Loss from continuing operations for the quarter ended June 30, 2006 was $785,684, or $0.03 per common share, versus a loss of $720,374, or $0.03 per common share, for the comparable quarter last year. The increase in losses for the quarter versus the comparable quarter last year is generally attributable to higher expenditures on research and development and production engineering and the expensing of compensation costs arising from stock options issued in prior fiscal years.

During the quarter the exercise of employee stock options and underwriter warrants resulted in cash proceeds to us of $1,041,867. Principally due to these financing cash flows, cash and cash equivalents at June 30, 2006 declined by only $176,362, despite cash used in operating and investing activities totaling $1,180,685. We believe our existing cash and short-term investments, which amounted to approximately $9.8 million at June 30, 2006, will be adequate to fund our operations over the next several years.

Financial Condition

Cash and cash equivalents and short-term investments were $9,751,981 versus $10,086,200, and working capital (the excess of current assets over current liabilities) was $10,586,627 compared with $10,415,409, at June 30, 2006 and March 31, 2006, respectively. The decrease in cash and short-term investments and working capital is primarily attributable to cash used in operating and investing activities, offset, in part, by cash proceeds from the exercise of stock options and underwriter warrants during the quarter.

Accounts receivable increased $322,465 to $834,874 at June 30, 2006 from $512,409 at March 31, 2006. The increase is primarily attributable to increased product shipments during the first quarter of fiscal 2007. Historically, we have had nominal bad debt expense arising from uncollectible accounts receivable due to the high credit quality of our customers. Accordingly, no allowance for bad debts has been recorded at June 30, 2006 or March 31, 2006, respectively.

Costs and estimated earnings on uncompleted contracts increased $36,046 to $486,090 at June 30, 2006 versus $450,044 at March 31, 2006. The increase is due to less favorable billing terms on certain contracts in process at June 30, 2006 versus March 31, 2006. Estimated earnings on contracts in process rose to $264,495 or 12.9 percent of contracts in process of $2,046,781 at June 30, 2006 compared to estimated earnings on contracts in process of $221,382 or 8.2 percent of contracts in process of $2,695,407 at March 31, 2006. The increase in estimated margins on contracts in process is attributable to improved overhead absorption and decreased levels of cost overruns.

Inventories rose $187,968 to $655,453 at June 30, 2006 principally due to higher levels of raw material, work-in-process and finished goods inventories which rose $17,537, $143,837 and $26,594, respectively. The increase in each of these components of our inventories is attributable to the ramp-up of production for vehicle auxiliary motors and higher levels of low volume product production during the quarter.

Prepaid expenses and other current assets increased to $317,717 at June 30, 2006 from $118,439 at March 31, 2006 reflecting the prepayment of insurance premium costs on our commercial insurance coverages.

We invested $241,886 for the acquisition of property and equipment during the quarter ended June 30, 2006 compared to $39,472 during the comparable quarter last fiscal year. The increase in capital expenditures is primarily due to the installation of a semi-automated high volume motor manufacturing cell.

Patent and trademark costs, net of accumulated depreciation decreased to $531,406 at June 30, 2006 from $552,382 at March 31, 2006 reflecting the systematic amortization of these costs.

Accounts payable increased $37,070 to $571,498 at June 30, 2006 from $534,428 at March 31, 2006, primarily due to the launch of a new high volume motor and the resulting increase in component purchases during the first quarter.

Other current liabilities decreased $48,101 to $260,996 at June 30, 2006 from $309,097 at March 31, 2006. The decrease is primarily attributable to lower levels of accrued legal and accounting fees, accrued personal property and real estate taxes and accrued warranty costs.

Short-term and long-term deferred compensation under executive employment agreements rose $127,636 and declined $78,373, respectively, at June 30, 2006, reflecting our estimate of the timing and amount of the potential liability for future severance payments under employment agreements with executive officers.

Liabilities and commitments of discontinued operations were $42,677 at June 30, 2006 compared to $62,004 at March 31, 2006 reflecting the estimated obligation for future lease payments on subleased facilities of our discontinued electronic products segment for which we are the primary obligor. See also note 9 to the consolidated financial statements.

