UQM TECHNOLOGIES, INC.
Electrifying vehicles -
providing our customers
with advanced electric power
systems, creating a competitive
advantage for them and a cleaner
environment for life on our planet
ANNUAL REPORT 2008
Company
UQM Technologies, Inc. is a developer and manufacturer of power dense, high
efficiency electric motors, generators and power electronic controllers for the au-
tomotive, aerospace, medical, military and industrial markets. A major emphasis
of the Company is developing products for the alternative energy technologies
sector including propulsion systems for electric, hybrid electric, plug-in hybrid
electric and fuel cell electric vehicles, under-the-hood power accessories and other
vehicle auxiliaries and distributed power generation applications. The Company’s
headquarters, engineering and product development center, and motor manufac-
turing operation are located in Frederick, Colorado. For more information on the
Company, please visit its worldwide website at www.uqm.com.
Our Mission
To improve the capability, performance and energy efficiency of our custom-
ers’ products by providing them with technologically advanced electric power
systems and components – motors, generators and power electronic controllers
– that are cost effective, reliable and of superior quality, creating a competitive
advantage for them and a cleaner environment for life on our planet.
Financial Profile
Year Ended March 31,
2008 2007
Sales
Gross Profit
Research and Development
Loss From Continuing Operations
Discontinued Operations
Net Loss
Net Loss Per Common Share
Continuing Operations
Discontinued Operations
$ 7,508)
1,077)
462)
(4,573)
(13)
(4,586)
(.18)
-O
6,653)
663)
321)
(3,403)
(28)
(3,431)
(.14)
-O
March 31, 2008 March 31, 2007
Cash and Short-Term Investments
$ 9,766
Working Capital
Total Term Debt
10,510
523
7,934
8,910
622
This Report contains statements that constitute “forward-looking statements” within the meaning of Sec-
tion 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements appear in a
number of places in this Report and include statements regarding our plans, beliefs or current expectations,
including those plans, beliefs and expectations of our officers and directors with respect to, among other
things the development of markets for our products and the adequacy of our cash balances and liquidity to
meet future operating needs. Important risk factors that could cause actual results to differ from those con-
tained in the forward-looking statements are contained in our Form 10-K filed on May 22, 2008 which
is available through our website at www.uqm.com or at www.sec.gov.
Front cover graphic shows a copper wound
UQM motor stator surrounding UQM’s
mission statement and the planet earth.
To our shareholders
“We shipped over 32,000 motors during fiscal year 2008 which was up
40 percent from the 23,000 motors shipped during fiscal year 2007. “
For the second straight year, we achieved double-
digit growth in our total revenue, driven primarily by
increasing product sales. Total revenue for fiscal 2008
increased 17 percent to $7.5 million with product sales
increasing 31 percent to $4.9 million compared to the
previous year. Our losses, however, also increased due
primarily to increased costs for research and develop-
ment, production engineering and selling, general and
administrative activities. Our losses were partially off-
set by improvements in gross profit margins which in-
creased over $.4 million to
$1.1 million for the fiscal
year. Capital expenditures
for the year increased 55
percent to $.62 million for
improvements to our Frederick, Colorado facility and
for purchases of manufacturing equipment.
With the cost of oil over $120 a barrel and record fuel
prices at the pump, both of which are forecasted to go
significantly higher, vehicle owners are demanding more
fuel efficient vehicles and vehicle manufacturers are be-
ginning to respond. As a result, over the last six months,
we have seen a substantial increase in the seriousness
and sense of urgency from a number of our custom-
ers to develop and field all-electric and hybrid electric
vehicles. This changing landscape contributed to a 61
percent increase in our prototype and evaluation system
sales to $1.7 million for the fiscal year. We have also
recently launched multiple production intent programs
with vehicle OEMs. During the same period, Interna-
tional Truck and Engine Corporation, Peterbilt Motors
Company and Freightliner Trucks announced produc-
tion plans for hybrid electric medium-duty trucks pow-
ered by Eaton Corporation’s hybrid electric system. We
supply DC-to-DC converters to Ea-
ton Corporation that will be used on
some of these trucks and, as produc-
tion ramps up, we expect to see sig-
nificantly greater revenue from this
product and companion products
that we are developing and hope to
sell into these emerging markets.
