Note(1)

$397,834 included in current liabilities and $675,715 included in long term liabilities on our consolidated balance sheet as of March 31, 2009.

 

 

Deferred compensation under executive employment agreements represents the future compensation potentially payable under the retirement and voluntary termination provisions of executive employment agreements (see also note 14). The value of the Level 3 liability in the foregoing table was determined under the income approach, using inputs that are both unobservable and significant to the value of the obligation including changes in the company's credit worthiness and changes in interest rates.

A summary of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follows:

At June 30, 2009, we have two reportable segments: technology and power products. Our reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies. The technology segment encompasses our technology-based operations including core research to advance our technology, application and production engineering and product development and job shop production of prototype components. The power products segment encompasses the manufacture and sale of motors and electronic controllers. Salaries of the executive officers and corporate general and administrative expense are allocated to our segments annually based on factors established at the beginning of each fiscal year. The percentages allocated to the technology segment and power products segment were 82 percent and 18 percent for the quarter ended June 30, 2009, and were 76 percent and 24 percent for the quarter ended June 30, 2008, respectively.

Intersegment sales or transfers, which were eliminated upon consolidation, were $4,467 and $45,190, for the quarters ended June 30, 2009 and 2008, respectively.

The technology segment leases office, production and laboratory space in a building owned by the Power Products Segment based on a negotiated rate for the square footage occupied. Intercompany lease payments, were $45,900 and $43,500, for the quarters ended June 30, 2009 and 2008, respectively, and were eliminated upon consolidation.

The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the quarter ended June 30, 2009:

The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the quarter ended June 30, 2008:

Employment Agreements

We have entered into employment agreements with four of our officers which expire on August 22, 2012. The aggregate future base salary payable to these four executive officers under the employment agreements, over their remaining thirty-eight month term is $2,900,667. In addition, we have recorded a liability of $1,082,955 and $1,073,549 at June 30, 2009 and March 31, 2009, respectively, representing the potential future compensation payable under the retirement and voluntary termination provisions of the employment agreements.

Litigation

In November 2007, we filed an arbitration claim with the American Arbitration Association ("AAA") against Phoenix MC, Inc., as successor by merger to Phoenix Motorcars, Inc. ("Phoenix") seeking damages for Phoenix's breach of the Purchase and Supply Agreement between Phoenix and UQM Technologies, Inc. dated January 12, 2007. The matter was heard by an AAA arbitration panel (the "Panel") in December 2008. On February 24, 2009, the AAA notified us of the Panel's findings that Phoenix had materially breached the Agreement and awarded monetary damages to us in the amount of $5,309,649. In addition, the Panel awarded us post-award interest at the rate of 10 percent per annum on the unpaid amount of the award subsequent to February 6, 2009. On April 27, 2009, Phoenix filed a Chapter 11 Bankruptcy petition with the U.S. Bankruptcy Court. As a result of the bankruptcy filing, efforts to collect on the arbitration award are stayed. At this time, whether, to what extent, and when, we will be able to recover any of the amounts that Phoenix owes is uncertain.

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 adverse developments in these matters could have a material impact on a future reporting period.

We generate revenue from two principal activities: 1) research, development and application engineering services that are paid for by our customers; and 2) the sale of motors, generators and electronic controls. The sources of engineering revenue typically vary from year to year and individual projects may vary substantially in their periods of performance and aggregate dollar value. Our product sales consist of both prototype low volume sales, which are generally sold to a broad range of customers, and annually recurring higher volume production.

During the first quarter ended June 30, 2009 we continued to experience the strong demand we have seen over the last several quarters for our electric propulsion systems and related products due to an expansion in the number of all-electric and hybrid electric vehicle platforms being developed for potential introduction in the passenger automobile market. In May, 2009 we reported that we had delivered electric propulsion systems and/or generators during the fiscal year ended March 31, 2009 to six international automobile manufacturers, one of which has publicly announced their plan to introduce at least one all-electric or hybrid electric automobile by 2010. We are also supplying electric propulsion systems and/or generators to an additional eight entrepreneurial automobile developers, some of which have publicly announced plans to begin delivering limited quantities of automobiles to consumers in calendar 2009. In the truck market, we are continuing to supply DC-to-DC converters to Eaton Corporation as part of their hybrid electric propulsion system which powers medium duty hybrid trucks manufactured by International Truck and Engine Corporation, Peterbilt Motors Company and Freightliner Trucks.