Billings in excess of costs and estimated earnings on uncompleted contracts increased $141,386 to $363,012 at June 30, 2006 from $221,626 at March 31, 2006 reflecting increased levels of billings on certain engineering contracts in advance of the performance of the associated work during the quarter ended June 30, 2006.

Long-term debt, less current portion decreased $23,956 to $597,729 at June 30, 2006 from $621,685 at March 31, 2006 reflecting principal repayments on the mortgage debt for our Frederick, Colorado facility.

Common stock and additional paid-in capital increased to $251,306 and $70,498,952, respectively, at June 30, 2006 compared to $247,760 and $69,293,461 at March 31, 2006. The increases were primarily attributable to the exercise of stock options and underwriter warrants during the quarter which resulted in cash proceeds to us of $1,041,867.

Results of Continuing Operations

Continuing operations for the first quarter ended June 30, 2006, resulted in a loss of $785,684, or $0.03 per common share, compared to a loss from continuing operations of $720,374, or $0.03 per common share for the same quarter last year. The increase in the loss from continuing operations for the quarter is primarily attributable to higher levels of research and development expenditures, production engineering expenses and selling general and administrative expenditures with the majority of the increase in these expenditures arising from non-cash compensation charges associated with the expensing of stock options granted in prior fiscal years.

Revenue from contract services rose $356,766 to $824,354 at June 30, 2006 compared to $467,588 for the comparable quarter last year. The increase is primarily attributable to improved staff utilization on revenue generating programs.

Product sales for the first quarter declined to $476,978 compared to $685,617 for the comparable quarter last year, but rose sequentially from the previous quarter’s $241,452. Power Products segment revenue for the quarter ended June 30, 2006 declined slightly to $421,700 compared to $428,061 for the comparable quarter last year and rose sequentially from last quarter’s $78,325. The quarter-over-quarter decline is principally attributable to product sales of new production wheelchair motors in the prior fiscal year quarter that are no longer in production. Technology segment revenue for the first quarter increased to $879,632 compared to $725,144 for first quarter last fiscal year due to higher levels of contract services revenue, which were partially offset by decreased levels of low volume product shipments. Technology segment product revenue for the first quarter decreased to $55,278 compared to $257,556 for the first quarter last year, due to decreased shipments of propulsion motors and controllers.

Gross profit margins for the quarter ended June 30, 2006 improved to 9.4 percent compared to a negative 9.8 percent for the comparable quarter last year primarily due to improved gross profit margin on contract services revenue, which were partially offset by decreased gross profit margin on product sales. Gross profit margin on contract services was 20.5 percent for the first quarter this fiscal year compared to a negative 41.7 percent for the first quarter last year. The increase in contract services margins for the first quarter this fiscal year versus the same quarter last fiscal year is attributable to improved overhead absorption and fewer cost overruns on funded projects. Gross profit margin on product sales for the first quarter this year was a negative 9.9 percent compared to 11.9 percent for the first quarter last year. The decrease in margins on product sales for the first quarter is attributable to costs associated with the launch of production for a new customer.

Research and development expenditures for the quarter ended June 30, 2006 rose to $95,151 compared to $30,320 for the quarter ended June 30, 2005. The increase is primarily due to additional cost-share type contract expenditures, higher levels of internally funded projects and non-cash compensation charges associated with the expensing of stock options granted in prior fiscal years.

Production engineering costs were $248,372 for the first quarter versus $166,690 for the same quarter last year. The increase is attributable to additional staffing, increased prototype and sample expenses and non-cash compensation charges associated with the expensing of stock options granted in prior fiscal years.

Selling, general and administrative expense for the quarter ended June 30, 2006 was $672,517 compared to $448,445 for the same quarter last year. The increase is primarily attributable to increased accounting and legal expenses and non-cash compensation charges associated with the expensing of stock options granted in prior fiscal years.

Interest income rose to $120,652 for the first quarter compared to $56,165 for the comparable quarter last year. The increase is attributable to higher yields on invested balances during the current quarter.