We believe that these recent in-
dustry developments signal the emer-
gence of new markets for all-electric
and hybrid electric vehicles, as well as
the expansion of existing markets for
these vehicles. As a result, we expect
to further increase our investments
in production engineering activities
next fiscal year, possibly substantially,
to support a number of anticipated
production intent development pro-
grams.
1
Production Programs
We shipped over 32,000 motors during fiscal year
2008, which was up 40 percent from the 23,000 motors
shipped during fiscal year 2007. The majority of these
were auxiliary actuator motors for Lippert Components
Inc., which are used in conventional vehicles. These mo-
tors are manufactured to automotive grade standards
with product assembly being performed in our high
volume, semi-automated assembly cell. Our quality and
warranty experience has been outstanding with defec-
tive units run-
ning
below
500 per mil-
lion. This as-
sembly cell has
met all of our expectations, not only producing low
cost, high quality products, but also demonstrating to
customers our volume manufacturing know-how and
capability. As a result, we are better positioned to lever-
age this newly established manufacturing capability to
win and launch additional production contracts.
On January 7, 2008, we announced that we had
received a production order from a supplier to Club
Car, Inc., a wholly-owned subsidiary of Ingersoll-Rand
Company Limited, for an auxiliary motor that will be
used on Club Car golf carts. The UQM® auxiliary mo-
tor actuates an automatic service brake feature on Club
Car golf carts sold primarily in international markets.
The auxiliary motor being provided is a variation of the
vehicle auxiliary motor being produced on our high vol-
ume production line for Lippert Components. We have
already shipped over 1,000 systems for this golf cart ap-
plication and expect shipments to grow substantially in
the future. Landing this additional production con-
tract is a significant development and adds a major new
well-known company and leader in their market to our
growing list of customers.
The developments in the hybrid electric truck mar-
ket discussed above are expected to result in a significant
increase in our production of DC-to-DC converters for
Eaton Corporation, who is the hybrid system supplier
to International Truck and Engine Corporation, Peter-
bilt Motors Company and Freightliner Trucks. In ad-
dition, we have developed a companion DC-to-AC in-
verter that we are moving into volume production to
meet the growing demand for onboard and export pow-
er requirements of hybrid trucks. We expect revenue
from these products and additional products under de-
velopment for the medium and heavy-duty hybrid elec-
tric truck market to rise substantially during fiscal year
2009 and beyond.
We have continued to grow our production engineer-
ing group with individuals having significant manufac-
turing design and production experience. Today, this
team consists of nearly twenty professionals engaged in
production programs for our motors, generators, power
electronics and software systems. We have also made
major improvements in manufacturing systems, facili-
ties, and space utilization. We added new computer
controlled equipment to our machine shop, enabling
fabrication
the
of
prototype
and low volume
parts, as well as
custom tooling
and production
fixtures. This ca-
pability has low-
ered our costs,
reduced the time
for new product
d e v e l o p m e n t
and
shortened
our lead time to
custom
deliver
products to our
In
customers.
early fiscal year 2008, we leased an additional 6,000
square feet of manufacturing space near our existing fa-
cility and relocated our vehicle integration group to the
new facility. The relocation of our vehicle integration
activities has made available additional production floor
space at our main facility.
Neil Young, rocker and clean energy advocate, visits UQM
Technology Programs
In addition to our progress on the volume produc-
tion front, we had a number of exciting developments
in our sales of prototype and evaluation systems, the
award of technology development contracts and appli-
cation and demonstration programs. These included:
»
»
»
»
»
The sale of our systems to two international auto-
motive OEMs for their all-electric and hybrid elec-
tric vehicle development programs.
The sale of our systems to three entrepreneurial au-
tomobile developers for their hybrid electric and
plug-in hybrid electric vehicle development pro-
grams.
The sale of our systems to the Denver Regional
Transportation District, to the Flint Michigan Mass
Transportation Authority, to Traction Technology
Plc and to Mobile Energy Solutions for their hybrid
electric bus development programs.
The sale of our systems to Electrorides, Inc. for its
all-electric truck development program and to a
middle-eastern truck OEM for its hybrid electric
truck development program.
The sale of our systems to a major military vehicle
OEM, to Quantum Technologies and to an entre-
»
»
preneurial military vehicle developer for their hy-
brid electric vehicle development programs; and to
a major military vehicle OEM for their export pow-
er development activities on a conventional vehicle
platform.