In July 2009, we completed a Supply Agreement with Coda Automotive to supply UQM® PowerPhase® electric propulsion systems to Coda Automotive's production partner, Harbin HaFei Automobile Industry Group Co. Ltd. ("HaFei"), Harbin, China, for a period of ten years. Initial shipments under the agreement are expected to begin later this year and ramp up prior to scheduled deliveries of the company's affordable, full performance all-electric Coda Sedan in the California market in mid 2010. Hafei is one of the premier production companies in China for automobiles and automobile engines with over 575,000 square meters of production facilities, 11,000 employees and an annual production capacity of 400,000 automobiles and 550,000 automobile engines. We expect to incur material production engineering cost and to expend substantial amounts for the purchase of manufacturing equipment and tooling over the next several quarters in advance of the launch of volume production activities early next calendar year. Similarly, we expect our product sales revenue to increase substantially following the commencement of high volume product deliveries under the terms of the contract in calendar 2010. In anticipation of expanded working capital requirements associated with execution of the Coda Automotive program, which may exceed our currently available cash resources, we may raise additional capital in future periods. Accordingly, we have filed a shelf registration statement with the U.S. Securities and Exchange Commission for the sale of up to 15 million shares of our common stock.

We believe demand for our electric propulsion system and generator products will remain strong for the foreseeable future as vehicle makers continue to focus on the development and introduction of electric and hybrid electric vehicles as part of the restructuring of the global automotive industry to provide a broader selection of highly fuel efficient vehicles to consumers.

Product sales revenue for the fiscal first quarter ended June 30, 2009 rose 44 percent to $1,716,437 versus $1,189,871 for the comparable quarter last fiscal year, reflecting increased shipments of propulsion motors and controllers.

Revenue from funded engineering activities for the quarter ended June 30, 2009 declined 32 percent to $412,882 versus $603,484 for the quarter ended June 30, 2008, primarily due to the shifting of engineering resources to support low volume production and internally-funded research and development activities.

Gross profit margins on product sales for the quarter ended June 30, 2009 improved to 28 percent versus 11 percent for the comparable quarter last fiscal year resulting in over a three-fold increase in gross profit contribution dollars to $487,784 versus $126,436, respectively.

Internally-funded research and development expenditures rose 82 percent to $186,146 for the quarter ended June 30, 2009 versus $102,498 for the comparable quarter last fiscal year reflecting cost-sharing on government research programs and on-going software research activities.

Net loss for the quarter ended June 30, 2009 declined 37 percent to $629,116, or $0.02 per common share on total revenue of $2,129,319, versus a net loss of $999,715 or $0.04 per common share on total revenue of $1,793,355 for the comparable quarter last year. The reduction in net loss is primarily attributable to higher levels of revenue and expanded gross profit margins on product sales.

Our liquidity for the quarter was sufficient to meet our operating requirements. At June 30, 2009 we had cash and short-term investments totaling $4,477,576. Net cash used in operating activities and capital expenditures for property and equipment for the quarter ended June 30, 2009 were $1,286,884 and $34,793, respectively.

As discussed above, the launch of volume production for Coda Automotive and the expected continued expansion in demand for our products may require us to invest a substantially greater amount of financial and human resources for the remainder of fiscal 2010 and beyond. Accordingly, we may further increase the size of our production engineering group, may likely increase the level of capital expenditures for manufacturing equipment and tooling, and potentially expand our manufacturing facility in Frederick, Colorado. We believe these investments are necessary to support our strategy of aggressively introducing automotive certified products to satisfy our customers' requirements as these new market opportunities emerge and expand.

As the markets for these advanced vehicles continue to emerge and expand into additional vehicle platforms over the next several years, we expect to experience potentially rapid growth in our revenue coincident with the introduction of electric products for our customers. Should these expectations be realized, our existing cash and short-term investments may not be adequate to fund our anticipated growth and, as a result, we may need to raise additional capital to fund the anticipated growth in our business.

