31.



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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 increase torque, power and efficiency. We call our technology developments SymetronTMand label motors enhanced by the technology as SymetronTMenhanced motors. We have also applied our technologies to alternators and generators, where the efficiency of these motion-to-electricity systems can be improved. We believe our technology will have
an impact in several transportation markets, including rapidly emerging hybrid-electric vehicles, all-electric industrial traction, public transportation vehicles on wheels and rails, and recreational vehicle markets.



History and background



Raser was organized under the laws of the State of Utah on July 18, 2003, as
a successor to Raser Technologies, LLC, a Utah limited liability company. Effective July 22, 2003, Raser and Raser Technologies, LLC, executed an Agreement and Plan of Merger by which Raser Technologies, LLC, was merged with Raser, with Raser being
the surviving entity (the Plan). Under the Plan, each one percent ownership interest in Raser Technologies, LLC, was converted into 360,000 shares of common stock of Raser. As a result, following the completion of the Plan, there were
36,000,000 shares of Raser common stock issued and outstanding.



Under the Plan, Raser succeeded to all rights, contracts, assets and liabilities of Raser Technologies, LLC, including Raser Technologies, LLCs U.S. patent application with respect to its SymetronTMmotor system technology. For the purposes of this Annual Report, all references to Raser shall include Raser Technologies, LLC, as
applicable.



On August 7, 2003, the Board of Directors of
Wasatch Web Advisers, Inc., a Utah corporation (WWA), and the holders of a majority of its issued and outstanding common stock voted to amend WWAs Articles of Incorporation: (i) to increase its authorized shares to 50,000,000
shares of one cent ($0.01) par value common stock and 5,000,000 shares of one cent ($0.01) par value preferred stock, with the rights, privileges and preferences of the preferred stock to be set by the Board of Directors; and (ii) to authorize the
Board of Directors to change WWAs name, without shareholder approval, to a name that reflects the industry or business in which WWAs operations are conducted. WWA filed a definitive information statement with the Securities and Exchange
Commission on August 25, 2003, and Articles of Amendment with respect to these changes were filed with the Utah Division of Corporations on September 8, 2003. See Part III, Item 13 of this Report.



On September 17, 2003, WWAs Board of Directors unanimously resolved to
effect a forward split of its issued and outstanding common stock in the ratio of two for one, retaining the authorized shares at 50,000,000, with appropriate adjustments to the stated capital and additional paid in capital accounts of WWA, with all
fractional shares to be rounded up to the nearest whole share, and with the forward split to be subject to a mandatory exchange of certificates. The split did not require shareholder approval, and it was effective as of September 19, 2003.



Effective as of October 14, 2003, WWA, Raser, and the common
shareholders and preferred shareholders of Raser executed an Agreement and Plan of Reorganization (the Reorganization Agreement), whereby WWA agreed to acquire (i) 100% of the issued and outstanding shares of common stock of Raser in
exchange for 38,950,000 post-split shares of WWAs common stock, or approximately 87% of its post-Reorganization Agreement outstanding common stock; and (ii) 100% of the issued and outstanding preferred stock of Raser in exchange for 300,000
shares of WWAs preferred stock (the Reorganization). This transaction was accounted for as a reverse acquisition with Raser considered to be the accounting acquirer. Therefore, the financial statements reflect the historical
operations of Raser and its predecessor, Raser Technologies LLC, since inception and those of the consolidated entity from the date of the reverse acquisition, October 14, 2003. In connection with this transaction, WWA also issued 540,000 shares of
common stock as settlement for $270,000 of debt and 2,967,286 shares of common stock for consulting services.



Immediately after the closing, 44,756,000 post-Reorganization shares of WWAs common stock were outstanding, along with 300,000 shares of its
preferred stock. Effective as of October 14, 2003, Raser changed its name to Raser Technologies Operating Company, Inc. and WWA changed its name to Raser Technologies, Inc. As a result of the Reorganization, Raser became a
wholly-owned subsidiary of WWA and WWAs business operations became those of Raser.



On April 28, 2004, the shareholders adopted an amendment to our Articles of Incorporation to increase the number of authorized shares of capital stock from 55,000,000 shares to 105,000,000 shares of capital stock
divided into



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100,000,000 shares of common stock and 5,000,000 shares of preferred stock, with rights privileges and preferences to be set by our Board of Directors.



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 electromagnetic technology and specific industries. We also derive revenue
from non-recurring 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 which we describe 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 I or Phase II development. It is our intent to accelerate the progress of customers through the Test Demonstration Program during 2005. We believe that we will be entering the negotiation stage of our initial license agreements later in 2005.



Revenue recognition



Revenue is recognized when earned in accordance with applicable accounting
standards and guidance, including Staff Accounting Bulletin or 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 $8.1 million as of December 31, 2004.



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.



Dividends related to convertible preferred stock



As a result of the warrants granted in connection with our sale of Series B preferred stock and the beneficial conversion
feature inherent in the conversion rights and preferences of Series B preferred stock, the Company recognized a deemed dividend of $4,240,500 in 2004. This deemed dividend was calculated based on the conversion price compared to the market price on
the dates of issuance of the preferred shares. Similarly, a deemed dividend of $611,784 was recorded in 2003 in connection with the conversion rights and preferences of Series A preferred stock.



We paid cash dividends of $66,206 in 2004 to the Series B preferred
shareholders.



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, cause 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. A summary of significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements. Regarding all of these
policies, we caution that future



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results rarely develop exactly as forecast, and the best estimates routinely require adjustment. Our critical accounting policies include the following:



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



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



| |  |  | Stock based compensation.
| | - |  | -------------------------



Revenue Recognition. As described above, we recognize revenue in accordance with SAB 104, as amended. Revenue recognition in accordance with SAB
104 can be complex. The Company expects 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 the Company in any way. If the fee is non-refundable, the Company has no specific milestones to meet, and there are no required performance criteria, the Company will 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, the Company will recognize the revenue at the completion of each milestone. Costs incurred to achieve
the milestones will be deferred and recognized to match the recognition of revenue unless they are determined not to be recoverable. If there are specific performance criteria, revenue will be recognized when the customer agrees that the specific
performance criteria are met. Costs incurred to achieve the performance criteria will be deferred and recognized to match the recognition of revenue unless they are determined not to be recoverable.



Recognition of license fee revenue will depend on whether the license is time
restricted and on other specific terms and conditions of the license agreements.



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. The Company has
recorded a valuation allowance to offset the entire net deferred tax asset as of December 31, 2004. The valuation allowance was recorded due to the losses incurred through December 31, 2004 and the uncertainties regarding the future taxable income
and recoverability of such deferred tax assets. The Company will continue to evaluate the estimated recoverability of deferred tax assets.



Stock Based Compensation. The Company accounts for stock options granted to employees under the recognition and measurement principles of APB
Opinion no. 25, Accounting for Stock Issued to Employees, and related Interpretations, and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. As noted in the Recent Accounting Pronouncements section, the FASB recently issued SFAS No. 123(R). This new pronouncement will require the Company to record compensation expense equal to the fair value of stock options granted
to employees, beginning in the first quarter of 2006. The Company anticipates valuing such stock options using the Black Scholes option pricing model.



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



The Company has issued shares of common stock as payment for services and has 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.



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Results of Operations



The following table sets forth our results of operations for the years ended December 31, 2004, 2003 and date of inception to end of year 2002:



|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ---------- | ----------------------------------------------------- |  | - | ---------- | -
|                                                                                                                     |  | Year EndedDecember 31,2004 |             |   | Year EndedDecember 31,2003 |   |            | October 28, 2002(Date ofinception) toDecember 31,2002 | 
|Revenue                                                                                                              |  |                            | 30,000      |   |                            | $ |           |                                                       |  | $ |           |  
|Operating expense                                                                                                    |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|General and administrative                                                                                           |  |                            | 5,186,470   |   |                            |   | 749,995    |                                                       |  |   | 115,637    |  
|Research and development                                                                                             |  |                            | 1,634,541   |   |                            |   | 406,148    |                                                       |  |   | 232,563    |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Total operating expenses                                                                                             |  |                            | 6,821,011   |   |                            |   | 1,156,143  |                                                       |  |   | 348,200    |  
|Interest (expense)                                                                                                   |  |                            | (203,500    | ) |                            |   | (280,808   | )                                                     |  |   |           |  
|Interest income                                                                                                      |  |                            | 18,436      |   |                            |   |           |                                                       |  |   |           |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Loss before income taxes                                                                                             |  |                            | (6,976,075  | ) |                            |   | (1,436,951 | )                                                     |  |   | (348,200   | )
|Income tax benefit                                                                                                   |  |                            |            |   |                            |   |           |                                                       |  |   |           |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Net loss                                                                                                             |  |                            | (6,976,075  | ) |                            |   | (1,436,951 | )                                                     |  |   | (348,200   | )
|Preferred stock dividends                                                                                            |  |                            | (66,206     | ) |                            |   |           |                                                       |  |   |           |  
|Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock |  |                            | (4,240,500  | ) |                            |   | (611,784   | )                                                     |  |   |           |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Net loss applicable to common shareholders                                                                           |  | $                          | (11,282,781 | ) |                            | $ | (2,048,735 | )                                                     |  | $ | (348,200   | )
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Loss per common share-basic and diluted                                                                              |  | $                          | (0.24       | ) |                            | $ | (0.05      | )                                                     |  | $ | (0.01      | )
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  
|Weighted average common shares-basic and diluted                                                                     |  |                            | 47,365,000  |   |                            |   | 40,389,000 |                                                       |  |   | 38,950,000 |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |            |  



Comparison of Years Ended December
31, 2004 and 2003



Revenue



Our total revenue increased from $0 for the year ended December 31, 2003 to
$30,000 for the year ended December 31, 2004. Revenue from customers in 2004 was due entirely to engineering services provided in a program to demonstrate our technology in a specific application.



Operating expenses



General and Administrative. General and Administrative expense
consists primarily of salaries, equity-based compensation, benefits and related costs of administrative personnel, tradeshow and other marketing activities. General and administrative expense increased from $0.7 million for the year ended December
31, 2003 to $5.2 million for the year ended December 31, 2004. The increase was primarily due to increases in staffing levels and in particular, non-cash equity compensation of approximately $3 million to attract the appropriate management talent
and non-cash equity consulting expense of approximately $1 million. We plan to continue expanding our sales, marketing, and support functions in support of increasing and expanding our relationships with key customers. We expect sales and marketing
expenses to continue to increase in absolute dollars during 2005 as we increase our sales and marketing efforts.



Research and development. Research and development expenses consists primarily of salaries, bonuses, benefits and related costs of engineering,
product strategy and quality assurance personnel. Research and development expenses increased from $0.4 million for the year ended December 31, 2003 to $1.6 million for the year ended December 31, 2004. The increase was primarily due to increases in
staffing levels and in particular, non-cash equity compensation of approximately $0.7 million to attract the appropriate management talent. We expect that research and development expenses will continue to increase in absolute dollars as we invest
in additional development efforts in 2005.



Stock-based
compensation. We recorded stock-based compensation expense relating to stock grants to employees of $0 in 2003 and $3.0 million in 2004. Approximately $2.3 million of this amount was recorded as general and administrative expense and
approximately $0.7 million was recorded as research and development expense. As of December 31, 2004, we have a remaining balance of $4.3 million of stock based compensation expense of which we expect to recognize approximately $0.4 million per
quarter during 2005, approximately $0.5 million per quarter in 2006, approximately $0.4 million in the first quarter of 2007, approximately $165,000 in the second quarter of 2007, and



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approximately $55,000 in the third quarter of 2007. We also recorded approximately $1 million in 2004 as general and administrative expense related to stock
and stock options issued to consultants for services.



Interest expense



Interest expense consists primarily of beneficial
conversion feature expense of $200,000 in 2004 and $270,000 in 2003 associated with the issuance of convertible notes payable.



Dividends related to convertible preferred stock



As a result of the warrants granted in connection with the sale of Series B preferred stock and the beneficial conversion feature inherent in the
conversion rights and preferences of Series B preferred stock, the Company has recognized a deemed dividend of $4,240,500 in 2004. This deemed dividend was calculated based on the conversion price compared to the market price on the dates of
issuance of the preferred shares. Similarly, a deemed dividend of $611,784 was recorded in 2003 in connection with the conversion rights and preferences of Series A preferred stock. In addition, we paid cash dividends of $66,206 in 2004 to the
holders of Series B Preferred Stock.



Comparison of Periods Ended December
31, 2003 and 2002



Revenue



We recognized no revenue in either 2002 or 2003.



Operating expenses



General and administrative. General and administrative expense
increased from $0.1 million for the period ended December 31, 2002 to $0.7 million for the year ended December 31, 2003. The increase was primarily due to additional expenses related to increased staffing necessary to manage and support our growth
and costs associated with being a public company, and the fact that 2002 was a partial year.



Research and development. Research and development expenses increased from $0.2 million for the period ended December 31, 2002 to $0.4 million for the year ended December 31, 2003. The increase was primarily
due to additional expenses related to increased staffing necessary to develop our technologies, and the fact that 2002 was a partial year.



Interest expense. Interest expense consisted primarily of beneficial conversion feature expense of $270,000 in 2003 associated with a convertible
note payable in 2003 and $0 in 2002.



Dividends related to
convertible preferred stock. A deemed dividend of $611,784 was recorded in 2003 in connection with the conversion rights and preferences of Series A preferred stock This deemed dividend was calculated based on the conversion price compared to
the market price on the dates of issuance of the preferred shares.



Liquidity and Capital Resources



Since
inception, we have funded our operations primarily through borrowings and equity investments. In 2003, Raser converted $270,000 of debt to 540,000 common shares. Also in 2003, Raser issued 930,000 shares of Series A preferred stock through a private
offering for net proceeds of $930,000. These shares were subsequently converted into 1,550,000 shares of the Companys common stock at approximately $0.81 per share. In June of 2004, the company took on $200,000 of debt in the form of a bridge
loan which was subsequently converted into 100,000 shares of common stock. In the third quarter of 2004, the company issued 4,240.5 shares of Series B preferred stock through a private offering for net proceeds of $3.9 million. These shares of
Series B preferred stock were subsequently converted into 1,211,564 shares of common stock.