The award of technology development contracts
from the U.S. Air Force for silicon carbide pow-
er electronics, from the U.S. Army for high torque
electric wheel motors, from the U.S. Navy for ad-
vanced shipboard electric motors and from the
U.S. Department of Energy and California Energy
Commission for a distributed electric power grid-
connect interface system.
The announcement of application and demonstra-
tion programs with rock legend Neil Young on his
Linc Volt series hybrid electric vehicle, from Vehicle
Projects on a fuel cell powered switch locomotive
and from Boeing on the world’s first manned flight
of a fuel cell powered airplane.
Summary
Pain at the pump has created a sense of urgency in
the marketplace for clean and energy efficient vehicles
and, as a result, higher demand for our products. Dur-
ing fiscal year 2008, we have seen this growing demand
begin to materialize. Our low volume product sales were
up significantly during fiscal year 2008, increasing 61
percent, versus last fiscal year. This increase was spread
across many customers in the automotive, truck, bus,
and military vehicle markets and reflects the breadth of
interest in electric propulsion in general and our systems
in particular. The sale of these prototype and evaluation
systems is a good indicator of potential future revenue
growth.
With our successful introduction of electric auxiliary
motors and power electronic boxes currently in produc-
tion vehicles, we are now turning our attention to the
volume production of high power generators and elec-
tric propulsions systems. We believe that the Company
is well positioned to leverage its technology and pur-
sue significant production programs with major vehicle
OEMs and their Tier 1 suppliers.
Fiscal 2008 was an exciting and productive year
and we are
looking forward to accelerated rev-
enue growth in fiscal 2009 as the emerging mar-
kets we serve continue to develop and expand.
May 14, 2008
William G. Rankin
Chairman, President and Chief Executive Officer
2
“...recent government regulations mandating reductions
in pollutants from diesel engines are expected to further
accelerate the trend toward electrification...”
General
UQM Technologies, Inc. is a developer and manu-
facturer of energy efficient, power dense electric mo-
tors, generators and power electronic controllers. Our
primary focus is incorporating our advanced technol-
ogy into products aimed at existing commercial markets
and emerging markets for electrically propelled vehicles
that are expected to experience rapid growth, as well as
selected existing commercial markets. We operate our
business in two segments: 1) technology – which en-
compasses the further ad-
vancement and applica-
tion of our proprietary
motors, generators, power
electronics and software;
and 2) power products
– which encompasses the manufacture of motors, gen-
erators, power electronic controllers and related prod-
ucts. Our $0.01 par value common stock trades on the
American, Chicago, Pacific, Berlin and Frankfurt stock
exchanges under the symbol “UQM”.
The Company’s revenue from continuing operations
is derived from two principal sources: 1) funded con-
tract research and development services performed for
strategic partners, customers and the U.S. government
directed toward either the advancement of our propri-
etary technology portfolio or the application of our pro-
prietary technology to customers’ products; and 2) the
manufacture and sale of products engineered by us.
We have two principal operating companies: 1)
UQM Technologies, Inc. which includes the Corporate
Headquarters and Engineering and Product Develop-
ment Center; and 2) wholly-owned subsidiary UQM
Power Products, Inc. which is an ISO quality certified
manufacturer of our products. Both operating compa-
nies are located in Frederick, Colorado.
Vehicle Electrification
Our primary focus is incorporating our advanced
technology into products aimed at emerging markets
for electrically propelled vehicles that are expected to
experience rapid growth as well as selected existing com-
mercial markets.
Existing Markets
Today there are numerous well-established markets
for products that incorporate electric motors, genera-
tors and power electronic controllers that are targets
for replacement by our advantaged systems. Examples
of existing electric vehicle markets that we believe may
present opportunities for the commercialization of our
proprietary technology include electric wheelchairs, golf
carts, forklift trucks and other warehouse vehicles, air-
craft tugs and other support equipment, commercial
floor cleaning equipment and other similar markets
where the product application generally requires high
torque and variable speed operation. In addition, there
are a multitude of electric auxiliary motors used on con-
ventional vehicles that provide a further opportunity for
replacement by our systems.