Cash and cash equivalents and short-term investments at June 30, 2009 were $4,477,576 and working capital (the excess of current assets over current liabilities) was $6,240,030 compared with $5,793,666 and $6,640,877, respectively, at March 31, 2009. The decrease in cash and short-term investments and working capital is primarily attributable to operating losses, higher levels of accounts receivable, prepaid and other current assets, partially offset by lower levels of inventories.

Accounts receivable increased $864,912 to $1,782,011 at June 30, 2009 from $917,099 at March 31, 2009. The increase is primarily attributable to increased production billings versus the fourth quarter last fiscal year. Substantially all of our customers are large well-established companies of high credit quality. Although we have not established an allowance for bad debts at June 30, 2009 and no allowance for bad debts was deemed necessary at March 31, 2009, in light of current economic conditions we may need to establish an allowance for bad debts in the future.

Costs and estimated earnings on uncompleted contracts decreased $241,132 to $401,966 at June 30, 2009 versus $643,098 at March 31, 2009. The decrease is due to more favorable billing terms on certain contracts in process at June 30, 2009 versus March 31, 2009. Estimated earnings on contracts in process decreased to $37,551 or 1.0 percent of contracts in process of $3,855,243 at June 30, 2009 compared to estimated earnings on contracts in process of $194,861 or 4.2 percent of contracts in process of $4,609,747 at March 31, 2009. The decrease is attributable to lower expected margin on certain contracts in process at June 30, 2009.

Inventories decreased $269,343 to $1,037,828 at June 30, 2009 principally due to lower levels of work-in-process and finished goods inventories. Raw materials, work-in-process and finished goods inventory decreased $1,898, $209,606, and $57,839, respectively, reflecting higher product shipment levels during the quarter.

Prepaid expenses and other current assets increased to $213,544 at June 30, 2009 from $117,768 at March 31, 2009 primarily due to the prepayment of insurance premium costs on our commercial insurance coverage.

We invested $34,793 for the acquisition of property and equipment during the quarter ended June 30, 2009 compared to $219,177 during the comparable quarter last fiscal year. The decrease in capital expenditures is primarily due to decreased purchases of manufacturing equipment during the current quarter versus the quarter ended June 30, 2008. As described above, we expect to increase the level of our capital expenditures substantially over the next twelve months as a result of the supply agreement with Coda Automotive.

Patent and trademark costs decreased $12,859 to $425,325 at June 30, 2009 versus $438,184 at March 31, 2009 primarily due to the systematic amortization of patent issuance costs.

Accounts payable decreased $317,360 to $333,769 at June 30, 2009 from $651,129 at March 31, 2009, primarily due to improved payment processing during the quarter.

Other current liabilities decreased $104,774 to $495,898 at June 30, 2009 from $600,672 at March 31, 2009. The decrease is primarily attributable to lower levels of customer prepayments at June 30, 2009.

Current portion of long-term debt decreased $27,640 to $389,283 at June 30, 2009 from $416,923 at March 31, 2009 reflecting scheduled principal repayments on the mortgage debt for our Frederick, Colorado facility. We expect to extend the term of this mortgage debt prior to its maturity in November of 2009, however, we cannot assure you that an extension will be completed.

Short-term deferred compensation under executive employment agreements increased $4,520 to $402,354 at June 30, 2009 from $397,834 at March 31, 2009 reflecting periodic accruals of future severance obligations under executive employment agreements.

Billings in excess of costs and estimated earnings on uncompleted contracts decreased $19,776 to $51,591 at June 30, 2009 from $71,367 at March 31, 2009 reflecting decreased billings on certain engineering contracts in process at June 30, 2009 in advance of the performance of the associated work versus March 31, 2009.

Long-term deferred compensation under executive employment agreements increased $4,886 to $680,601 at June 30, 2009 from $675,715 at March 31, 2009 reflecting periodic accruals of future severance obligations under executive employment agreements.

Common stock and additional paid-in capital were $267,569 and $78,885,565, respectively, at June 30, 2009 compared to $267,277 and $78,767,154 at March 31, 2009. The increase in additional paid-in capital was primarily attributable to non-cash share based payments and share issuances under our employee stock purchase plan.