Our operating activities consumed $2.8 million and $1.0 million of cash during the years ended December 31, 2004 and 2003, respectively. Cash consumed by operating activities in 2004 consisted primarily of net loss of
$7.0 million, adjusted for $3.0 million of stock-based compensation, $1.1 million of stock and stock options issued for services, and $0.2 million non-cash beneficial conversion feature on the issuance of debt. Investing activities consumed $0.2
million in 2004. Net cash consumed by operating activities in 2003 consisted primarily of the net loss of $1.4 million, adjusted for $89,000 of stock issued for services and $270,000 non-cash beneficial conversion feature on the issuance of related
party notes payable.



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We had $97,000 of capital expenditures in 2004, an increase from $33,000 in 2003. Most of these
expenditures related to our improvement of our development tools, creation of bench test capabilities and preparation of demonstration vehicles. We spent approximately $120,000 for patent and trademark filings in 2004, up from $6,000 in 2003.
Several new patent applications have been filed, and trademark protection for SymetronTMis anticipated to be issued
in 2005. We were notified on January 25, 2005 that our first patent was issued by the U.S. Patent Office. We anticipate that we could invest approximately $200,000 to $500,000 in these activities in 2005. If customer support or testing requirements
do not materialize as rapidly as planned, we will modify and delay our capital expenditure plans.



Financing activities provided $5.5 million and $1.3 million of cash in 2004 and 2003, respectively. During 2004, we received $3.9 million of net proceeds
from the issuance of Series A preferred stock, $200,000 from a convertible note payable and $1.4 million from the sale of common stock. The cash provided by financing activities during 2003 consisted primarily of $930,000 from the issuance of Series
A preferred shares of stock, net of issuance costs, and $270,000 in proceeds from a related party note payable.



By December 31, 2004, more than 75% of the outstanding shares of our preferred stock had converted into shares of common stock. The remaining outstanding
preferred shares were converted into common stock on January 20, 2005 and the final dividend was paid on that date.



As of December 31, 2004, we had stockholders equity of $3.0 million and $2.7 million in 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 and capital expenditures for the next 12 months, we
will consider additional sources of equity financing in order to:



| |  |  | Give us flexibility in negotiating customer agreements,
| | - |  | -------------------------------------------------------



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



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



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



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



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



We had no off balance sheet arrangements as defined by Item 303(c) of Regulation S-B.



Contractual Obligations and Commitments



The Company has entered non-cancelable operating leases for its business facility and a testing facility. The operating leases obligate the Company at
approximately $67,000 from January 1, 2005 through August 31, 2005.



As of December 31, 2004, we did not have any other commercial commitments, such as letters of credit, guarantees, or repurchase obligations.



Recently issued accounting pronouncements



In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Shared-Based Payment. Statement 123(R) addresses the
accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value of stock options and other equity-based compensation issued to employees in the income
statement. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting in APB Opinion No. 25, Accounting for Stock Issued
to Employees, which was permitted under Statement 123, as originally issued.



The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial statements.



Statement 123(R) is effective for public companies that do not file as small
business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 (i.e., fourth quarter 2005 for the Company). All



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public companies must use either the modified prospective or the modified retrospective transition method. Early adoption of this Statement for interim or
annual periods for which financial statements or interim reports have not been issued is encouraged. The Company has not yet evaluated the impact of adoption of this pronouncement which must be adopted in the fourth quarter of our fiscal year 2005.



In November 2004, the FASB issued Statement No. 151,
Inventory Costs, to amend the guidance in Chapter 4, Inventory Pricing, of FASB Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins. Statement No.
151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The Statement requires that those items be recognized as current-period charges. Additionally, Statement 151
requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Statement No. 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently
evaluating the impact of the adoption of this Statement which is required to be adopted in our fiscal year 2006.



As part of its short-term international convergence project with the IASB, on December 16, 2004, the FASB issued Statement 153 to address the accounting
for non-monetary exchanges of productive assets. Statement 153 amends APB No. 29, Accounting for Non-monetary Exchanges, which established a narrow exception for non-monetary exchanges of similar productive assets from fair value
measurement. This Statement eliminates that exception and replaces it with an exception for exchanges that do not have commercial substance. Under Statement 153 non-monetary exchanges are required to be accounted for at fair value, recognizing any
gains or losses, if their fair value is determinable within reasonable limits and the transaction has commercial substance.



The Statement specifies that a non-monetary exchange has commercial substance if future cash flows of the entity are expected to change significantly as a
result of the exchange. An entity should apply the provisions of Statement 153 prospectively for non-monetary asset exchange transactions in fiscal periods beginning after June 15, 2005. The Company will adopt this Statement in fiscal 2005 and
adoption is not expected to have a material impact on our financial position or results of operations.



|ITEM 7. | Consolidated Financial Statements.
|------- | ----------------------------------



Our audited Consolidated Financial Statements, including the notes thereto, appear beginning on page F-1 of this report.



|ITEM 8. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------



None.



|ITEM 8A. | Controls and Procedures.
|-------- | ------------------------



We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure.



As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision of our Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2004. In connection with its audit of Raser Technologies consolidated financial statements for the year ended December 31, 2004, Tanner + Co.
identified deficiencies that existed in the design or operation of our internal control over financial reporting that it considered to be material weaknesses. The Public Company Accounting Oversight Board has defined a material weakness
as a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial will not be prevented or detected.



The deficiencies in our internal control relate to stock-based compensation
and equity transactions; specifically, 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



25



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##### Table of Contents

was related to the stock option disclosures required by SFAS No. 148. The unrecorded transactions and disclosure deficiencies were detected in the audit
process and have been appropriately recorded and disclosed in this Form 10-KSB. We are in the process of improving our internal control over accounting for stock-based compensation and equity transactions and related disclosures in an effort to
remediate these deficiencies through improved supervision and training of our accounting staff. We have designated Jonathan Reid, Vice President and General Counsel, as the chief compliance officer for the filing of Form 3, Form 4 and Form 5 equity
transactions on a timely basis. These deficiencies have been disclosed to our Audit Committee. Additional effort is needed to fully remedy these deficiencies and we are continuing our efforts to improve and strengthen our control processes and
procedures. Raser Technologies management, audit committee, and directors will implement policies and procedures to ensure that our controls and procedures are adequate and effective.



Other than those matters described above, there has been no change in our
internal control over financial reporting during the fourth quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Other than as described above,
since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.



|ITEM 8B. | Other Information.
|-------- | ------------------



None.



PART III



|ITEM 9. | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
|------- | ----------------------------------------------------------------------------------------------------------------



Identification of Directors and Executive Officers.



The following table sets forth the names of all of our current directors and
executive officers. These persons will serve until the next annual meeting of the shareholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.



|                   |  |     |  |                                                               |  |                                        |  |                                 
|------------------ |  | --- |  | ------------------------------------------------------------- |  | -------------------------------------- |  | --------------------------------
|Name               |  | Age |  | Positions Held                                                |  | Date of Election orDesignation         |  | Date ofTermination orResignation
|                   |  |     |  |                                                              
|Kraig T. Higginson |  | 50  |  | PresidentChief Executive OfficerChairman of the BoardDirector |  | 10/14/20033/8/200410/14/200310/14/2003 |  | 3/8/20041/31/2005****           
|                   |  |     |  |                                                              
|Brent M. Cook      |  | 44  |  | DirectorChief Executive Officer                               |  | 10/6/20042/1/2005                      |  | ****                            
|                   |  |     |  |                                                              
|John C. Ritter     |  | 57  |  | PresidentDirector                                             |  | 3/8/20043/8/2004                       |  | ****                            
|                   |  |     |  |                                                              
|R. Thomas Bailey   |  | 65  |  | TreasurerDirector                                             |  | 10/14/200310/14/2003                   |  | 12/31/2004**                    
|                   |  |     |  |                                                              
|David W. West      |  | 47  |  | Vice PresidentDirector                                        |  | 10/14/200310/14/2003                   |  | ****                            
|                   |  |     |  |                                                              
|James E. Morton    |  | 51  |  | SecretaryDirector                                             |  | 10/14/200310/14/2003                   |  | ****                            
|                   |  |     |  |                                                              
|Fred Wenninger     |  | 66  |  | Director                                                      |  | 10/14/2003                             |  | **                              
|                   |  |     |  |                                                              
|Timothy D. Fehr    |  | 63  |  | CTOSenior V.P.                                                |  | 3/8/20043/8/2004                       |  | ****                            
|                   |  |     |  |                                                              
|Lee Daniels        |  | 48  |  | Director                                                      |  | 5/23/2004                              |  | **                              
|                   |  |     |  |                                                              
|William Dwyer      |  | 46  |  | Vice PresidentChief Financial Officer                         |  | 8/1/20048/1/2004                       |  | ****                            
|                   |  |     |  |                                                              
|Jonathan Reid      |  | 32  |  | Vice PresidentGeneral Counsel                                 |  | 8/17/20048/17/2004                     |  | ****                            

---

|** | Each of these persons is presently serving in the capacity indicated.
|-- | ---------------------------------------------------------------------



26



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Directors are elected by our shareholders to serve until the next annual meeting of our shareholders or
until their successors have been elected and have been duly qualified. Officers are appointed to serve until the annual meeting of our Board of Directors following the next annual meeting of our shareholders and until their successors have been
elected and have qualified.



Business Experience.



Kraig T. Higginson. Mr. Higginson is currently the Companys
Chairman of the Board of Directors and has served as the Chairman since October 2003. He has also served as the Companys President from October 2003 to March 2004 and as the Companys Chief Executive Officer from March 2004 to January
2005. Mr. Higginson founded American Telemedia Network, Inc., a publicly-traded corporation that developed a nationwide satellite network of data and audio-visual programming. He served as President and Chief Executive Officer of Telemedia Network
from 1984 through 1988. From 1988 through 2002, Mr. Higginson worked as a business consultant through Lighthouse Associates, an entity that he controls.



Brent M. Cook. Mr. Cook joined the Companys Board of Directors in February 2004, and in January 2005, he was named as the Companys
Chief Executive Officer. Mr. Cook is a partner in AMP Resources, LLC, a company involved in geothermal power generation and industrial heat recovery generation. Previously, Mr. Cook was President of Headwaters, Inc.- a billion dollar Nasdaq: HDWR
listed energy and energy technology company. He served Headwaters from 1996 to 2002 in positions including CEO, President, and Chairman of the Board of Directors. Prior to his Headwaters career, Mr. Cook was Director of Strategic Accounts, Utah
Operations, at PacifiCorp, which operates as a local electric utility in seven western states.



John C. Ritter. Mr. Ritter joined the Companys Board of Directors in March 2004 and has also served as the Companys President since that time. Prior to joining the Company, Mr. Ritter was Senior
Vice President and Chief Financial Officer of Alcoa Industrial Components, a unit of Alcoa that develops, manufactures and provides support for components used in the aerospace, power generation, automotive and industrial markets. From 1996 through
2000, he was the Senior Vice President and Chief Financial Officer for Howmet Corporation. Mr. Ritter served as Vice President, Finance and Contracts, of AlliedSignal Government Electronics from 1994 to 1996, and as Vice President, Finance and
Administration, of Norden Systems, a subsidiary of United Technologies Corporation, from 1991 to 1994. He holds B.S. and M.B.A. degrees from Ohio University and, as a Sloan Fellow, an M.S. from the Massachusetts Institute of Technology. Mr. Ritter
is currently a director of United Components.



R. Thomas
Bailey. Mr. Bailey joined the Companys Board of Directors in October 2003 and has also served as the Companys Treasurer since that time. Mr. Bailey has more than 30 years experience within the accounting industry, most recently as a
principal of Bailey Accounting, an accounting firm located in Provo, Utah. Clients of Mr. Baileys firm include corporations, partnerships and limited liability companies within the manufacturing, legal, investment, services and other
industries. Mr. Bailey is a Certified Public Accountant.



David W. West. Mr. West joined the Companys Board of Directors in October 2003 and has also served as the Companys Vice President since that time. Mr. West is a 20-year veteran in media and marketing consulting for high
technology companies. Prior to joining the Company, Mr. West served as President of Utah Film & Video Corporation where he headed media development and consulting projects working with organizations such as Rockwell International, PBS, National
Geographic Television, Marriott School of Management, U.S. Ski Team, Sundance Film Institute and others. As former Vice President of American Telemedia Network, he led development of the first nationwide interactive mall information directories
based on satellite video & data broadcast. Mr. West holds a bachelors degree from Brigham Young University.



James E. Morton. Mr. Morton joined the Companys Board of Directors in October 2003 and has also served as the Companys Secretary since
that time. Mr. Morton received his J.D. degree from the McGeorge School of Law, University of the Pacific in 1982, and was admitted to the Utah State Bar that same year. He has been practicing law in Salt Lake City since 1982. Mr. Morton has served
as a member of the Panel of Arbitrators for the American Arbitration



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Association and was a member of the Board of Commissioners of the Utah State Bar in 1990 and 1991. He is also a member of the Association of Trial Lawyers in
American and the Utah Trial Lawyers Association.



Fred
Wenninger. Mr. Wenninger joined the Companys Board of Directors in October 2003. Mr. Wenninger was the President and Chief Executive Officer of Iomega Corporation from 1989 to 1993. Prior to that, from 1986 to 1989, he served as President
of Bendix/King, an avionics subsidiary (now a division) of Allied Signal Corporation. Mr. Wenninger was the Chief Executive Officer, President and a director of Key Tronic Corporation from 1995 through 1997.