We have developed and commercialized several prod-
ucts for existing markets that are currently being manu-
factured by our wholly-owned subsidiary, UQM Power
Products. These products include a direct-drive propul-
sion motor used in Invacare Corporation’s Storm® elec-
tric wheelchair for which we have been supplying field
service and warranty units, a
fan blower motor and a com-
pressor drive motor that are
used in aircraft air condition-
ing systems manufactured by
Keith Products, Inc., a vehi-
cle auxiliary actuator motor for a product manufactured
by Lippert Components, and an electric brake actuation
motor that is used in selected golf carts manufactured
by Club Car, Inc.
We expect to continue to aggressively pursue the
commercialization of both technologically advanced
and low cost products that we develop to customer
specifications in selected large, established markets.
Emerging Markets
Potentially large markets are developing in conjunc-
tion with the electrification of a wide-range of vehicle
platforms. The electrification of vehicles is being pur-
sued for a variety of application specific reasons includ-
ing: 1) improved fuel economy, 2) lower vehicle emis-
sions, 3) greater reliability and lower maintenance, 4)
the need for higher levels of available onboard electric
power to run electrical devices, and 5) improved perfor-
mance and vehicle control. Of these reasons, improved
fuel economy has emerged as a significant factor in the
development and potential rate of growth of the emerg-
ing vehicle electrification markets as crude oil prices
continue to rise, and consumers and businesses alike
contend with higher gasoline and diesel prices. This
trend toward higher fuel prices is expected to continue
for the foreseeable future driven by tight supply levels,
geopolitical turmoil in key oil producing countries and
increasing world demand driven principally by escalat-
ing consumption of fossil fuels by developing countries
such as China and India. In addition to these factors,
recent government regulations mandating reductions in
pollutants from diesel engines are expected to further
accelerate the trend toward electrification as increasing-
ly stringent regulations continue with the next reduc-
tion set for 2010. Further, in late 2007, Corporate Aver-
age Fuel Economy (CAFÉ) standards received their first
overhaul in more than 30 years. On December 19, Pres-
ident Bush signed into law the Energy Independence
and Security Act of 2007, which requires, in part, that
automakers boost fleetwide gas mileage to 35 mpg by
3
the year 2020. This requirement applies to all passenger
automobiles, including light trucks.
Crude oil consumption in the United States as re-
ported by the Transportation Energy Data Book: Edi-
tion 22 and the EIA Annual Energy Outlook 2003 av-
erages approximately 22 million barrels per day. Of this
amount, approximately two-thirds is used for transpor-
tation.
The electrification of conventional vehicles, ranging
from passenger vehicles and over-the-road trucks to off-
road vehicles such as agricultural tractors, construction
equipment and military vehicles, can potentially offer
improvements in fuel economy and emissions. Nearly
all conventional vehicles are powered by a gasoline or
diesel fueled internal combustion engine that converts
the energy stored in the fuel to rotating power out of
the engine. The power out of the engine’s rotating shaft
is used to propel the vehicle and operate all of the ve-
hicles auxiliaries either directly with belts, pulleys and
gears or indirectly through electricity generated from a
belted alternator.
Internal combustion engines are relatively inefficient,
typically converting only 25 to 35 percent of the in-
put energy in the fuel to the output shaft to do useful
work. The remaining 65 to
75 percent of the input en-
ergy is wasted by the engine
as heat loss. Electric motors,
on the other hand, are much
more efficient in converting
input electric energy to the rotating shaft to do useful
work. UQM® electric propulsion systems have some of
the highest efficiencies (input energy to output work) in
the industry, ranging from 80 to 95 percent.
Typical engine is
UQM electric propulsion system is
35%
efficient
Usable IC
engine energy
65%
inefficient
Waste heat
94%
efficient
6%
inefficient
Usable electric
motor energy
Waste heat
with efficiency measured from
fuel power in to sha(cid:286) power out
with efficiency measured from
electric power in to sha(cid:286) power out
The electrification of vehicles can range from sim-
ply replacing inefficient belt and gear driven under-the-
hood auxiliaries (water pump, power steering, HVAC,
cooling fans etc.) with efficient electric powered ones,
to eliminating the internal combustion engine entirely
and replacing it with full electric propulsion such as in
a battery or fuel cell powered vehicle. Generally, as the
vehicle power plant content becomes increasingly more
electric, the fuel efficiency improves and the cost and
4
complexity increases. With rising fuel prices, vehicle
makers are finding it much more feasible to justify this
added complexity and cost.