Operations for the first quarter ended June 30, 2009, resulted in a net loss of $629,116, or $0.02 per common share, compared to a net loss of $999,715, or $0.04 per common share for the comparable period last year. The reduction in net loss is primarily attributable to higher levels of product sales revenue and expanded gross profit margins on product sales.

Revenue from contract services decreased $190,602, or 32 percent, to $412,882 at June 30, 2009 versus $603,484 for the comparable quarter last year. The decrease is primarily due to the shifting of engineering resources to support low volume production and internally-funded research and development activities.

Product sales for the first quarter increased $526,566 or 44 percent to $1,716,437, compared to $1,189,871 for the comparable period last year. Power products segment revenue for the quarter ended June 30, 2009 decreased to $520,932 from $721,486 for the comparable quarter last fiscal year due to decreased shipments of DC-to-DC converters and vehicle auxiliary motors. Technology segment product revenue for the quarter ended June 30, 2009 increased 155 percent to $1,195,505, compared to $468,385 for the quarter ended June 30, 2008 due to increased shipments of prototype propulsion motors and controllers.

Gross profit margins for the quarter ended June 30, 2009 increased to 28.4 percent compared to 10.8 percent for the quarter ended June 30, 2008. Gross profit on contract services was 28.2 percent during the first quarter this fiscal year compared to 11.2 percent or the quarter ended June 30, 2008. The improvement is primarily due to lower project material content during the current quarter versus the comparable quarter last fiscal year. Gross profit margin on product sales for the first quarter this year rose to 28.4 percent compared to 10.6 percent for the first quarter last year. The improvement is primarily due to lower material costs and improved overhead absorption arising from higher production levels during the current quarter versus the comparable quarter last year.

Research and development expenditures for the quarter ended June 30, 2009 increased to $186,146 compared to $102,498 for the quarter ended June 30, 2008 reflecting cost-sharing on government research programs and on-going software research activities.

Production engineering costs were $426,435 for the first quarter versus $407,848 for the first quarter last fiscal year. The increase is attributable to higher sample costs and the addition of engineering resources to our production engineering group.

Selling, general and administrative expense for the quarter ended June 30, 2009 was $639,778 compared to $760,324 for the same quarter last year. The decrease is attributable to lower levels of non-cash equity based compensation expense arising from a change in the period of grant versus that for the last fiscal year.

Interest income decreased to $15,285 for the quarter ended June 30, 2009 versus $84,278 for the same period last fiscal year. The decrease is attributable to lower yields, and lower levels of invested cash balances.

Interest expense decreased to $7,203 for the quarter ended June 30, 2009 compared to $9,116 for the comparable period last fiscal year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.

Our cash balances and liquidity throughout the quarter ended June 30, 2009 were adequate to meet operating needs. At June 30, 2009, we had working capital (the excess of current assets over current liabilities) of $6,240,030 compared to $6,640,877 at March 31, 2009.

For the quarter ended June 30, 2009, net cash used in operating activities was $1,286,884 compared to net cash used in operating activities of $229,026 for the quarter ended June 30, 2008. The increase in cash used for the quarter ended June 30, 2009 is primarily attributable to higher levels of accounts receivable, decreased levels of accounts payable and billings in excess of costs on uncompleted contracts which were partially offset by lower operating losses.

Net cash provided by investing activities for the quarter ended June 30, 2009 was $1,060,157 compared to cash provided of $941,187 for the comparable quarter last year. The change is attributable to lower levels of investments in property and equipment this quarter versus the comparable quarter last year.

Net cash provided by financing activities was $7,153 for the quarter ended June 30, 2009 versus cash used in financing activities of $25,733 for the same period last fiscal year. The increase is primarily attributable to the issuance of common stock under our Employee Stock Purchase Plan this fiscal year.

We expect to continue to invest substantially greater financial and human resources for the remainder of fiscal 2010 and beyond on the commercialization of our products in emerging markets, including a potentially significant increase in the amount of capital expenditures for equipment, tooling and facilities. In anticipation of expanded working capital and capital expenditure requirements associated with execution of the Coda Automotive program, which may exceed our currently available cash resources, we may raise additional capital in future periods. Accordingly, we have filed a shelf registration statement with the U.S. Securities and Exchange Commission for the sale of up to 15 million shares of our common stock.