Timothy D. Fehr. Mr. Fehr has served as the Companys Senior Vice
President and Chief Technology Officer since March 2004. During more than 30 years with the Boeing Co., and more than 18 years as business unit vice president, Mr. Fehr directed the development, manufacture and deployment of numerous engineering,
mechanical, hydraulic and electrical systems for both commercial and military applications. Mr. Fehr holds undergraduate and graduate science degrees in electrical engineering. He also holds an M.S. degree as a Sloan Fellow from the Massachusetts
Institute of Technology.



Lee A. Daniels. Mr. Daniels
joined the Companys Board of Directors in May 2004. Mr. Daniels currently is the CEO and Managing Partner of Daniels Capital, LLC. Daniels Capital LLC is an investment company that makes private equity investments and provides securitized debt
financings. Mr. Daniels is also the Chief Executive Officer of Telecom 5, a Utah based Telecommunications Company and a Professor of International Business at Brigham Young University. Mr. Daniels served as the President of Newbridge Capital, Japan.
Prior to joining Newbridge, Mr. Daniels was President and Representative Director of Jupiter Telecommunications Co., Ltd. He was the President and Chief Executive Officer of AT&T Japan Ltd. from 1994 to 1998 and concurrently served as the
Chairman of JENS, one of the first Internet Service Providers in Japan. He has served on numerous boards in Japan and the U.S. and is currently a member of the Board of Directors of Raser Technologies, Pro Image, and Telecom 5.



William Dwyer. Mr. Dwyer has served as the Companys Vice
President and Chief Financial Officer since August 2004. Prior to joining the Company, Mr. Dwyer served as Chief Financial Officer of Allegheny Ludlum which provides metallic materials to the aerospace, power generation, automotive and commercial
markets. Mr. Dwyer previously served as Chief Financial Officer for Alcoa Fastening Systems, serving aerospace and commercial transportation markets. As Chief Financial Officer of Alcoa Fastening Systems, Mr. Dwyer led the integration of Finance,
Procurement, Information Technology and Human Resources and facilitated the consolidation of research and development, manufacturing, and sales worldwide. Mr. Dwyer also previously served as the Group Controller of Alcoa Industrial Components. Mr.
Dwyer has served in a variety of business development and financial roles throughout his 24 year career and is a Certified Management Accountant.



Jonathan T. Reid. Mr. Reid has served as the Companys Vice President and General Counsel since August 2004. Mr. Reid received his J.D. degree
from the University of Utah in 1999, as a William H. Leary Scholar. He subsequently served as a law clerk to the Honorable Chief Justice Richard C. Howe of the Utah Supreme Court. He worked as Manager of Legal Affairs for Titus Communications, KK,
in Tokyo, Japan, until the company, then valued at over $1 billion (U.S.), was purchased by Microsoft Corporation and merged into Japans largest broadband company. Prior to joining the Company, Mr. Reid was a partner in the law firm of Van
Woerkom, Reid & Weeks, PLLC, where he practiced general business and corporate law.



Family Relationships.



To our knowledge, there
are no family relationships between any of our directors or executive officers.



Involvement in Certain Legal Proceedings.



In
November, 2001, Profile Media, Inc., was placed into an involuntary bankruptcy. In January, 2002, Profile Media filed a Chapter 11 bankruptcy case, which later was converted into a Chapter 7 liquidation case. From September, 1997, to January, 2002,
Kraig T. Higginson served as Secretary and a director of Profile Media. To the best of Mr. Higginsons knowledge, there have been no actions or claims filed that would allege any impropriety by him during or after his involvement with that
entity.



28



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Audit Committee.



The Company has an audit committee consisting of Lee Daniels and Fred Wenninger. Our Board of Directors has determined that Mr. Daniels is an audit
committee financial expert as that term is defined in Item 401(e) of Regulation S-B under the Exchange Act of 1934. The qualifications of Mr. Daniels are noted in Part III, Item 9 of this report. Both individuals are deemed to be independent
members of the audit committee.



Section 16(a) Beneficial Ownership
Reporting Compliance.



The following directors, officers
and beneficial owners of more than ten percent of the outstanding shares of the Companys common stock failed to file reports pursuant to Section 16(a) of the Exchange Act on timely basis.



|                |  |                        |  |                                                      
|--------------- |  | ---------------------- |  | -----------------------------------------------------
|Name            |  | Number of late reports |  | Number of transactions not reported on a timely basis
|Kraig Higginson |  | 2                      |  | 4                                                    
|Brent Cook      |  | 1                      |  | 1                                                    
|John C. Ritter  |  | 3                      |  | 6                                                    
|David W. West   |  | 1                      |  | 1                                                    
|Fred Wenninger  |  | 2                      |  | 5                                                    
|Timothy D. Fehr |  | 1                      |  | 1                                                    
|Lee Daniels     |  | 1                      |  | 1                                                    
|William Dwyer   |  | 1                      |  | 1                                                    
|Ned Warner      |  | 2                      |  | 6                                                    



We believe that each
of these persons is currently in compliance with Section 16(a) of the Exchange Act.



Code of Ethics.



We have adopted a Code of
Ethics applicable to our Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer or Controller, and other persons performing similar functions. The Code of Ethics is posted on our Internet website at
http://www.rasertech.com.



|ITEM 10. | Executive Compensation.
|-------- | -----------------------



No director or executive officer of the Company received any compensation from the date of its inception through October 14, 2003, the date of the
Reorganization. The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated:



SUMMARY COMPENSATION TABLE



|                                                        |  |                     |  |                    |  |           |  |                             |  |                        |  |                                 |  |                |  |                         
|------------------------------------------------------- |  | ------------------- |  | ------------------ |  | --------- |  | --------------------------- |  | ---------------------- |  | ------------------------------- |  | -------------- |  | ------------------------
|                                                        |  |                     |  |                    |  |           |  | Long Term Compensation      |  |                       
|                                                        |  |                     |  | AnnualCompensation |  | Awards    |  | Payout                      |  |                       
|(a)                                                     |  | (b)                 |  | (c)                |  | (d)       |  | (e)                         |  | (f)                    |  | (g)                             |  | (h)            |  | (i)                     
|Name and Principal Position                             |  | Year orPeriod Ended |  | Salary ($)         |  | Bonus ($) |  | Other AnnualCompensation($) |  | RestrictedStock ($)(3) |  | SecuritiesUnderlyingOptions (#) |  | LTIPPayouts($) |  | All OtherCompensation($)
|Kraig T. Higginson (1) (2)Chief Executive Officer       |  | 12/31/2004          |  | 180,000            |  |          |  |                            |  |                       |  |                                |  |               |  |                        
|                                                        |  | 12/31/2003          |  | 103,269            |  |          |  |                            |  |                       |  |                                |  |               |  |                        
|                                                        |  | 12/31/2002          |  |                   |  |          |  |                            |  |                       |  |                                |  |               |  |                        
|William Dwyer (3)Vice President,Chief Financial Officer |  | 12/31/2004          |  | 59,824             |  |          |  |                            |  | 933,579                |  |                                |  |               |  |                        



|(1) | The following named executive officers received less than $100,000 in compensation; however, in 2004, they received the following amounts pursuant to restricted stock grants: John
C. Ritter, President: $1,378,125; and Timothy D. Fehr, Senior Vice President and Chief Technology Officer: $737,081.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | David West, Vice President, received less than $100,000 in compensation, but was granted an option to purchase 500,000 shares of the Companys common stock in 2004 at an
exercise price of $3.65 per share.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(3) | William Dwyer joined the company in August 2004 and received compensation of $59,824 over a period of five months, which equates to an approximate annualized salary of $135,000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Options/SAR Grants in Last Fiscal Year



Individual Grants



|                         |  |                                                        |  |                                                           |   |  |                                 |  |                
|------------------------ |  | ------------------------------------------------------ |  | --------------------------------------------------------- | - |  | ------------------------------- |  | ---------------
|(a)                      |  | (b)                                                    |  | (c)                                                       |   |  | (d)                             |  | (e)            
|Name                     |  | Number of SecuritiesUnderlying Options/SARsGranted (#) |  | % of Total Options/SARsGranted to Employees inFiscal Year |   |  | Exercise or BasePrice ($/Share) |  | Expiration Date
|David West, VP, Director |  | 500,000                                                |  | 48                                                        | % |  | 3.65                            |  | 4/7/2014       
|Lee Daniels, Director    |  | 100,000                                                |  | 10                                                        | % |  | 3.60                            |  | 5/23/2014      
|Brent Cook, Director     |  | 100,000                                                |  | 10                                                        | % |  | 4.15                            |  | 10/5/2014      



The options granted to
David West vested completely when granted at the market price on April 8, 2004.



The options granted to Lee. Daniels vest in four equal parts of 25,000 each on August 23, 2004, November 23, 2004, February 23, 2005 and May 23, 2005. These options were granted at the market price on May 23, 2004.



The options granted to Brent Cook vest in two equal parts of
50,000 each on October 6, 2005 and October 6, 2006. These options were granted at the market price on October 6, 2004.



Aggregated Option/SAR Exercises in Last Fiscal year and FY-End Option/SAR Values



|                         |  |                                |  |                    |  |                                                                        |  |                                                              |  |             |           |               |   |        
|------------------------ |  | ------------------------------ |  | ------------------ |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----------- | --------- | ------------- | - | -------
|(a)                      |  | (b)                            |  | (c)                |  | (d)                                                                    |  | (e)                                                         
|                         |  |                                |  |                    |  | Number of Securities Underlying Unexercised Options/SARs at FY-End (#) |  | Value of Unexercised In-the-Money Options/SARs at FY-End (#)
|Name                     |  | Shares Acquiredon Exercise (#) |  | Value Realized ($) |  | Exercisable                                                            |  | Unexercisable                                                |  | Exercisable |           | Unexercisable
|David West, VP, Director |  | 0                              |  | 0                  |  | 500,000                                                                |  |                                                             |  | $           | 2,450,000 |               |   |       
|Lee Daniels, Director    |  | 0                              |  | 0                  |  | 50,000                                                                 |  | 50,000                                                       |  | $           | 247,500   |               | $ | 247,500
|Brent Cook, Director     |  | 0                              |  | 0                  |  |                                                                       |  | 100,000                                                      |  |             |          |               | $ | 440,000



Compensation of Directors.



Fred Wenninger, director, receives $1,000 per board
meeting for travel, lodging, meals and incidental expenses.



Lee Daniels, Jim Morton, Tom Bailey and Brent Cook currently receive no compensation other than the options listed above in Part III, Item 10 of this report.



Employment Contracts and Termination of Employment and Change-in-Control Arrangements.



Except as indicated below, there are no employment contracts, compensatory
plans or arrangements, including payments to be received from the Company, with respect to any director or executive officer that would in any way result in payments to any such person because of his or her resignation, retirement or other
termination of employment with the Company or any subsidiary, any change in control of the Company, or a change in the persons responsibilities following a change in control of the Company.



On February 25, 2004, the Company entered into a Restricted Stock Grant
Agreement with John C. Ritter, its President (the Ritter Agreement). Pursuant to the Ritter Agreement, Mr. Ritter was granted the right to receive up to 1,000,000 shares of the Companys common stock subject to the following vesting
schedule: 250,000 shares vested immediately upon execution of the Ritter Agreement and the remaining 750,000 shares vest over a period of three years, with the first tranche of 62,500 shares vesting on May 3, 2004, and each subsequent tranche of
62,500 shares vesting on the first business day of each third month thereafter.



30



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##### Table of Contents

Under the Ritter Agreement, all previously unvested shares will vest upon a change in control
of the Company. Change in control is defined as:



| |  |  | any person becoming the beneficial owner, directly or indirectly, of 50% or more of the Companys voting stock; or
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | during any period of two consecutive years, persons who at the beginning of such period constitute the Companys Board of Directors cease for any reason to constitute at least
a majority thereof, unless the election or the nomination for election by the Companys shareholders of each new director was approved by a vote of at least three-quarters of the directors then still in office who were directors at the
beginning of the period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Any merger,
consolidation or corporate reorganization in which the owners of the Companys capital stock entitled to vote in the election of directors prior to such combination own 50% or more of the resulting entitys voting stock will not, by
itself, be considered a change in control for purposes of the Ritter Agreement.



On February 25, 2004, the Company entered into a Restricted Stock Grant Agreement with Timothy D. Fehr, its Chief Technical Officer and Senior Vice President (the Fehr Agreement). Pursuant to the Fehr
Agreement, Mr. Fehr was granted the right to receive up to 500,000 shares of the Companys common stock subject to the following vesting schedule: 150,000 shares vested upon execution of the Fehr Agreement, 100,000 shares vested on February 1,
2005, 100,000 shares vest on February 1, 2006 and 150,000 shares vest on February 1, 2007. The Fehr Agreement also includes the change in control provisions contained in the Ritter Agreement and described above. In addition, pursuant to the Fehr
Agreement, if Mr. Fehr is terminated for cause, he shall receive a prorated number of shares equal to 8,333 shares per month for every full month he has been an employee of the Company.



On August 1, 2004, the Company entered into an At Will Employment,
Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement with William Dwyer, its Chief Financial Officer and Vice President (the Dwyer Agreement). Pursuant to the Dwyer Agreement, Mr. Dwyer was granted the
right to receive up to 400,000 shares of the Companys common stock subject to the following vesting schedule: 100,000 shares vested on August 1, 2004, 100,000 shares vest on August 1, 2005, 100,000 shares vest on August 1, 2006 and 100,000
shares vest on August 1, 2007. The Dwyer Agreement also includes the change in control provisions contained in the Ritter Agreement and described above. In addition, pursuant to the Dwyer Agreement, if Mr. Dwyer is terminated for cause,
he shall receive a prorated number of shares equal to 8,333 shares per month for every full month he has been an employee of the Company.