We believe that the trend toward increasing electri-
fication of vehicles will continue at an accelerated pace.
Accordingly, we have developed and continue to devel-
op, with considerable funding from our customers, elec-
tric propulsion systems and other motor and electron-
ic products that will enable our customers to introduce
alternative powered vehicles in the markets they serve,
should they elect to do so. An expanded description of
the different degrees of vehicle electrification follows:
Electrification of engine driven auxiliaries - In
most existing conventional gasoline and diesel-pow-
ered vehicles, under-the-hood components such as wa-
ter, oil and fuel pumps, power steering systems, cooling
fans and air conditioning compressors are powered by
engine belts, pulleys and gears. These devices perform
their functions very inefficiently and represent a signifi-
cant load on the engine. Because they are directly con-
nected to the engine, there is no way to independently
vary their speed or modulate their power. The electri-
fication of these components provides numerous ad-
vantages including: 1) variable speed and power opera-
tion which improves efficiency and fuel economy, 2) the
ability to locate them stra-
tegically anywhere in the
vehicle because an electric
component does not re-
quire proximity to an en-
gine driven belt or gear, 3)
improved controllability and reliability and 4) flexible
architectures and improved access for service and main-
tenance. Existing conventional alternators do not pro-
vide enough power to electrify the engine driven aux-
iliaries and must be replaced with a higher power gen-
erator. The typical UQM® generator is smaller, nearly
twice as efficient and provides five times the power of a
conventional alternator. In addition, these higher power
generators can provide export power to power other on-
board or offboard equipment. This electrification strat-
egy is easily adopted because required changes to vehicle
design and operation are the least disruptive and can
improve vehicle fuel economy by 7 to 15 percent.
Parallel hybrids - Parallel hybrid vehicles incorpo-
rate an electric motor to join the internal combustion
engine in propelling the vehicle. In a low power con-
figuration, often referred to as a “mild hybrid”, a start-
er/motor/generator that is typically integrated into the
flywheel of an engine is used to combine three sepa-
rate functions in one electric machine. The machine
starts the engine, eliminating the need for a conven-
tional starter, performs power generation, eliminating
a conventional belt driven alternator, and can be run in
motoring mode, supplying supplemental power to the
“Internal combustion engines are relatively inefficient,
typically converting only 25 to 35 percent of the input
energy in the fuel to the output shaft to do useful work.”
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Electric
auxiliaries
Fuel cell
Plug-in
hybrid
Battery
Series
hybrid
Parallel
hybrid
Fuel Efficiency
The range of vehicle electrification
driveline to improve acceleration and vehicle perfor-
mance. Higher power parallel hybrids incorporate addi-
tional system features such as regenerative braking and
automatic engine shutdown and all-electric propulsion
during certain operating conditions. In a typical parallel
hybrid vehicle, acceleration from a standing stop is gen-
erally performed by the motor in all-electric mode up to
a given speed, at which time the engine starts and the
engine and electric motor work in parallel to accelerate
the vehicle. Once the vehicle achieves highway speed,
the motor ceases operation and the vehicle is propelled
using the engine only. During braking operations, the
motor is switched to power generation mode and used
to recapture and store energy into a battery pack that
is normally lost as brake heat in conventional vehicles.
The stored energy is then consumed by the electric mo-
tor in the next acceleration cycle. If the batteries need
additional charging, the engine drives the machine in
generator mode, sending electricity to charge the bat-
tery pack. These vehicles have sufficient battery charg-
ing capacity to be self-sustaining, thereby eliminating
the need to plug the vehicle into the electric power grid.
Depending on the vehicle’s level of electric motive pow-
er and its duty cycle, parallel hybrids can achieve fuel
economy improvements of 10 to 45 percent.