Interest expense decreased to $12,427 for the first quarter versus $16,592 for the comparable quarter last year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.

In January 2004, we committed to a plan to exit our contract electronics manufacturing business whose results were reported as the electronic products segment. In May 2004, we completed the divestiture of equipment and inventory of this business. We are the primary obligor on a lease for the facility previously occupied by this divested business. The facility has been subleased at a rental rate below that provided for in the master lease. At June 30, 2006 liabilities and commitments of discontinued operations totaled $42,677, all of which was associated with the lease commitment.

The operating results of this business for the quarters ended June 30, 2006 and 2005 has been reported separately as discontinued operations. Loss from discontinued operations includes interest expense on debt used to acquire manufacturing machinery and equipment but does not include allocations of general corporate overheads, which have been allocated to other business segments. Operating results of all prior periods presented have been adjusted to reflect the contract electronics manufacturing business as discontinued operations.

Loss from discontinued operations for the quarter ended June 30, 2006 was $2,112 or nil per common share versus $10,431 or nil per common share for the comparable quarter last fiscal year.

Liquidity and Capital Resources

Our cash balances and liquidity throughout the quarter ended June 30, 2006 were adequate to meet operating needs. At June 30, 2006, we had working capital (the excess of current assets over current liabilities) of $10,586,627 compared to $10,415,409 at March 31, 2006.

For the quarter ended June 30, 2006 net cash used in operating activities of continuing operations was $1,092,884 compared to net cash used in operating activities of $686,353 for the comparable quarter last year. The increase in cash used in operating activities was primarily attributable to higher levels of accounts receivable, inventories and prepaid expenses, which were partially offset by lower levels of operating losses, excluding non-cash compensation expense from stock option grants in prior periods and higher levels of billings in excess of costs and estimated earnings on uncompleted contracts.

Net cash used in investing activities of continuing operations for the quarter ended June 30, 2006 was $87,801 compared to cash used by investing activities of $306,707 for the comparable quarter last year. The decrease for the quarter was due to higher levels of maturities of short-term securities, which was partially offset by an increase in capital expenditures for equipment.

Net cash provided by financing activities of continuing operations was $1,025,762 for the quarter ended June 30, 2006 versus $3,904,513 for the first quarter last year. The decrease arises from the completion of a private placement of our common stock to an institutional investor during the first quarter last year which generated cash in excess of that received during the first quarter this year from the issuance of common stock upon the exercise of stock options and underwriter warrants.

We expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage consistent with execution of our business plan; however, we cannot provide assurance that we will be successful in achieving these objectives. We believe our available cash resources are sufficient to fund our expected level of operations for the next several years. We have begun, and expect to continue, to make substantial investments from our available cash and short-term investments for additional human resources, manufacturing facilities and equipment, production and application engineering, among other things. We expect to fund our operations over at least the next several years from existing cash and short-term investment balances and from available bank financing, if any. We cannot, however, provide any assurance that our existing financial resources will be sufficient to execute our business plan. If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, we will modify our strategy to align our operation with then available financial resources.

The following table presents information about our contractual obligations and commitments as of June 30, 2006:

(1) Does not include sublease payments of $145,000 over the remaining term of a facility lease.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that effect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended March 31, 2006 describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for doubtful accounts receivables, costs to complete contracts, recoverability of inventories, and potential future lease obligations arising from discontinued operations. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.

Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customer’s particular business. We have established no reserve for potentially uncollectible trade accounts receivable, which is our best estimate of the amount of trade accounts receivable that we believe are uncollectible due to the foregoing factors. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses.

In May 2004, we completed the divestiture of equipment and inventory of our electronics product segment. We are the primary obligor on a lease for the facility previously occupied by this divested business. The facility has been subleased at a rental rate below that provided for in the master lease. Accordingly, we have recorded a liability for the difference between these two amounts which totaled $42,677 at June 30, 2006. At this time we believe our currently recorded liabilities for discontinued operations are adequate to cover potential future obligations that may arise.