On January 31, 2005, the Company entered into an At-Will Employment Agreement with Brent Cook, in connection with Mr. Cooks appointment as the
Companys Chief Executive Officer (the Cook Agreement). Pursuant to the Cook Agreement, in the event of the termination of Mr. Cooks employment, Mr. Cook will receive from the Company a severance payment equal to his current
annual salary and the average of any bonuses paid during the period prior to the termination of Mr. Cooks employment.



|ITEM 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- | -----------------------------------------------------------------------------------------------



Equity Compensation Plan Information



|                                                               |  |                                                                                              |           |  |                                                                              |      |                                                                                                                                            |        
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | --------- |  | ---------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------
|Plan category                                                  |  | Number of securities to beissued upon exercise ofoutstanding options,warrants and
rights (a) |           |  | Weighted average exerciseprice of outstandingoptions, warrants
andrights (b) |      | Number of securitiesremaining available forfuture issuance
underequity compensation plans(excluding securitiesreflected in column (a)) (c)
|Equity compensation plans approved by security holders (1)     |  | 1,285,000                                                                                    |           |  | $                                                                            | 4.16 |                                                                                                                                            | 465,000
|Equity compensation plans not approved by security holders (2) |  | 1,050,000                                                                                    | (3)(4)(5) |  | $                                                                            | 0.00 |                                                                                                                                            | 0      
|                                                               |  |                                                                                              |           |  |                                                                              |      |                                                                                                                                            |        
|Total                                                          |  | 2,335,000                                                                                    |           |  | $                                                                            | 2.29 |                                                                                                                                            | 465,000
|                                                               |  |                                                                                              |           |  |                                                                              |      |                                                                                                                                            |        

---

|(1) | As of December 31, 2004 there were 465,000 remaining shares available to be issued under Rasers Long Term Incentive Plan (the Plan). This Plan was
approved by the Companys shareholders in May 2004. Pursuant to the Plan, an automatic annual increase to the number of shares of common stock reserved for issuance under the Plan is
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



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##### Table of Contents

| | equal to the lesser of 1,750,000 shares, 3% of the outstanding shares on the first day of each fiscal year, or an amount determined by the Board.
| | -------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes stand-alone grants to John C. Ritter, Timothy D. Fehr and William Dwyer of the right to receive restricted shares of the Companys common stock, described more fully
below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes a stand-alone grant of the right to receive up to 500,000 restricted shares of the Companys common stock granted to John C. Ritter as compensation pursuant to that
certain Restricted Stock Grant Agreement dated February 25, 2004 (the Ritter Agreement). Pursuant to the Ritter Agreement, Mr. Ritter was granted the right to receive up to 1,000,000 restricted shares of the Companys common stock,
which shares are issuable as compensation for services as an employee of the Company and at no other cost to Mr. Ritter. As of February 11, 2005, 500,000 shares had vested and had been issued to Mr. Ritter while the remaining 500,000 shares will
vest by February 1, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes a stand-alone grant of the right to receive up to 250,000 restricted shares of the Companys common stock granted to Timothy D. Fehr as compensation pursuant to that
certain Restricted Stock Grant Agreement dated February 25, 2004 (the Fehr Agreement). Pursuant to the Fehr Agreement, Mr. Fehr was granted the right to receive up to 500,000 restricted shares of the Companys common stock, which
shares are issuable as compensation for services as an employee of the Company and at no other cost to Mr. Fehr. As of February 11, 2005, 250,000 shares had vested and had been issued to Mr. Fehr while the remaining 250,000 shares will vest by
February 1, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes a stand-alone grant of the right to receive up to 300,000 restricted shares of the Companys common stock granted to William Dwyer as compensation pursuant to that
certain At Will Employment, Confidential Information, Invention Assignment, Noncompetition and Arbitration Agreement dated August 1, 2004 (the Dwyer Agreement). Pursuant to the Dwyer Agreement, Mr. Dwyer was granted the right to receive
up to 400,000 restricted shares of the Companys common stock, which shares are issuable as compensation for services as an employee of the Company and at no other cost to Mr. Dwyer. As of February 11, 2005, 100,000 shares had vested and had
been issued to Mr. Dwyer while the remaining 300,000 shares will vest by August 1, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Security Ownership of Certain Beneficial Owners



The following table sets forth, as of February 11, 2005, certain information regarding beneficial ownership of our common stock by (i) each person or entity who is known by us to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each of our directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers as a group. As of February 11, 2005, there were 49,246,071 shares of our common stock issued
and outstanding. In computing the number and percentage of shares beneficially owned by a person, shares of common stock that a person has a right to acquire within sixty (60) days of February 11, 2005, pursuant to options, warrants or other rights
are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the address for each shareholder listed in the following table is c/o Raser
Technologies, Inc., 5152 N. Edgewood Dr., Suite 375, Provo, Utah 84604. This table is based upon information supplied by directors, officers and principal shareholders and reports filed with the Securities and Exchange Commission.



|                                     |  |                                          |  |                                 |  
|------------------------------------ |  | ---------------------------------------- |  | ------------------------------- | -
|Name and Address of Beneficial
Owner |  | Shares of Common StockBeneficially Owned |  | Percentage ofTotal Common Stock |  
|Kraig T. Higginson (1)               |  | 15,930,320                               |  | 32.2                            | %
|Ned Warner (2)                       |  | 6,437,600                                |  | 13.1                            | %
|Jack Kerlin (3)                      |  | 5,764,600                                |  | 11.7                            | %
|R. Thomas Bailey (4)                 |  | 2,987,800                                |  | 6.1                             | %
|James E. Morton                      |  | 1,530,600                                |  | 3.1                             | %
|David W. West (5)                    |  | 1,074,800                                |  | 2.2                             | %
|Jonathan Reid (6)                    |  | 965,000                                  |  | 2.0                             | %
|Fred Wenninger (7)                   |  | 742,300                                  |  | 1.5                             | %
|Brent Cook (8)                       |  | 710,750                                  |  | 1.4                             | %
|John C. Ritter                       |  | 300,000                                  |  | 0.6                             | %



32



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##### Table of Contents

|                                                |  |            |  |      |  
|----------------------------------------------- |  | ---------- |  | ---- | -
|Timothy D. Fehr                                 |  | 150,000    |  | 0.3  | %
|William Dwyer (9)                               |  | 100,000    |  | 0.2  | %
|Lee Daniels (10)                                |  | 75,000     |  | 0.2  | %
|All Directors and Executive Officers as a group |  | 24,566,570 |  | 49.3 | %

---

|(1) | Consists of 6,988,720 shares held in the name of Lighthouse Fund Partners, Inc., 5,764,600 shares held in the name of Higginson Family Investments, LLC, 1,077,000 shares held in the
name of Radion Energy LLC, 900,000 shares held in the name of Jeanette S. Higginson, 500,000 shares held in the name of Eclipse Fund, LLC, 500,000 shares held in the name of HP Fund, LLC, and 200,000 shares held in the name of Jeannette S. Higginson
c/f Rebecca A. Higginson, each of which may be deemed to be controlled by Mr. Higginson.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Consists of 4,784,200 shares held in the name of Ocean Fund, LLC, 1,041,600 shares held in the name of Warner Investments, LP, 330,600 shares held in the name of Risk Management
LLC, and 281,200 shares held in the name of Maasai, Inc., each of which may be deemed to be controlled by Mr. Warner.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The principal address of Mr. Kerlin is P.O. Box 50405, Provo, Utah 84605.
|--- | -------------------------------------------------------------------------



|(4) | Consists of 2,987,800 shares held in the name of Thomas Bailey Family LP, which may be deemed to be controlled by Mr. Bailey.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(5) | Includes options to purchase 500,000 shares exercisable within 60 days of February 11, 2005. Includes 5,000 shares held jointly with Mr. Wests wife, Diana.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Consists of 965,000 shares held by JDC Investment Fund, LC, which may be deemed to be controlled by Mr. Reid.
|--- | -------------------------------------------------------------------------------------------------------------



|(7) | Includes warrants held by Mr. Wenninger to purchase 15,000 shares exercisable within 60 days of February 11, 2005. Includes warrants held by Eunice Wenninger to purchase 2,500
shares exercisable within 60 days of February 11, 2005, which may be deemed to be controlled by Mr. Wenninger. Includes 624,800 shares held in the name of Fred W. Wenninger TTEE FBO Fred W. Wenninger Self Declaration Trust, and 30,000 shares held in
the name of Eunice Elizabeth Wenninger Self Declaration Trust, both of which may be deemed to be controlled by Mr. Wenninger.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Includes 710,000 shares held in the name of BMC Highland Investment LLC and 500 shares held by Nathan Cook, Mr. Cooks son, which may be deemed to be controlled by Mr. Cook.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Includes 5,000 shares held in the name of William Dwyer c/f Brittany Dwyer, 5,000 shares held in the name of William Dwyer c/f Brian Dwyer and 5,000 shares held in the name of
William Dwyer c/f John Dwyer, all of which may be deemed to be controlled by Mr. Dwyer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Includes options to purchase 75,000 shares exercisable within 60 days of February 11, 2005.
|---- | -------------------------------------------------------------------------------------------



Changes in Control.



To the knowledge of management, there are no present arrangements or pledges of the Companys securities which may result in a change in its control.



|ITEM 12. | Certain Relationships and Related Transactions.
|-------- | -----------------------------------------------



On February 25, 2004, the Company entered into a Restricted Stock Grant Agreement with John C. Ritter, its President. Pursuant to this agreement, Mr.
Ritter was granted the right to receive up to 1,000,000 shares of the Companys common stock as compensation, which shares are subject to vesting. Of the 1,000,000 shares of common stock granted, as of February 11, 2005, 500,000 shares had
vested while the remaining 500,000 shares will vest by February 1, 2007.



On February 25, 2004, the Company entered into a Restricted Stock Grant Agreement with Timothy D. Fehr, its Chief Technical Officer and Senior Vice President. Pursuant to this agreement, Mr. Fehr was granted the right
to receive



33



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##### Table of Contents

up to 500,000 shares of the Companys common stock as compensation, which shares are subject to vesting. Of the 500,000 shares of common stock granted,
as of February 11, 2005, 250,000 shares had vested while the remaining 250,000 shares will vest by February 1, 2007.



On August 1, 2004, the Company entered into a Restricted Stock Grant Agreement with William Dwyer, its Chief Financial Officer and Vice President.
Pursuant to this agreement, Mr. Dwyer was granted the right to receive up to 400,000 shares of the Companys common stock as compensation, which shares are subject to vesting. Of the 400,000 shares of common stock granted, as of February 11,
2005, 100,000 shares had vested while the remaining 300,000 shares will vest by August 1, 2007.



On January 31, 2005, the Company entered into an At-Will Employment Agreement with Brent Cook, its Chief Executive Officer. Pursuant to this Agreement, in
the event of the termination of Mr. Cooks employment, Mr. Cook will receive from the Company a severance payment equal to his current annual salary and the average of any bonuses paid during the period prior to the termination of Mr.
Cooks employment.



Since December 31, 2002, the Company
has granted options to purchase an aggregate of 700,000 shares of our common stock to individuals that currently serve as our executive officers and directors. Such options were granted at exercise prices ranging from $3.60 to $4.15 per share, in
each case reflecting the fair market value per share of our common stock on the date of grant.



Del Higginson, the brother of the Companys chairman of the board of directors, Kraig Higginson, is currently an employee of the Company. Del Higginson serves as a Mechanical Technician and has an annual salary
of $43,200. In addition, in connection with his employment, the Company granted Del Higginson an option to purchase 10,000 shares of the Companys common stock at an exercise price of $3.65 per share, which reflects the fair market value per
share of our common stock at the time of the grant as determined by our board of directors.



Kort Sandberg, the brother-in-law of Ned Warner, a beneficial holder of more than 5% of the outstanding shares of common stock of the Company, is currently an employee of the Company. Kort Sandberg serves as an
Electrical Engineer and has an annual salary of $60,000. In addition, in connection with his employment, the Company granted Kort Sandberg an option to purchase 100,000 shares of the Companys common stock at an exercise price of $3.65 per
share, which reflects the fair market value per share of our common stock at the time of the grant as determined by our board of directors.



Kevin Kerlin, the son of Jack Kerlin, a beneficial holder of more than 5% of the outstanding shares of common stock of the Company, is currently an
employee of the Company. Kevin Kerlin serves as a Mechanical Engineer and has an annual salary of $48,000. In addition, in connection with his employment, the Company granted Kevin Kerlin an option to purchase 50,000 shares of the Companys
common stock at an exercise price of $3.65 per share, which reflects the fair market value per share of our common stock at the time of the grant as determined by our board of directors.



In 2003, the Company issued 930,000 shares of Series A Convertible Preferred Stock in a private offering for net proceeds of
$930,000 (the Series A Financing). Michael Harris, the brother-in-law of Ned Warner, a beneficial holder of more than 5% of the outstanding shares of common stock of the Company, purchased 20,000 shares of Series A Convertible Preferred
Stock in the Series A Financing.



In 2004, the Company issued
4,240.5 shares of Series B Convertible Preferred Stock to 18 investors in exchange for aggregate proceeds of $4,240,500 (the Series B Financing). Helen West, the mother of David West, the Companys Vice President and a member of the
Companys board of directors, purchased 50 shares of Series B Convertible Preferred Stock in the Series B Financing. In addition, two trusts controlled by Fred Wenninger, a member of the Companys board of directors (Fred W. Wenninger TTEE
FBO Fred W. Wenninger Self Declaration Trust and Eunice Elizabeth Wenninger self Declaration Trust), purchased 245 shares of Series B Convertible Preferred Stock in the Series B Financing.