We expect to fund our operations over the next year from existing cash and short-term investment balances and from available bank financing, if any, and proceeds from the sale of common stock, if any. We can, however, not provide any assurance that our existing financial resources will be sufficient to execute our business plan beyond this fiscal year without the issuance of equity securities. In the event financing or equity capital to fund our expected growth is not available on terms acceptable to us, we will modify our strategy to align our operations with then available financial resources.

The following table presents information about our contractual obligations and commitments as of June 30, 2009:

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, 2009 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, the recoverability of inventories and the fair value of financial and long-lived assets. 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. Because substantially all of our customers are large well-established companies with excellent credit worthiness, we have not established a reserve at June 30, 2009 and March 31, 2009 for potentially uncollectible trade accounts receivable. In light of current economic conditions we may need to establish an allowance for bad debts in the future. It is also 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.

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.

We recognize revenue on 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, 2009 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.

Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. Fair value estimates and judgments may be required by management for those assets that do not have quoted prices in active markets. These estimates and judgments may include fair value determinations based upon the extrapolation of quoted prices for similar assets and liabilities in active or inactive markets, for observable items other than the asset or liability itself, for observable items by correlation or other statistical analysis, or from our assumptions about the assumptions market participants would use in valuing an asset or liability when no observable market data is available. Similarly, management evaluates both tangible and intangible assets for potential impairments in value. In conducting this evaluation, management may rely on a number of factors to value anticipated future cash flows including operating results, business plans and present value techniques. Rates used to value and discount cash flows may include assumptions about interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management's judgment in applying them to the analysis of asset impairment. Changes in any of the foregoing estimates and assumptions or a change in market conditions could result in a material change in the value of an asset or liability resulting in a material adverse change in our operating results.

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 which delayed the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities. We adopted the provisions of SFAS No. 157 related to financial instruments on April 1, 2008, and the provisions related to nonfinancial assets and liabilities on April 1, 2009 (except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis). The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations ("SFAS 141(R)") and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements ("SFAS 160"). These standards goals are to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS 141(R) and SFAS 160 are effective for our fiscal year beginning April 1, 2009. We have adopted these standards for future acquisitions.

In April 2008, the FASB issued FASB Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this standard did not have a material effect on our consolidated financial statements.

In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements ("EITF 08-3"). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this EITF did not have a material effect on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP 157-4"). FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. The adoption of FSP 157-4 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) 115-2 and Statement of Financial Accounting Standards (SFAS) No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairment ("FSP 115-2/SFAS No. 124-2"). FSP 115-2/SFAS No. 124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing "intent and ability" indicator. Additionally, FSP 115-2/SFAS No. 124-2 changes the presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. The adoption of this standard did not have a material effect on our consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) 107-1 and Accounting Principals Board (APB) Opinion 28-1, Interim Disclosure about Fair Value of Financial Instruments ("FSP 107-1/APB 28-1"). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, Disclosures about the Fair Value of Financial Instruments. Additionally, FSP 107-1/APB 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments and is effective for us beginning in the first quarter of fiscal year 2010. The adoption of this standard did not have a material effect on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS 165"). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, the FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of SFAS 162 ("SFAS 168"). SFAS 168 replaces SFAS 162 and establishes the FASB Standards Codification™ as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conforming with GAAP. Rules and interpretive releases of the U.S. Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for interim or annual periods ending after September 15, 2009. The adoption of SFAS 168 will not have a material impact on our consolidated financial statements.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not use financial instruments to any degree to manage these risks and do not hold or issue financial instruments for trading purposes. All of our product sales, and related receivables are payable in U.S. dollars. We are not subject to interest rate risk on our debt obligations.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2009, we performed an evaluation under the supervision and with the participation of our management, including CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities and Exchange Act of 1934). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2009.