Series hybrids - Series hybrid vehicles contain a
greater degree of electrification than parallel hybrids. In
a typical series hybrid vehicle, all of the motive power for
the vehicle is supplied by electric motors, thereby elimi-
nating conventional driveline components such as the
transmission and drive shaft. Generally, series hybrids
contain a larger amount of batteries to store electrical
energy and the engine’s principal function is to turn a
separate generator to produce the electrical energy nec-
essary to maintain the state of charge of the onboard
battery pack. As in a parallel hybrid, during braking
operations, the motor is switched to power generation
mode and used to recapture energy that is normally lost
as brake heat in conventional vehicles. The stored en-
ergy is then consumed by the electric motor in the next
acceleration cycle. Also, as in the parallel hybrid, a series
hybrid vehicle has sufficient battery charging capacity to
be self-sustaining, thereby eliminating the need to plug
the vehicle into the electric power grid. Because the en-
gine serves as an under-the-hood power plant, series hy-
brids typically have large amounts of available onboard
power to perform additional functions while the vehicle
is operating or when it reaches its final destination. De-
pending on vehicle configuration and duty cycle, series
hybrids can achieve fuel economy improvements of 35
to 50 percent.
Plug-in hybrids - A plug-in hybrid vehicle can be
configured as either a parallel or a series hybrid, al-
though the most common is the parallel configuration.
What distinguishes this category of hybrid is that it is
designed to operate in all-electric only mode for a range
of 20 to 40 miles and be charge depleting, therefore re-
quiring it to be periodically plugged into and recharged
from the electric grid. Because a portion of the energy
consumed by a plug-in hybrid vehicle is acquired at a
relatively low cost from the electrical grid, in addition
to the efficiencies obtained from its hybrid configura-
tion, this category of vehicle can achieve fuel economy
improvements of 60 to 75 percent.
All-electric battery and fuel cell vehicles - All-elec-
tric battery and fuel cell vehicles are powered entirely
from electric energy stored on board in batteries or gen-
erated onboard by a fuel cell. In this category of vehi-
cle, all motive power is produced by electric motors and
there is no engine and associated transmission, driveline
and exhaust components. Similarly, many vehicle func-
tions currently performed by auxiliaries attached to the
engine through belts or gears, such as power steering
and air conditioning, must be performed using electric
motors. As with hybrid electric vehicles, all-electric bat-
tery-powered vehicles switch the motor to power gener-
ation mode during braking operations to recapture and
store energy into the battery pack that is normally lost as
brake heat in conventional vehicles. The stored energy
is then consumed by the electric motor in the next ac-
celeration cycle. The energy needs of all-electric battery-
powered vehicles are obtained by recharging their bat-
teries using the electric power grid. Fuel cells are energy
production devices that generate electricity through a
chemical reaction resulting from combining hydrogen
and oxygen. The by-product of this reaction is water,
therefore allowing for the total elimination of vehicle
exhaust emissions in this category of vehicle. Because
there is no battery energy storage in a fuel cell powered
vehicle, there is no opportunity for regenerative brak-
ing energy recapture. Fuel economy improvements for
all-electric battery and fuel cell vehicles are generally 75
percent or greater.
Markets
We have historically focused our resources on the
development of highly efficient electric propulsion sys-
tems for each category of vehicle described above with
power levels of 0.5 kW to 150 kW, which are suitable
5
for vehicles ranging from wheelchairs to passenger au-
tomobiles to large trucks, tractors, construction equip-
ment and military vehicles. In addition, we have devel-
oped electric motors, generators and electronic controls
to power under-the-hood auxiliaries such as water, oil
and fuel pumps, power steering, cooling fans and air
conditioning compressors. We have also developed DC-
to-DC converters that step down high voltage electrical
systems to 12 volts and DC-to-AC inverter electronic
products that convert DC power to consumer friendly
110-volt alternating current power. We are pursuing the
commercialization of our technology and products de-
signed by us in numerous large emerging and existing
markets where we intend to introduce technologically
advanced products or lower cost systems or a combina-
tion of both.