34



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##### Table of Contents

|ITEM 13. | Exhibits and Reports on Form 8-K.
|-------- | ---------------------------------



| | (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.                                           
|              | 
|3.1B          |  | Articles of Incorporation of the Registrant.                                                                                                                                                                  
|              | 
|3.1AC         |  | Articles of Amendment to the Articles of Incorporation of the Registrant.                                                                                                                                     
|              | 
|3.1BI         |  | Articles of Amendment to the Articles of Incorporation of the Registrant.                                                                                                                                     
|              | 
|3.1CD         |  | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.                                                                                                    
|              | 
|3.2I          |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                
|              | 
|4.1I          |  | Specimen Common Stock Certificate.                                                                                                                                                                            
|              | 
|4.2E          |  | Registration Rights Agreement, dated as of July 22, 2002, among the Registration and the Purchasers (as defined therein).                                                                                     
|              | 
|4.3I          |  | Form of Debenture.                                                                                                                                                                                            
|              | 
|10.1F         |  | Securities Purchase Agreement dated July 22, 2004, among the Registrant and the Purchasers (as defined therein).                                                                                              
|              | 
|10.2G         |  | Form of Warrant to Purchase Shares of the Registrants Common Stock.                                                                                                                                          
|              | 
|10.3H         |  | Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                                                           
|              | 
|10.4I         |  | Form of Option Agreement for the Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                          
|              | 
|10.5J         |  | Restricted Stock Grant Agreement dated as of February 23, 2004 between the registrant and John C. Ritter, President.                                                                                          
|              | 
|10.6J         |  | Restricted Stock Grant Agreement dated as of February 26, 2004 between the registrant and Timothy D. Fehr, Chief Technical Officer.                                                                           
|              | 
|10.7J         |  | 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.
|              | 
|10.8K         |  | At Will Employment Agreement dated January 31, 2005 between the registrant and Brent M. Cook, Chief Executive Officer.                                                                                        
|              | 
|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 3.1 filed with the registrants Form 10-SB/A (File No. 000-30657) on June 1, 2000.
|- | -----------------------------------------------------------------------------------------------------------------------



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



|D | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|E | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



|F | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|G | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------



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



|I | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|J | 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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|K | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------



35



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##### Table of Contents

Reports on Form 8-K



The Company filed no reports on Form 8-K during the fourth quarter of the fiscal year 2004.



DOCUMENTS INCORPORATED BY REFERENCE



None.



|ITEM 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------



The following is a summary of the fees billed to the Company by its principal accountants during the calendar years ended December 31, 2004, and December
31, 2003:



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|Fee category       |  | 2004 |        | 2003
|Audit fees         |  | $    | 36,703 |      | $ | 11,813
|Audit-related fees |  |      |       |      |   | 4,654 
|Tax fees           |  |      | 4,894  |      |   | 175   
|All other fees     |  |      | 1,035  |      |   |      
|                   |  |      |        |      |   |       
|Total fees         |  | $    | 42,632 |      | $ | 16,642
|                   |  |      |        |      |   |       



Audit Fees. Consists
of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and the review of financial statements included in our Forms 10-QSB or services that are normally provided by our principal
accountants in connection with statutory and regulatory filings or engagements.



Audit-Related Fees. Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the Companys financial statements and
are not reported under Audit fees.



Tax Fees.
Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.



All Other Fees. Consists of fees for edgarization of documents and other minor accounting services provided by our principal accountants, other than the
services reported under Audit fees, Audit-related fees and Tax fees above.



Our audit committee reviewed and pre-approved all audit and non-audit services provided by Tanner + Co. and has determined that the firms provision
of such services to us during fiscal 2004 is compatible with and did not impair Tanner + Co.s independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by
our independent auditors in accordance with the applicable requirements of the Securities and Exchange Commission.



36



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##### Table of Contents



SIGNATURES



In accordance with
Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                |  |  |  |                                                    
|--------------- |  |  |  | ---------------------------------------------------
|                |  |  |  | RASER TECHNOLOGIES, INC.                           
|                |  | 
|Date: 2/15/2005 |  |  |  | /s/ Brent M. Cook                                  
|                |  |  |  | Brent M. Cook, Chief Executive Officer and Director



POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Brent M. Cook and William Dwyer, and each or any one of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capabilities, to sign any and all amendments to this Annual Report on Form 10-KSB, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof.



In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:



|                |  |  |  |                                                          
|--------------- |  |  |  | ---------------------------------------------------------
|                |  | 
|Date: 2/15/2005 |  |  |  | /s/ Brent M. Cook                                        
|                |  |  |  | Brent M. Cook, Chief Executive Officer and Director      
|                |  | 
|Date: 2/14/2005 |  |  |  | /s/ Kraig T. Higginson                                   
|                |  |  |  | Kraig T. Higginson, Executive Chairman of the Board      
|                |  | 
|Date: 2/14/2005 |  |  |  | /s/ John C. Ritter                                       
|                |  |  |  | John C. Ritter, President and Director                   
|                |  | 
|Date: 2/15/2005 |  |  |  | /s/ William Dwyer                                        
|                |  |  |  | William Dwyer, Vice President and Chief Financial Officer
|                |  | 
|Date: 2/14/2005 |  |  |  | /s/ James E. Morton                                      
|                |  |  |  | James E. Morton, Secretary and Director                  
|                |  | 
|Date: 2/14/2005 |  |  |  | /s/ David W. West                                        
|                |  |  |  | David W. West, Vice President and Director               
|                |  | 
|Date: 2/15/2005 |  |  |  | /s/ R. Thomas Bailey                                     
|                |  |  |  | R. Thomas Bailey, Director                               
|                |  | 
|Date: 2/15/2005 |  |  |  | /s/ Fred Wenninger                                       
|                |  |  |  | Fred Wenninger, Director                                 
|                |  | 
|Date: 2/14/2005 |  |  |  | /s/ Lee A. Daniels                                       
|                |  |  |  | Lee A. Daniels, Director                                 



37



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##### Table of Contents



RASER TECHNOLOGIES, INC.



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                                                   |  |     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                   |  | Page
|Independent Auditors Report                                                                                                                                                       |  | F-2 
|Combined Consolidated Balance Sheet as of December 31, 2004 and 2003                                                                                                               |  | F-3 
|Combined Consolidated Statement of Operations for the years ended December 31, 2004 and 2003 and the period beginning on October 28, 2002 (date of inception) to December 31, 2002 |  | F-4 
|Combined Consolidated Statement of Stockholders Equity and Members Deficit for the period beginning on October 28, 2002 (date of inception) to December 31, 2004                 |  | F-5 
|Combined Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002                                                                                 |  | F-6 
|Notes to Combined Consolidated Financial Statements                                                                                                                                |  | F-7 



F-1



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##### Table of Contents



RASER TECHNOLOGIES, INC.

(A Development Stage Company)

Combined Consolidated Financial Statements

December 31, 2004



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and
Shareholders of Raser Technologies, Inc.



We have audited the
accompanying combined consolidated balance sheet of Raser Technologies, Inc. (a development stage company), as of December 31, 2004 and 2003 and the related combined consolidated statements of operations and stockholders equity and
members deficit, and cash flows for the years ended December 31, 2004 and 2003, the period from October 28, 2002 (date of inception) to December 31, 2002, and the cumulative amounts from inception through December 31, 2004. These combined
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these combined consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board, (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.



In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of Raser
Technologies, Inc. (a development stage company), as of December 31, 2004 and 2003 and the results of their operations and their cash flows for the years ended December 31, 2004 and 2003 and the period from October 28, 2002 (date of inception) to
December 31, 2002 and cumulative amounts from inception through December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.



TANNER + Co.



Salt Lake City, Utah

February 7, 2005



F-2



---

##### Table of Contents



RASER TECHNOLOGIES, INC.

(A Development Stage Company)



Combined Consolidated Balance Sheet



Assets



|                            |  |             |           |      |   |        
|--------------------------- |  | ----------- | --------- | ---- | - | -------
|                            |  | December 31
|                            |  | 2004        |           | 2003
|Current assets:             |  |             |           |      |   |        
|Cash                        |  | $           | 2,665,486 |      | $ | 231,703
|Equipment, net              |  |             | 112,800   |      |   | 31,682 
|Patents and trademarks, net |  |             | 144,053   |      |   | 28,137 
|Other assets                |  |             | 74,215    |      |   | 8,352  
|                            |  |             |           |      |   |        
|Total Assets                |  | $           | 2,996,554 |      | $ | 299,874
|                            |  |             |           |      |   |        



Liabilities and
Stockholders Equity



|                                                                                                                                                   |  |             |            |   |      |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                   |  | December 31 |           
|                                                                                                                                                   |  | 2004        |            |   | 2003 |  
|Current liabilities:                                                                                                                               |  |             |            |   |      |   |            |  
|Accounts payable                                                                                                                                   |  | $           | 20,622     |   |      | $ | 69,439     |  
|Accrued liabilities                                                                                                                                |  |             | 14,375     |   |      |   | 27,107     |  
|                                                                                                                                                   |  |             |            |   |      |   |            |  
|Total current liabilities                                                                                                                          |  |             | 34,997     |   |      |   | 96,546     |  
|                                                                                                                                                   |  |             |            |   |      |   |            |  
|Stockholders equity and members deficit:                                                                                                          |  |             |            |   |      |   |            |  
|Series B convertible preferred stock, non-voting, non-cumulative, $.01 par value, 5,000,000 shares authorized; 1,134 shares issued and
outstanding |  |             | 11         |   |      |   |           |  
|Common stock, $.01 par value, 100,000,000 shares authorized, 48,722,160 and 46,306,000 shares issued and outstanding
respectively                  |  |             | 487,221    |   |      |   | 463,060    |  
|Additional paid in capital                                                                                                                         |  |             | 10,526,221 |   |      |   | 816,089    |  
|Deficit accumulated during the development stage                                                                                                   |  |             | (8,051,896 | ) |      |   | (1,075,821 | )
|                                                                                                                                                   |  |             |            |   |      |   |            |  
|Total stockholders equity                                                                                                                         |  |             | 2,961,557  |   |      |   | 203,328    |  
|                                                                                                                                                   |  |             |            |   |      |   |            |  
|Total liabilities and stockholders equity                                                                                                         |  | $           | 2,996,554  |   |      | $ | 299,874    |  
|                                                                                                                                                   |  |             |            |   |      |   |            |  



See accompanying notes
to combined consolidated financial statements.



F-3



---

##### Table of Contents



RASER TECHNOLOGIES, INC.

(A Development Stage Company)



Combined Consolidated Statement of Operations



|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ---------- | ----------------------------------------------------- |  | - | ----------------- | - |  | - | ----------- | -
|                                                                                                                     |  | Year EndedDecember 31,2004 |             |   | Year EndedDecember 31,2003 |   |            | October 28, 2002(Date ofinception) toDecember 31,2002 |  |   | CumulativeAmounts |  
|Revenue                                                                                                              |  | $                          | 30,000      |   |                            | $ |           |                                                       |  | $ |                  |   |  | $ | 30,000      |  
|                                                                                                                     |  |                            |             |  
|Operating expense                                                                                                    |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|General and administrative                                                                                           |  |                            | 5,186,470   |   |                            |   | 749,995    |                                                       |  |   | 115,637           |   |  |   | 6,052,102   |  
|Research and development                                                                                             |  |                            | 1,634,541   |   |                            |   | 406,148    |                                                       |  |   | 232,563           |   |  |   | 2,273,252   |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Total operating expenses                                                                                             |  |                            | 6,821,011   |   |                            |   | 1,156,143  |                                                       |  |   | 348,200           |   |  |   | 8,325,354   |  
|Interest (expense)                                                                                                   |  |                            | (203,500    | ) |                            |   | (280,808   | )                                                     |  |   |                  |   |  |   | (484,308    | )
|Interest income                                                                                                      |  |                            | 18,436      |   |                            |   |           |                                                       |  |   |                  |   |  |   | 18,436      |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Loss before income taxes                                                                                             |  |                            | (6,976,075  | ) |                            |   | (1,436,951 | )                                                     |  |   | (348,200          | ) |  |   | (8,761,226  | )
|Income tax benefit                                                                                                   |  |                            |            |   |                            |   |           |                                                       |  |   |                  |   |  |   |            |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Net loss                                                                                                             |  |                            | (6,976,075  | ) |                            |   | (1,436,951 | )                                                     |  |   | (348,200          | ) |  |   | (8,761,226  | )
|Preferred stock dividends                                                                                            |  |                            | (66,206     | ) |                            |   |           |                                                       |  |   |                  |   |  |   | (66,206     | )
|Deemed dividend related to warrants issued with preferred stock and beneficial conversion feature on preferred stock |  |                            | (4,240,500  | ) |                            |   | (611,784   | )                                                     |  |   |                  |   |  |   | (4,852,284  | )
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Net loss applicable to common shareholders                                                                           |  | $                          | (11,282,781 | ) |                            | $ | (2,048,735 | )                                                     |  | $ | (348,200          | ) |  | $ | (13,679,716 | )
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Loss per common share- basic and diluted                                                                             |  | $                          | (0.24       | ) |                            | $ | (0.05      | )                                                     |  | $ | (0.01             | ) |  |   |             |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  
|Weighted average common shares- basic and diluted                                                                    |  |                            | 47,365,000  |   |                            |   | 40,389,000 |                                                       |  |   | 38,950,000        |   |  |   |             |  
|                                                                                                                     |  |                            |             |   |                            |   |            |                                                       |  |   |                   |   |  |   |             |  



See accompanying notes
to combined consolidated financial statements.



F-4



---

##### Table of Contents



RASER TECHNOLOGIES, INC.