Our estimate of future sublease payments could change materially based on future developments and events. Any change in this estimate could result in a material change in our financial condition and results of operations.

We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assesses our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. The actual realizable value of our inventories may differ materially from these estimates based on future occurrences. It is reasonably possible that future events or changes in circumstances could cause the realizable value of our inventories to decline materially, resulting in additional material impairment losses.

Percentage of Completion Revenue Recognition on Long-term Contracts: Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

We recognize revenue on the development projects funded by our customers using the percentage-of-completion method. Under this method, contract services revenue is based on the percentage that costs incurred to date bear to management’s best estimate of the total costs to be incurred to complete the project. Many of these contracts involve the application of our technology to customers’ products and other applications with demanding specifications. Management’s best estimates have sometimes been adversely impacted by unexpected technical challenges requiring additional analysis and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts and a variety of other factors that may cause unforeseen delays and additional costs. It is reasonably possible that total costs to be incurred on any of the projects in process at June 30, 2006 could be materially different from management’s estimates, and any modification of management’s estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.

Share-Based Compensation

In the first quarter of fiscal 2007, we adopted SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based payment awards. We use the Black-Scholes-Merton option pricing model to estimate the fair value of employee stock options consistent with the provisions of SFAS No. 123(R). Option pricing models, including the Black-Scholes-Merton model, require the use of input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. We use the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin 107, due to changes in the vesting terms and contractual life of current option grants compared to our historical grants. If we change our option pricing input assumptions based on future events or determine that a different method of determining expected life was more reasonable than our current methods, or if another method for calculating these input assumptions was prescribed by authoritative guidance, the fair value calculated for share-based awards could change significantly.

In addition, SFAS No. 123(R) requires us to develop an estimate of the number of share-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation. Any such adjustments may affect our gross margin, research and development expenses, production engineering and selling, general, administrative expenses. The expense we recognize in future periods could also differ significantly from the current period and/or our forecasts changing circumstances.

Controls Evaluation and Related CEO and CFO Certifications.

We conducted an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (Disclosure Controls) as defined by Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Attached as exhibits to this Quarterly Report are certifications of the CEO and the CFO, which are required by Rule 13a-15(b) of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with US generally accepted accounting principles. To the extent that components of our internal control over financial reporting are included within our Disclosure Controls, they are included in the scope of our periodic controls evaluation.

Limitations on the Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our Disclosure Controls or our internal control over financial reporting will prevent all errors and all fraud. Our control system, has been designed to provide reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, the Company’s implementation of the controls and the effect of the controls on the information generated for use in this Quarterly Report. In the course of the controls evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning control effectiveness can be reported in our Quarterly Reports on Form 10-Q and in our Annual Report on Form 10-K. Many of the components of our Disclosure Controls are also evaluated on an ongoing basis by personnel in our finance organization.

The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Among other matters, we also considered whether our evaluation identified any "significant deficiencies" or "material weaknesses" in our internal control over financial reporting, and whether we had identified any acts of fraud involving personnel with a significant role in our internal control over financial reporting. This information was important both for the controls evaluation generally, and because item 5 in the certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board’s Audit Committee and to our independent auditors. In the professional auditing literature, a "significant deficiency" is an internal control deficiency that, alone or in the aggregate with others, results in more than a remote likelihood that a misstatement of a company’s financial statements that is more than inconsequential in amount will not be prevented or detected. Auditing literature defines a "material weakness" as a significant deficiency that, alone or in the aggregate with others, results in more than a remote likelihood that a material misstatement in a company’s financial statements will not be prevented or detected. During the course of our evaluation this quarter, we identified a few internal control procedures that should be changed to improve the effectiveness of our internal controls. We do not believe that any of the internal control procedures we expect to improve represented a material weakness, or is reasonably likely to materially affect, our internal control over financial reporting in a manner requiring disclosure in accordance with Item 308(c) of Regulation S-K.

Conclusions

Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective, at the reasonable assurance level, in: 1) identifying material information required to be disclosed in Exchange Act Reports; 2) providing that material information is recorded, processed, summarized and reported within the time periods specified by the SEC; and 3) providing that material information relating to the Company and its consolidated subsidiaries is made known to management, including the CEO and CFO.