PART II-OTHER INFORMATION

In November 2007, we filed an arbitration claim with the American Arbitration Association ("AAA") against Phoenix MC, Inc., as successor by merger to Phoenix Motorcars, Inc. ("Phoenix") seeking damages for Phoenix's breach of the Purchase and Supply Agreement between Phoenix and UQM Technologies, Inc. dated January 12, 2007. The matter was heard by an AAA arbitration panel (the "Panel") in December 2008. On February 24, 2009, the AAA notified us of the Panel's findings that Phoenix had materially breached the Agreement and awarded monetary damages to us in the amount of $5,309,649. In addition, the Panel awarded us post-award interest at the rate of 10 percent per annum on the unpaid amount of the award subsequent to February 6, 2009. On April 27, 2009, Phoenix filed a Chapter 11 Bankruptcy petition with the U.S. Bankruptcy Court. As a result of the bankruptcy filing, efforts to collect on the arbitration award are stayed. At this time, whether, to what extent, and when, we will be able to recover any of the amounts that Phoenix owes is uncertain.

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 adverse developments in these matters could have a material impact on a future reporting period.

You should carefully consider the risks described below before making an investment decision.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. 

Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

This prospectus and the documents incorporated by reference also contain forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below and elsewhere in this prospectus.

We have incurred significant net losses as shown in the following tables:

We have had accumulated deficits as follows:

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

Our net loss for the quarter ended June 30, 2009 was $629,116 versus a net loss for the comparable quarter last fiscal year of $999,715. At June 30, 2009, our cash and short-term investments totaled $4,477,576. Our net loss for the fiscal year ended March 31, 2009 was $4,402,019 versus a net loss for the fiscal year ended March 31, 2008 of $4,586,105. We expect our losses to continue for at least the next few years, and our operations could consume some or all of our cash balances. We are not certain 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, which may not be available on terms acceptable to us, if at all.

Our business and results of operations are affected by international, national and regional economic conditions. Financial markets in the United States, Europe and Asia have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining values of others. The global economy has entered a recession. We are unable to predict the likely duration and severity of the current disruptions in financial markets, credit availability, and adverse economic conditions throughout the world. These economic developments affect businesses such as ours and those of our customers in a number of ways that could result in unfavorable consequences to us. Current economic conditions or a deepening economic downturn in the United States and elsewhere, including in the automobile industries, may cause our current or potential customers to delay or reduce purchases which could, in turn, result in reductions in sales of our products, materially and adversely affecting our results of operations and cash flows. Volatility and disruption of global financial markets could limit our customers' ability to obtain adequate financing to maintain operations and proceed with planned or new capital spending initiatives, leading to a reduction in sales volume that could materially and adversely affect our results of operations and cash flow. In addition, a decline in our customers' ability to pay as a result of the economic downturn may lead to increased difficulties in the collection of our accounts receivable, higher levels of reserves for doubtful accounts and write-offs of accounts receivable, and higher operating costs as a percentage of revenues.

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.

Some of our orders for the future delivery of products are placed under blanket purchase orders which may be cancelled by our customers at any time. The amount payable to the company, if any, upon cancellation by the customer varies by customer. Accordingly, we may not recognize as revenue all or any portion of the amount of outstanding order backlog we have reported.

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. In addition, the U.S. Government is expected to award substantial financial grants and loans under the recently enacted stimulus bill to companies engaged in the development and manufacture of energy efficient, low emission vehicles. To the extent that our competitors receive awards under the stimulus bill in amounts or proportions greater than we do, our ability to compete could be adversely impacted.

We believe our proprietary systems are suited for a wide-range of vehicle electrification applications. 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 related future products. We are not 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.

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.

Because most of our motors are designed for use 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 $10 million covering most 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.

Sales of substantial numbers of shares of our common stock in the public market, or the perception that significant sales are likely, could adversely affect the market price of our common stock. The number of shares of common stock in our recently filed shelf registration statement is equal to approximately 56% of the currently outstanding shares of our common stock. We cannot predict the effect that market sales of such a large number of shares would have on the market price of our common stock. Moreover, actual or anticipated downward pressure on the market price of our common stock due to actual or anticipated sales of our common stock could cause some institutions or individuals to engage in short sales of our common stock, which may itself cause the market price of our common stock to decline.