(A Development Stage Company)



Combined Consolidated Statement of Stockholders Equity and
Members Deficit

October 28, 2002 (Date of Inception) to December 31, 2004



|                                                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------ |  | --------------------------- | - |  | ------------ | ------ | ------------------------- | ------ | ---------- | -------------- | - | ------- | ------------------ | - | ---------- | ----- |  | - | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                 |  | Convertible preferred stock |   |  | Common Stock |        | Additionalpaid-in capital |        |            | MembersEquity |   |         | AccumulatedDeficit |   |            | Total | 
|                                                                                                 |  | Shares                      |   |  | Amount       |        |                           | Shares |            | Amount         |   |         |                    |  
|Balance, October 28, 2002 (date of inception)                                                    |  |                            |   |  | $            |       |                           |        |           |                | $ |        |                    | $ |           |       |  | $ |         |   |  | $ |           |   |  | $ |           |  
|Restated shares issued in reverse acquisition                                                    |  |                             |   |  |              |        |                           |        | 38,950,000 |                |   | 389,500 |                    |   | (389,400   | )     |  |   |          |   |  |   |            |   |  |   |           |  
|Equity interests issued for:                                                                     |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Cash                                                                                             |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 14,634   |   |  |   |            |   |  |   | 14,634     |  
|Accounts payable and liabilities                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 232,143  |   |  |   |            |   |  |   | 232,143    |  
|Services                                                                                         |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 94,147   |   |  |   |            |   |  |   | 94,147     |  
|Warrants issued for patent costs                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 2,500    |   |  |   |            |   |  |   | 2,500      |  
|Net Loss                                                                                         |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | (348,200 | ) |  |   |            |   |  |   | (348,200   | )
|                                                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2002                                                                       |  |                            |   |  | $            |       |                           |        | 38,950,000 |                | $ | 389,500 |                    | $ | (389,500   | )     |  | $ | (4,776   | ) |  | $ |           |   |  | $ | (4,776     | )
|Equity interests issued for:                                                                     |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Cash                                                                                             |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 81,337   |   |  |   |            |   |  |   | 81,337     |  
|Warrants issued for patent costs                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | 4,700    |   |  |   |            |   |  |   | 4,700      |  
|Net loss through date of incorporation, (July 18, 2003)                                          |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   | (361,130 | ) |  |   |            |   |  |   | (361,130   | )
|Common stock issued for restructure of equity interests due to change in Companys entity status |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   | (279,869   | )     |  |   | 279,869  |   |  |   |            |   |  |   |           |  
|Acquisition of Wasatch Web Advisors, Inc.                                                        |  |                             |   |  |              |        |                           |        | 2,298,714  |                |   | 22,987  |                    |   | (22,987    | )     |  |   |          |   |  |   |            |   |  |   |           |  
|Series A preferred stock issued for:                                                             |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Cash                                                                                             |  | 930,000                     |   |  |              | 9,300  |                           |        |            |                |   |         |                    |   | 920,700    |       |  |   |          |   |  |   |            |   |  |   | 930,000    |  
|Common stock issued for:                                                                         |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Conversion of debt primarily due from related parties                                            |  |                             |   |  |              |        |                           |        | 540,000    |                |   | 5,400   |                    |   | 264,600    |       |  |   |          |   |  |   |            |   |  |   | 270,000    |  
|Conversion of Series A preferred stock                                                           |  | (930,000                    | ) |  |              | (9,300 | )                         |        | 1,550,000  |                |   | 15,500  |                    |   | (6,200     | )     |  |   |          |   |  |   |            |   |  |   |           |  
|Consulting services for reverse merger                                                           |  |                             |   |  |              |        |                           |        | 2,967,286  |                |   | 29,673  |                    |   | 59,345     |       |  |   |          |   |  |   |            |   |  |   | 89,018     |  
|Beneficial conversion feature                                                                    |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   | 270,000    |       |  |   |          |   |  |   |            |   |  |   | 270,000    |  
|Net loss from date of incorporation (July 18, 2003) through December 31, 2003                    |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   | (1,075,821 | ) |  |   | (1,075,821 | )
|                                                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2003                                                                     |  |                            |   |  | $            |       |                           |        | 46,306,000 |                | $ | 463,060 |                    | $ | 816,089    |       |  | $ |         |   |  | $ | (1,075,821 | ) |  | $ | 203,328    |  
|Stock options and warrants issued for services                                                   |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   | 553,048    |       |  |   |          |   |  |   |            |   |  |   | 553,048    |  
|Beneficial conversion feature                                                                    |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   | 200,000    |       |  |   |          |   |  |   |            |   |  |   | 200,000    |  
|Series B preferred stock issued for:                                                             |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Cash                                                                                             |  | 4,241                       |   |  |              | 42     |                           |        |            |                |   |         |                    |   | 3,896,313  |       |  |   |          |   |  |   |            |   |  |   | 3,896,355  |  
|Common stock issued for:                                                                         |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Exercise of Warrants                                                                             |  |                             |   |  |              |        |                           |        | 114,315    |                |   | 1,143   |                    |   | 392,518    |       |  |   |          |   |  |   |            |   |  |   | 393,661    |  
|Conversion of debt primarily due from related parties                                            |  |                             |   |  |              |        |                           |        | 100,000    |                |   | 1,000   |                    |   | 199,000    |       |  |   |          |   |  |   |            |   |  |   | 200,000    |  
|Conversion of Series B preferred stock                                                           |  | (3,107                      | ) |  |              | (31    | )                         |        | 887,566    |                |   | 8,876   |                    |   | (8,845     | )     |  |   |          |   |  |   |            |   |  |   |           |  
|Employee compensation                                                                            |  |                             |   |  |              |        |                           |        | 687,500    |                |   | 6,875   |                    |   | 3,041,910  |       |  |   |          |   |  |   |            |   |  |   | 3,048,785  |  
|Consulting services                                                                              |  |                             |   |  |              |        |                           |        | 104,479    |                |   | 1,044   |                    |   | 462,951    |       |  |   |          |   |  |   |            |   |  |   | 463,995    |  
|Cash                                                                                             |  |                             |   |  |              |        |                           |        | 522,300    |                |   | 5,223   |                    |   | 1,039,443  |       |  |   |          |   |  |   |            |   |  |   | 1,044,666  |  
|Series B preferred stock dividends paid                                                          |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   | (66,206    | )     |  |   |          |   |  |   |            |   |  |   | (66,206    | )
|Net loss                                                                                         |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   | (6,976,075 | ) |  |   | (6,976,075 | )
|                                                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2004                                                                     |  | 1,134                       |   |  | $            | 11     |                           |        | 48,722,160 |                | $ | 487,221 |                    | $ | 10,526,221 |       |  | $ |         |   |  | $ | (8,051,896 | ) |  | $ | 2,961,557  |  
|                                                                                                 |  |                             |   |  |              |        |                           |        |            |                |   |         |                    |   |            |       |  |   |          |   |  |   |            |   |  |   |            |  



See accompanying notes
to combined consolidated financial statements.



F-5



---

##### Table of Contents



RASER TECHNOLOGIES, INC.

(A Development Stage Company)



Combined Consolidated Statement of Cash Flows



|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|------------------------------------------------------------------------------------ |  | -------------------------- | ---------- | - | -------------------------- | - | ---------- | -------------------------- |  | - | ---------------------------------------- | - |  | - | ---------- | -
|                                                                                     |  | Year EndedDecember 31,2004 |            |   | Year EndedDecember 31,2003 |   |            | Year EndedDecember 31,2002 |  |   | CumulativeAmounts sincedate of inception |  
|Cash flows from operating activities:                                                |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Net loss                                                                             |  | $                          | (6,976,075 | ) |                            | $ | (1,436,951 | )                          |  | $ | (348,200                                 | ) |  | $ | (8,761,226 | )
|Adjustments to reconcile net loss to net cash used in operating activities:          |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Depreciation and Amortization expense                                                |  |                            | 20,276     |   |                            |   | 1,164      |                            |  |   |                                         |   |  |   | 21,440     |  
|Research and development expenses incurred through assumption of liabilities         |  |                            |           |   |                            |   |           |                            |  |   | 232,143                                  |   |  |   | 232,143    |  
|Common stock, stock options and warrants, or membership interest issued for services |  |                            | 4,065,828  |   |                            |   | 89,018     |                            |  |   | 94,147                                   |   |  |   | 4,248,993  |  
|Beneficial conversion feature on conversion of related party notes payable           |  |                            | 200,000    |   |                            |   | 270,000    |                            |  |   |                                         |   |  |   | 470,000    |  
|Increase in other assets                                                             |  |                            | (65,863    | ) |                            |   | (8,352     | )                          |  |   |                                         |   |  |   | (74,215    | )
|(Decrease) increase in account payable                                               |  |                            | (48,817    | ) |                            |   | 69,439     |                            |  |   |                                         |   |  |   | 20,622     |  
|(Decrease) increase in accrued liabilities                                           |  |                            | (12,732    | ) |                            |   | (206       | )                          |  |   | 12,541                                   |   |  |   | (397       | )
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Net cash used in operating activities                                                |  |                            | (2,817,383 | ) |                            |   | (1,015,888 | )                          |  |   | (9,369                                   | ) |  |   | (3,842,640 | )
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Cash flows from investing activities:                                                |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Increase in patents and trademarks                                                   |  |                            | (119,814   | ) |                            |   | (6,165     | )                          |  |   |                                         |   |  |   | (125,979   | )
|Purchase of property and equipment                                                   |  |                            | (97,496    | ) |                            |   | (32,846    | )                          |  |   |                                         |   |  |   | (130,342   | )
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Net cash used in investing activities                                                |  |                            | (217,310   | ) |                            |   | (39,011    | )                          |  |   |                                         |   |  |   | (256,321   | )
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Cash flows from financing activities:                                                |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Proceeds from related party note payable                                             |  |                            | 65,000     |   |                            |   | 270,000    |                            |  |   |                                         |   |  |   | 335,000    |  
|Proceeds from convertible note payable                                               |  |                            | 200,000    |   |                            |   |           |                            |  |   |                                         |   |  |   | 200,000    |  
|Payments on related party note payable                                               |  |                            | (65,000    | ) |                            |   |           |                            |  |   |                                         |   |  |   | (65,000    | )
|Proceeds from sale of Series A preferred stock                                       |  |                            |           |   |                            |   | 930,000    |                            |  |   |                                         |   |  |   | 930,000    |  
|Proceeds from sale of Series B preferred stock                                       |  |                            | 3,896,355  |   |                            |   |           |                            |  |   |                                         |   |  |   | 3,896,355  |  
|Proceeds from the sale of common stock and member contributions                      |  |                            | 1,438,327  |   |                            |   | 81,337     |                            |  |   | 14,634                                   |   |  |   | 1,534,298  |  
|Preferred stock dividends paid                                                       |  |                            | (66,206    | ) |                            |   |           |                            |  |   |                                         |   |  |   | (66,206    | )
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Net cash provided by financing activities                                            |  |                            | 5,468,476  |   |                            |   | 1,281,337  |                            |  |   | 14,634                                   |   |  |   | 6,764,447  |  
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Net increase in cash and cash equivalents                                            |  |                            | 2,433,783  |   |                            |   | 226,438    |                            |  |   | 5,265                                    |   |  |   | 2,665,486  |  
|Cash and cash equivalents at beginning of period                                     |  |                            | 231,703    |   |                            |   | 5,265      |                            |  |   |                                         |   |  |   |           |  
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  
|Cash and cash equivalents at end of period                                           |  | $                          | 2,665,486  |   |                            | $ | 231,703    |                            |  | $ | 5,265                                    |   |  | $ | 2,665,486  |  
|                                                                                     |  |                            |            |   |                            |   |            |                            |  |   |                                          |   |  |   |            |  



See accompanying notes
to combined consolidated financial statements.



F-6



---

##### Table of Contents

RASER TECHNOLOGIES, INC.

(A Development Stage Company)



Notes to Combined Consolidated Financial Statements

Years ended December 31, 2004 and 2003



|1. | Organization and Summary of Significant Accounting Policies
|-- | -----------------------------------------------------------



Organization



Raser Technologies, Inc. (the Company) formerly (Wasatch Web Advisors, Inc. was incorporated in Utah September 14, 1999. The Company has a wholly owned
subsidiary, Raser Technology Operating Company.



On October 28,
2002, Raser Technologies, LLC was originally organized as a limited liability company, under the laws of the State of Utah. On July 18, 2003, the Company merged into Raser Technologies, Inc., a corporation effectively changing its LLC organizational
status to that of a corporation. Each one percent membership interest in the Company was converted into 360,000 shares of the new corporation resulting in an issuance of 36,000,000 shares of common stock. The Company changed its name from Raser
Technologies LLC to Raser Technologies, Inc.



Effective October
14, 2003, Wasatch Web Advisors, Inc., (Wasatch) a publicly held company, and Raser Technologies, Inc., a Utah corporation (Raser) executed an Agreement and Plan of Reorganization, whereby Wasatch agreed to acquire (i) 100% of
the issued and outstanding shares of common stock of Raser in exchange for 38,950,000 post-split shares of the Wasatch common stock, or approximately 95% of its post-Reorganization Agreement outstanding common stock, and corresponding to the merger,
Raser exchanged all of its outstanding preferred stock on a one-for-one basis with Wasatch preferred stock. Raser is considered the acquirer for accounting purposes and this merger is accounted for as a reverse acquisition. Corresponding to the
merger, Wasatch changed its name to Raser Technologies, Inc., and Raser, now as a wholly owned subsidiary of Raser Technologies, Inc. (formerly Wasatch), changed its name to Raser Technologies Operating Company.



The Company is engaged in the development and marketing of proprietary
resonant motor technology; however, the Company has not recognized significant revenues related to such planned operations. Accordingly, the Company is considered a development stage company.



Principles of Consolidation



The combined consolidated financial statements include the accounts of
Raser, and its predecessor, Raser Technologies, LLC, from inception and those of Wasatch consolidated with Raser from the date of the reverse acquisition. All significant inter-company transactions have been eliminated.



Cash and Cash Equivalents



For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturity of three months or less to be cash equivalents.



Equipment



Equipment is recorded at cost and
is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line method for financial reporting purposes. The estimated useful lives of property, plant, and equipment are as follows:



|                       |  |          
|---------------------- |  | ---------
|Office Equipment       |  | 5-7 years
|Engineering Equipment  |  | 5-7 years
|Demonstration Vehicles |  | 5-7 years



Patents and Trademarks



Costs to obtain patents are capitalized pending issuance
of the patent. The costs are amortized over the estimated life of the patents or expensed if the patent is not issued.