PART II-OTHER INFORMATION

Litigation

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.

Risk Factors

Before investing in our securities you should carefully consider the following factors and other information in this document and the information incorporated by reference.

We have incurred significant losses and may continue to do so.

In the future we plan to make additional investments in product development and commercialization, which is likely to cause us to remain unprofitable.

Our operating losses and working capital requirements could consume our current cash balances.

Our net loss for the quarter ended June 30, 2006 was $787,796 versus a net loss for the comparable quarter last year of $730,805. At June 30, 2006, our cash and short-term investments totaled $9,751,981. If our losses continue, operations could consume some or all of our cash balances. We expect to make additional investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, in order to effectively compete in the emerging market for hybrid electric vehicles. We cannot assure, however, that our existing cash resources will be sufficient to complete our business plan. Should our existing cash resources be insufficient, we may need to secure additional funding. We cannot assure you, however, that funding will be available on terms acceptable to us, if at all.

Our government contracts can be cancelled with little or no notice and could restrict our ability to commercialize our technology.

Some of our technology has been developed under government funding by United States government agencies. In some cases, government agencies in the United States can require us to obtain or produce components for our systems from sources located in the United States rather than foreign countries. Our contracts with government agencies are also subject to the risk of termination at the convenience of the contracting agency and in some cases grant "march-in" rights to the government. March-in rights are the right of the United States government or the applicable government agency, under limited circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government to facilitate commercialization of technology developed with government funding. March-in rights can be exercised if we fail to commercialize the developed technology. The implementation of restrictions on our sourcing of components or the exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.

We face intense competition in our motor development and may be unable to compete successfully.

In developing electric motors for use in vehicles and other applications, we face competition from very large domestic and international companies, including the world’s largest automobile manufacturers. These companies have far greater resources to apply to research and development efforts than we have, and they may independently develop motors that are technologically more advanced than ours. These competitors also have much greater experience in and resources for marketing their products.

If we fail to develop and achieve market acceptance for our products, our business may not grow.

We believe our proprietary systems are suited for a wide range of hybrid electric vehicle platforms. We currently expect to make substantial investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, to capitalize on the anticipated expansion in demand for products related to this market area. However, our experience in this market area is limited. Our sales in this area will depend in part on the market acceptance of and demand for our proprietary propulsion systems and future products. We cannot be certain that we will be able to introduce or market our products, develop other new products or product enhancements in a timely or cost-effective manner or that our products will achieve market acceptance.

If we are unable to protect our patents and other proprietary technology, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our products. In addition, the cost of enforcing our proprietary rights may be expensive and result in increased losses.

Our ability to compete effectively against other companies in our industry will depend, in part, on our ability to protect our proprietary technology. Although we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be successful in doing so. We have historically pursued patent protection in a limited number of foreign countries where we believe significant markets for our products exist or where potentially significant competitors have operations. It is possible that a substantial market could develop in a country where we have not received patent protection and under such circumstances our proprietary products would not be afforded legal protection in these markets. Further, our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours. We cannot assure that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor’s products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we cannot assure that we would be successful in enforcing our intellectual property rights. In addition, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country where we may operate or sell our products in the future. If third parties assert technology infringement claims against us, the defense of the claims could involve significant legal costs and require our management to divert time and attention from our business operations. If we are unsuccessful in defending any claims of infringement, we may be forced to obtain licenses or to pay royalties to continue to use our technology. We may not be able to obtain any necessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly, our results of operations may suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-party technologies.

Use of our motors in vehicles could subject us to product liability claims, and product liability insurance claims could cause an increase in our insurance rates or could exceed our insurance limits, which could impair our financial condition, results of operations and liquidity.

Because some of our motors are designed to be used in vehicles, and because vehicle accidents can cause injury to persons and property, we are subject to a risk of claims for product liability. We carry product liability insurance of $1 million covering all of our products. If we were to experience a large insured loss, it might exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable levels, any of which could impair our financial position and results of operations.