F-7



---

##### Table of Contents

The Company assesses recoverability of its patents by determining whether the amortization of the balance
over its remaining life can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate which reflects the
Companys average cost of funds.



Income Taxes



Through July 17, 2003, the Company, with the consent of its members, elected
under the Internal Revenue Code to be subject to the income pass-through rules associated with a limited liability company. Under those provisions, the Company did not pay corporate income taxes on its taxable income. Instead, the members were
responsible for individual income taxes on their respective shares (unless otherwise agreed) of the Companys taxable income.



On July 18, 2003 the Company changed its tax status to that of a corporation. Therefore, after July 17, 2003, the Company has recognized deferred income
tax assets or liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are reviewed periodically for recoverability
and valuation allowances are provided as necessary.



Revenue Recognition



The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, as amended. All of the Companys revenue to date was the result of engineering services provided in connection with one contract.



Recognition of revenue related to engineering services depends on whether the revenue is contingent on deliverables by the Company in any
way. If the fee is non-refundable, the Company has no specific milestones to meet, and there are no required performance criteria, the Company recognizes 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, the Company recognizes the revenue at the completion of each milestone. Costs incurred to achieve the milestones will be deferred and recognized to match the recognition of
revenue unless they are determined not to be recoverable. If there are specific performance criteria, revenue will be recognized when the customer agrees that the specific performance criteria are met. Costs incurred to achieve the performance
criteria will be deferred and recognized to match the recognition of revenue unless they are determined not to be recoverable.



Stock-Based Compensation



The Company accounts for stock options granted to employees under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost is
recognized in the financial statements, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. 1,035,000 compensatory options were issued to
employees under Rasers Long Term Incentive Plan in the year ended December 31, 2004. The Company issued no compensatory options to its employees during the year ended December 31, 2003 and for the period from October 28, 2002 (date of
inception) to December 31, 2002. Had compensation expense for the Companys stock options been determined based on the fair value at the grant date consistent with the provisions of SFAS no. 123, the Companys results of operations would
have been reduced to the pro forma amounts indicated below:



|                                                                                         |  |                            |             |   |                            |   |            |                                                       |  |   |          |  
|---------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ---------- | ----------------------------------------------------- |  | - | -------- | -
|                                                                                         |  | Year EndedDecember 31,2004 |             |   | Year EndedDecember 31,2003 |   |            | October 28, 2002(Date ofinception) toDecember 31,2002 | 
|Net loss applicable to common shareholders as reported                                   |  | $                          | (11,282,781 | ) |                            | $ | (2,048,735 | )                                                     |  | $ | (348,200 | )
|Deduct:                                                                                  |  |                            |             |   |                            |   |            |                                                       |  |   |          |  
|Total stock-based employee compensation expense determined under fair value based method |  |                            | (2,208,831  | ) |                            |   |           |                                                       |  |   |         |  
|                                                                                         |  |                            |             |   |                            |   |            |                                                       |  |   |          |  
|Net loss pro forma                                                                       |  | $                          | (13,491,612 | ) |                            | $ | (2,048,735 | )                                                     |  | $ | (348,200 | )
|                                                                                         |  |                            |             |   |                            |   |            |                                                       |  |   |          |  
|Basic and diluted as reported                                                           |  | $                          | (.24        | ) |                            | $ | (.05       | )                                                     |  | $ | (.01     | )
|                                                                                         |  |                            |             |   |                            |   |            |                                                       |  |   |          |  
|Basic and diluted  pro forma                                                            |  | $                          | (.28        | ) |                            | $ | (.05       | )                                                     |  | $ | (.01     | )
|                                                                                         |  |                            |             |   |                            |   |            |                                                       |  |   |          |  



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##### Table of Contents

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions:



|                                |  |                            |           |   |                            |   |                                                       |  |   |  
|------------------------------- |  | -------------------------- | --------- | - | -------------------------- | - | ----------------------------------------------------- |  | - | -
|                                |  | Year EndedDecember 31,2004 |           |   | Year EndedDecember 31,2003 |   | October 28, 2002(Date ofinception) toDecember 31,2002
|Expected dividend yield         |  | $                          |          |   |                            | $ |                                                      |  | $ | 
|Expected stock price volatility |  |                            | 93% - 103 | % |                            |   |                                                      |  |   | 
|Risk-free interest rate         |  |                            | 4.2       | % |                            |   |                                                      |  |   | 
|Expected life of options        |  |                            | 10        |   |                            |   |                                                      |  |   | 



The weighted average
fair value of options granted to employees during 2004 was $3.57 per share.



Stock options and warrants granted to non-employees for services are accounted for in accordance with SFAS 123 which requires expense recognition based on the fair value of the options/warrants granted. The Company
calculates the fair value of options and warrants granted by using the Black-Scholes pricing model. During 2004, the Company granted options to purchase 250,000 shares of common stock for services. The issuance of these options resulted in general
and administrative expense of $499,168. During 2004, the Company issued warrants to purchase 25,000 shares of common stock for services. The issuance of these warrants resulted in general and administrative expenses of $53,880.



Stock Issued for Services and Assets



The Company may issue shares of common stock as payment for services or
purchase of assets. Stock issued for services 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 and is recognized upon vesting of the stock award.
Stock issued for the purchase of assets is also valued based on the fair value on the date the stock is issued or required to be issued per the purchase agreement. The assets are recorded based on the value of the stock issued.



(Loss) Earnings Per Share



The computation of basic (loss) earnings per common share is based on the
weighted average number of shares outstanding during each year.



The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents which would arise from the conversion of preferred stock to common stock
and the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year. Options and warrants to purchase 1,708,377 shares of common stock at prices ranging from $3.05 to
$8.55 and 1,134.5 shares of Series B convertible preferred stock were outstanding at December 31, 2004, but were not included in the diluted earnings (loss) per share calculation because the effect would have been anti-dilutive.



Concentration of Credit Risk



The Company maintains its cash in bank deposit accounts, which, at times,
may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.



Use of Estimates in the Preparation of Combined Consolidated Financial Statements



The preparation of combined consolidated financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



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##### Table of Contents

Reclassifications



Certain reclassifications have been made in the prior years consolidated financial statements to conform with the current year presentation.



|2. | Equipment
|-- | ---------



Equipment consisted of the following as of:



|                         |  |                  |         |   |                  |   |        |  
|------------------------ |  | ---------------- | ------- | - | ---------------- | - | ------ | -
|                         |  | December 31,2004 |         |   | December 31,2003 |  
|Office Equipment         |  | $                | 93,653  |   |                  | $ | 21,051 |  
|Engineering Equipment    |  |                  | 16,491  |   |                  |   | 2,795  |  
|Demonstration Vehicles   |  |                  | 20,200  |   |                  |   | 9,000  |  
|                         |  |                  |         |   |                  |   |        |  
|Fixed Assets at Cost     |  |                  | 130,344 |   |                  |   | 32,846 |  
|Accumulated Depreciation |  |                  | (17,544 | ) |                  |   | (1,164 | )
|                         |  |                  |         |   |                  |   |        |  
|Net Fixed Assets         |  | $                | 112,800 |   |                  | $ | 31,682 |  
|                         |  |                  |         |   |                  |   |        |  



|3. | Patents and Trademarks.
|-- | -----------------------



At December 31, 2004 and 2003, the Company had capitalized costs directly related to the application for patents and trademarks in the amount of $147,951
and $28,137, respectively. We began to amortize the costs of these patents in the fourth quarter of 2004 and had accumulated amortization of $3,898 at December 31, 2004. The balance of a patents value will be expensed if the application is not
approved.



|                               |  |                  |         |   |                  |   |       
|------------------------------ |  | ---------------- | ------- | - | ---------------- | - | ------
|                               |  | December 31,2004 |         |   | December 31,2003
|Patents                        |  | $                | 128,595 |   |                  | $ | 25,927
|Trademarks                     |  |                  | 19,356  |   |                  |   | 2,210 
|                               |  |                  |         |   |                  |   |       
|Patents and Trademarks at Cost |  |                  | 147,951 |   |                  |   | 28,137
|Accumulated Amortization       |  |                  | (3,898  | ) |                  |   |      
|                               |  |                  |         |   |                  |   |       
|Net Patents & Trademarks       |  | $                | 144,053 |   |                  | $ | 28,137
|                               |  |                  |         |   |                  |   |       



|4. | Commitments
|-- | -----------



The Company has entered non-cancelable operating leases for its business facility and a testing facility. The operating leases obligate the Company at
approximately $67,000 from January 1, 2005 through August 31, 2005. Total rent expense for the year ended December 31, 2004 and 2003 and the period from October 28, 2002 through December 31, 2002 was $100,000, $35,000 and $3,000, respectively.



|5. | Series A Preferred Stock
|-- | ------------------------



Series A 10% Convertible Non-Voting Preferred Stock



The Company has authorized 5,000,000 shares of preferred stock. 930,000 shares were issued as Series A 12%, $.01 par value, Convertible Non-Voting
Preferred Stock (Series A Preferred Stock). As of December 31, 2003 there were no shares outstanding.



Dividends



The holders of the Series A Preferred Stock are entitled to dividends at the rate of 12 percent per year of the liquidation preference of $1.00 per share,
payable annually, if and when declared by the board of directors. Dividends are not cumulative and the board of directors are under no obligation to declare dividends.



Convertibility



Upon the approval of the Board of Directors, Series A Preferred Stock may be convertible into the Companys common stock by dividing $1.00 plus any
unpaid dividends by 50% of the five day average closing bid price of the common shares.



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##### Table of Contents

During 2003, the Company sold 930,000 shares of Series A Convertible Preferred Stock in exchange for
proceeds of $930,000. These shares were converted into 1,550,000 shares of the Companys common stock at approximately $.81 per share. As a result of the beneficial conversion feature inherent in the conversion rights and preferences of Series
A Preferred Stock, the Company recognized a deemed dividend of $611,784. This deemed dividend was calculated based on the conversion price above at the time of conversion. Because the Company has an accumulated deficit, dividends were recorded in
additional paid-in-capital and have a net affect of zero in that account and is therefore not presented on the statement of stockholders equity as a separate item.



Liquidation Preference



The holders of Series A Preferred are entitled to a liquidation preference of $1.00 per share plus unpaid dividends.



|6. | Series B Preferred Stock
|-- | ------------------------



The Company has authorized 5,000,000 shares of 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). As of December 31, 2004 there were 1,134.5 shares outstanding. The offering price was $1,000 per share.



Dividends



The holders of the Series B Preferred Stock are entitled to dividends at the rate of 7 percent per year of the value of
their investment, payable quarterly, in either cash or shares of Raser common stock. Dividends are cumulative. The Company elected to pay all dividends in cash during 2004.



Warrants



Holders of Series B Preferred Stock were granted cash-only exercise warrants equal to 25% of the common stock available to them upon conversion at an
exercise price of $8.55 per share. As of December 31, 2004 no preferred shareholders had exercised their warrants from the Series B Preferred Stock offering.



Convertibility



Series B Preferred Stock is convertible into the Companys common stock by dividing $3.50 into the value of the investment at $1,000 per preferred
share.



During 2004 the Company sold 4,240.5 shares of Series B
Convertible Preferred Stock in exchange for gross proceeds of $4,240,500. Of these preferred shares, 3,107 were converted into 887,566 shares of the Companys common stock in 2004. As a result of the warrants granted in connection with the sale
of Series B preferred stock and the beneficial conversion feature inherent in the conversion rights and preferences of Series B Preferred Stock, the Company has recognized a deemed dividend of $4,240,500. This deemed dividend was calculated based on
the conversion price above at the time of conversion. Because the Company has an accumulated deficit, dividends were recorded in additional paid-in-capital and have a net affect of zero in that account and is therefore not presented on the statement
of stockholders equity as a separate item.



As disclosed in the
subsequent event described in Note 12, in January 2005, warrants to purchase 213,716 shares of common stock were exercised and the remaining shares of Series B preferred stock were converted to common stock. The final dividend was paid on January
20, 2005. This dividend was also paid in cash.



|7. | Common Stock
|-- | ------------



Common Stock Issuances



During the year ended December 31, 2004, the Company converted debt of $200,000 in exchange for 100,000 shares of common stock, or at $2.00 per share. The Company issued 687,500 shares of common stock in conjunction with the employment
contracts of certain key employees. These shares resulted in compensation expense of $3,048,785. The company issued 104,479 shares of common stock for consulting services valued at $463,995. The Company converted



F-11



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##### Table of Contents

3,107 shares of Series B Preferred Stock into 887,566 shares of common stock based on the conversion terms of the Series B Preferred Stock.



From February to June, 2004, the Company sold 522,300 shares of its common
stock to certain accredited investors, at a price of $2.00 per share.



During the year ended December 31, 2003, the Company issued 38,950,000 in connection with the reverse merger. These shares have been presented as if issued at inception of the Company. The Company effectively issued
2,298,714 shares of common stock upon the acquisition of Wasatch Web Advisors, Inc (Wasatch) which were the issued and outstanding common shares of Wasatch, just prior to the reverse acquisition with Raser Technologies, Inc. The Company converted
debt of $270,000, due primarily to related parties, in exchange for 540,000 shares of common stock, or at $.50 per share. The Company recognized additional interest expense of $270,000 for the beneficial conversion feature based on the terms of the
debt instruments which indicated a 50% beneficial conversion rate. The Company issued 2,967,286 shares of common stock to SCS Consulting for services provided in the merger with Wasatch. These shares were valued at $89,018 on the date of grant and
have been recorded as an expense. The Company converted all of its Series A Preferred Stock into 1,550,000 shares of common stock based on the conversion terms of the Series A Preferred Stock (see note 5).



|8. | Stock Options and Warrants
|-- | --------------------------



The Company has a stock option plan (Incentive Option Plan), which allows a maximum of 1,750,000 options which may be granted to purchase common stock at
prices generally not less than the fair market value of common stock at the date of grant. Under the Incentive Option Plan, grants of options may be made to selected officers and key employees without regard to any performance measures. The options
may be immediately exercisable or may vest over time as determined by the Board of Directors. However, the maximum term of an option may not exceed ten years.



Warrants were granted to preferred stock holders and the investment banker in connection with our Series B preferred stock offering in the third
quarter of 2004.



Information regarding the stock options and
warrants is summarized below:



|                                 |  |                              |  |                               |     
|-------------------------------- |  | ---------------------------- |  | ----------------------------- | ----
|                                 |  | Number ofOptions andWarrants |  | WeightedAverage ExercisePrice
|Outstanding at January 1, 2004   |  |                             |  |                               |    
|Granted                          |  | 1,822,692                    |  | $                             | 5.10
|Exercised                        |  | 114,315                      |  |                               | 3.44
|Forfeited                        |  |                             |  |                               |    
|Outstanding at December 31, 2004 |  | 1,708,377                    |  | $                             | 5.22



The following table
summarizes information about stock options and warrants outstanding at December 31, 2004:



|               |  |                   |  |                                                  |  |                                |      |                   |           |                               |   |     
|-------------- |  | ----------------- |  | ------------------------------------------------ |  | ------------------------------ | ---- | ----------------- | --------- | ----------------------------- | - | ----
|Outstanding    |  | Exercisable      
|Exercise Price |  | NumberOutstanding |  | Weighted AverageRemainingContractual Life(Years) |  | Weighted AverageExercise Price |      | NumberExercisable |           | WeightedAverage ExercisePrice
|$3.00 -$5.10   |  | 1,220,685         |  | 7.95                                             |  | $                              | 3.98 |                   | 827,630   |                               | $ | 3.92
|$6.20 -$8.55   |  | 487,692           |  | 4.28                                             |  |                                | 8.30 |                   | 416,859   |                               |   | 8.54
|               |  |                   |  |                                                  |  |                                |      |                   |           |                               |   |     
|Total          |  | 1,708,377         |  | 6.90                                             |  | $                              | 5.21 |                   | 1,244,489 |                               | $ | 5.43
|               |  |                   |  |                                                  |  |                                |      |                   |           |                               |   |     



|9. | Supplemental Cash Flow Information
|-- | ----------------------------------



For the year ended December 31, 2004:



| |  |  | Cash of $3,500 was paid for interest and no cash was paid for income taxes.
| | - |  | ---------------------------------------------------------------------------



| |  |  | The Company recorded a beneficial conversion feature of $200,000 related to convertible debt issued. This beneficial conversion feature was equal to the total proceeds of the debt.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | The Company converted $200,000 of debt into 100,000 shares of common stock.
| | - |  | ---------------------------------------------------------------------------



| |  |  | The Company exchanged 3,107 shares of Series B preferred stock for 887,566 shares of common stock.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | The Company issued 687,500 shares of common stock in conjunction with the employment contracts of certain officers, resulting in compensation expense of $3,048,785.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company issued 104,479 shares of common stock for consulting services valued at $463,995.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | The Company issued options to purchase 250,000 shares of common stock, valued at $553,048, for services.
| | - |  | --------------------------------------------------------------------------------------------------------



For the year ended December 31, 2003:



| |  |  | Cash of $2,546 was paid for interest and no cash was paid for income taxes
| | - |  | --------------------------------------------------------------------------



| |  |  | The Company merged into a corporation effectively changing its LLC organizational status to that of a corporation. The Company recapitalized its membership deficit of $279,869 into
additional paid in capital.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company converted $270,000 of convertible notes payable into 540,000 shares of common stock. The conversion resulted in a beneficial conversion feature of $270,000.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company issued warrants to purchase membership interests valued at $4,700 for capitalized patent costs.
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | The Company exchanged 930,000 shares of Series A preferred stock for 1,550,000 shares of common stock.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | The Company issued 2,298,714 shares of common stock in conjunction with the acquisition of Wasatch Wed Advisors, Inc.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | The company issued 2,967,286 shares of common stock for consulting services related to the merger valued at $89,018.
| | - |  | --------------------------------------------------------------------------------------------------------------------



For the period ended December 31, 2002:



| |  |  | No cash was paid for interest or income taxes during the period from October 28, 2002 (date of inception) to December 31, 2002.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company issued a warrant to purchase 1% of the membership interest of the Company in exchange for the right to defer legal cost incurred in relation to the Companys
development of its technology. The warrant was valued at $7,500 and is being capitalized over the deferral period as patent costs. The Company capitalized patent costs of $2,500 for the period ended December 31, 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company received accrued liabilities and patents of $14,772 for legal fees associated with the patents that were accrued at December 31, 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company recorded research and development expenses of $232,143 for liabilities assumed related to the research and development of the resonant motor technology. Such liabilities
assumed were payable to the current chief executive officer, an entity controlled by the chief executive officer, the chief financial officer, and an unrelated entity, and were paid through the issuance of membership interests.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company exchanged ownership interests to acquire the services of new members of management. These services have been valued at $94,147 and were recorded as general and
administrative expenses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. | Income Taxes
|--- | ------------



At December 31, 2004, the Company had net operating loss carry-forwards available to offset future taxable income of approximately $4,296,000 which will
begin to expire in 2018. The utilization of the net operating loss carry-forwards is dependent upon the tax laws in effect at the time the net carry-forwards can be utilized. The Internal Revenue Code contains provisions that likely could reduce or
limit the availability and utilization of these net operating loss



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##### Table of Contents

carry-forwards. For example, limitations are imposed on the utilization of net operating loss carry-forwards if certain ownership changes have taken place or
will be limited. The Company will perform an analysis to determine whether any such limitations have occurred as the net operating losses are utilized. The amount of and ultimate realization of the benefits form the net operating losses is
dependent, in part, upon the tax laws in effect, the Companys future earnings, and other future events, the effects of which cannot be determined. The Company has established a valuation allowance for all deferred income tax assets not offset
by deferred income tax liabilities due to the uncertainty of their realization. Accordingly, there is no benefit for income taxes in the accompanying consolidated statement of operations.



Deferred income taxes are determined based on the estimated future effects of differences between the financial statement
and income tax reporting bases of assets and liabilities given the provisions of currently enacted tax laws and the tax rates expected to be in place. The deferred income tax assets (liabilities) are comprised of the following at December 31, 2004
and December 31, 2003:



|                                    |  |                  |            |   |                  |   |          |  
|----------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | -------- | -
|                                    |  | December 31,2004 |            |   | December 31,2003 |  
|Net operating loss carry-forwards   |  | $                | 1,603,000  |   |                  | $ | 246,000  |  
|Research and development tax credit |  |                  | 129,000    |   |                  |   | 55,000   |  
|Depreciation and Amortization       |  |                  | 1,000      |   |                  |   | 0        |  
|Valuation allowance                 |  |                  | (1,733,000 | ) |                  |   | (301,000 | )
|                                    |  |                  |            |   |                  |   |          |  
|Net deferred income tax asset       |  | $                |           |   |                  | $ |         |  
|                                    |  |                  |            |   |                  |   |          |  



Reconciliations
between the benefit for income taxes at the federal statutory income tax rate and the Companys benefit for income taxes for the years ended December 31, 2004 and December 31, 2003 is as follows:



|                                                            |  |                  |            |   |                  |   |          |  
|----------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | -------- | -
|                                                            |  | December 31,2004 |            |   | December 31,2003 |  
|Federal income tax benefit at statutory rate                |  | $                | 2,602,000  |   |                  | $ | 538,000  |  
|Beneficial conversion feature related to debt               |  |                  | (75,000    | ) |                  |   | (101,000 | )
|Book and tax differences for warrant and stock transactions |  |                  | (1,163,000 | ) |                  |   | 0        |  
|Research and development credit  net tax effect            |  |                  | 46,000     |   |                  |   | 0        |  
|Loss applicable to period in which company was an LLC       |  |                  | 0          |   |                  |   | (135,000 | )
|Other                                                       |  |                  | 22,000     |   |                  |   | (1,000   | )
|Change in valuation allowance                               |  |                  | (1,432,000 | ) |                  |   | (301,000 | )
|                                                            |  |                  |            |   |                  |   |          |  
|Income tax benefit for fiscal 2004                          |  | $                |           |   |                  | $ |         |  
|                                                            |  |                  |            |   |                  |   |          |  



|11. | Recent Accounting Pronouncements
|--- | --------------------------------



In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Shared-Based Payment. Statement 123(R) addresses the
accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value of stock options and other equity-based compensation issued to employees in the income
statement. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting in APB Opinion No. 25, Accounting for Stock Issued
to Employees, which was permitted under Statement 123, as originally issued.



The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial statements.



Statement 123(R) is effective for public companies that do not file as small
business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. For public companies that file as small business issuers, Statement 123(R) is effective as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005 (i.e., first quarter 2006 for the Company). All public companies must use either the modified prospective or the modified retrospective transition method. Early adoption of this Statement
for interim or annual periods for which financial statements or interim reports have not been issued is encouraged. The Company has not yet evaluated the impact of adoption of this pronouncement which must be adopted in the fourth quarter of our
fiscal year 2005.



In November 2004, the FASB issued Statement
No. 151, Inventory Costs, to amend the guidance in Chapter 4, Inventory Pricing, of FASB Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research



F-14



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##### Table of Contents

Bulletins. Statement No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). The Statement requires that those items be recognized as current-period charges. Additionally, Statement 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of
the production facilities. Statement No. 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact of the adoption of this Statement which is required to be adopted in our fiscal year 2006.



As part of its short-term international convergence project
with the IASB, on December 16, 2004, the FASB issued Statement 153 to address the accounting for non-monetary exchanges of productive assets. Statement 153 amends APB No. 29, Accounting for Non-monetary Exchanges, which
established a narrow exception for non-monetary exchanges of similar productive assets from fair value measurement. This Statement eliminates that exception and replaces it with an exception for exchanges that do not have commercial substance. Under
Statement 153 non-monetary exchanges are required to be accounted for at fair value, recognizing any gains or losses, if their fair value is determinable within reasonable limits and the transaction has commercial substance.



The Statement specifies that a non-monetary exchange has commercial substance
if future cash flows of the entity are expected to change significantly as a result of the exchange. An entity should apply the provisions of Statement 153 prospectively for non-monetary asset exchange transactions in fiscal periods beginning after
June 15, 2005. The Company will adopt this Statement in fiscal 2005 and adoption is not expected to have a material impact on our financial position or results of operations



|12. | Subsequent Events
|--- | -----------------



In January of 2005, warrants issued pursuant to the Series B preferred stock financing to purchase 213,716 common shares were exercised. This resulted in
contributions to the Company of $1,820,672 and the issuance of 213,716 common shares. Warrants to purchase 209,660 common shares remain outstanding.



On January 20, 2005 the Company converted the remaining outstanding Series B preferred stock to common shares. This conversion resulted in the issuance of
91,426 common shares and eliminated the Companys obligation to pay preferred stock dividends.



On January 25, 2005 the Companys first patent application was approved by the United States Patent office. The patent covers Resonant Motor Systems.



On February 1, 2005 Brent M. Cook was named Chief Executive
Officer. Brent joined the Raser board of directors as an independent director on October 6, 2004.



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                           
|              | 
|3.1B          |  | Articles of Incorporation of the Registrant.                                                                                                                                                                  
|              | 
|3.1AC         |  | Articles of Amendment to the Articles of Incorporation of the Registrant.                                                                                                                                     
|              | 
|3.1BI         |  | Articles of Amendment to the Articles of Incorporation of the Registrant.                                                                                                                                     
|              | 
|3.1CD         |  | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.                                                                                                    
|              | 
|3.2I          |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                
|              | 
|4.1I          |  | Specimen Common Stock Certificate.                                                                                                                                                                            
|              | 
|4.2E          |  | Registration Rights Agreement, dated as of July 22, 2002, among the Registration and the Purchasers (as defined therein).                                                                                     
|              | 
|4.3I          |  | Form of Debenture.                                                                                                                                                                                            
|              | 
|10.1F         |  | Securities Purchase Agreement dated July 22, 2004, among the Registrant and the Purchasers (as defined therein).                                                                                              
|              | 
|10.2G         |  | Form of Warrant to Purchase Shares of the Registrants Common Stock.                                                                                                                                          
|              | 
|10.3H         |  | Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                                                           
|              | 
|10.4I         |  | Form of Option Agreement for the Amended and Restated 2004 Long Term Incentive Plan.                                                                                                                          
|              | 
|10.5J         |  | Restricted Stock Grant Agreement dated as of February 23, 2004 between the registrant and John C. Ritter, President.                                                                                          
|              | 
|10.6J         |  | Restricted Stock Grant Agreement dated as of February 26, 2004 between the registrant and Timothy D. Fehr, Chief Technical Officer.                                                                           
|              | 
|10.7J         |  | 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.
|              | 
|10.8K         |  | At Will Employment Agreement dated January 31, 2005 between the registrant and Brent M. Cook, Chief Executive Officer.                                                                                        
|              | 
|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.                                                                                                      

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|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.
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|B | Incorporated by reference to Exhibit 3.1 filed with the registrants Form 10-SB/A (File No. 000-30657) on June 1, 2000.
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|C | Incorporated by reference to Exhibit 3.2 filed with the registrants Form 10-SB/A (File No. 000-30657) on June 1, 2000.
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|D | 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.
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|E | 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.
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|F | 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.
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|G | 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.
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|H | Incorporated by reference to Appendix B filed with the registrants Schedule 14C Information Statement (File No. 000-30657) on May 14, 2004.
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|I | 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.
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|J | 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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|K | 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.
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