We believe that our technology and products are well
suited for application in a wide range of vehicles as the
trend toward electrification continues to gain momen-
tum. In this regard, we have focused our attention on
several niche markets where we believe we can most ef-
fectively compete and which we expect to have higher
than average rates of growth and expansion. A brief de-
scription of each of these markets follows:
Passenger automobiles and light trucks - There are
approximately 16 million passenger automobiles and
light trucks sold in the United States each year. Over
the last several years a market
has developed for automobiles
that are powered by hybrid elec-
tric powertrains. These vehicles
have good performance and pro-
vide above average fuel economy
compared to conventional automobiles. Several auto-
makers have introduced vehicle models incorporating
hybrid electric powertrains including Toyota, Lexus,
Nissan, Honda, Ford, Saturn and General Motors. The
Electric Drive Transportation Association reported that
sales of hybrid electric vehicles in 2007 totaled 324,318
units, of which 181,221 units or nearly 56 percent were
Toyota’s Prius model. Total hybrid electric vehicle sales
for 2007 were 31 percent higher than the previous year,
and this trend is expected to continue as manufacturers
expand their hybrid electric model offerings. These au-
tomakers to date are using hybrid electric powertrains
that they have developed themselves or have acquired
from other automakers or existing Tier 1 automotive
suppliers. Many of these automobile companies are also
developing fuel cell or battery-powered vehicles that
they hope to introduce at a future date. During fiscal
2008 we shipped electric and hybrid electric propulsion
systems to two international automobile companies for
use in their vehicle development programs.
In addition to the established automakers, there are
a variety of small entrepreneurial companies that are
6
developing and hope to commercialize electric, hybrid
electric or plug-in hybrid electric cars. Although many
of these companies lack substantial financial resources
and/or significant automobile industry experience, they
are pursuing a variety of strategies to introduce these
types of automobiles into either niche markets, such as
for fleet users or high-end luxury sports car buyers, or
the consumer vehicle market generally. Should any of
these companies be successful in commercializing their
product offerings, it could cause the growth rate of this
market to accelerate. These companies are generally us-
ing electric or hybrid electric powertrains that they have
developed themselves or have been developed by other
entrepreneurial companies. We have been and continue
to be in discussions with nearly all of these companies
and have provided our propulsion systems to several of
them for use in their vehicle development programs.
Trucks, buses and recreational vehicles - The U.S.
Department of Energy estimated that in 2004, trucks
consumed 8 million barrels of crude oil per day and
they project that by 2025, trucks will consume approxi-
mately two-thirds of all crude oil used in transportation,
or 12 million barrels of crude oil per day.
There are approximately 6 million trucks, buses and
other medium and heavy-duty on-road vehicles sold in
the United States each year. The market for these ve-
hicles is characterized by a large number of suppliers,
a wide range of vehicle
designs and configura-
tions, diverse power and
performance levels and
relatively low production
volumes for each model.
As a result, the typical truck manufacturer is unlikely
to have the technical expertise or financial resources
to internally develop components that can compete in
emerging markets for increasingly electrified vehicles.
Accordingly, we expect truck manufacturers to purchase
products from suppliers who have developed technolog-
ically advanced electric motors, generators and power
electronic energy management controls that can be ap-
plied to their vehicles.
We are currently supplying an automotive qualified
DC-to-DC converter to Eaton Corporation which is
used on board medium and heavy-duty hybrid trucks.
We have also developed a DC-to-AC inverter that we
expect to sell into the truck market to meet the grow-
ing onboard and export power requirements of hybrid
trucks. Some medium and heavy-duty hybrid electric
trucks manufactured by customers of Eaton currently
have our DC-to-DC converter on board. We expect the
medium and heavy-duty hybrid electric truck market
to grow at an accelerating rate as potential customers
for these vehicles gain a greater understanding of their
operational, environmental and economic advantages.
“We are currently supplying an automotive qualified
DC-to-DC converter to Eaton Corporation which is used
on board medium and heavy-duty hybrid trucks. “
Consequently, we expect revenue from the DC-to-DC
converter we are currently supplying to Eaton, togeth-
er with revenue from additional products we hope to
supply to Eaton and others, to rise
substantially during fiscal 2009
and beyond.
In addition to our supplier rela-
tionship with Eaton, we have been
and expect to continue to be in dis-
cussion with truck OEMs regard-
ing potential niche vehicle pro-
grams. We have also supplied a hy-
brid electric propulsion system to
a commercial truck manufacturer
in the Middle East and have been se-
lected as the propulsion system sup-
plier for the ZeroTruck™, an all-electric medium-duty
truck being developed by Electrorides, Inc.
Electrorides Inc.’s ZeroTruck™
Also, several truck manufacturers are considering
other electrically-based products that either enhance the
utility of their vehicles, such as the ability to generate
large amounts of exportable electric power, or that may
be necessary to meet regulatory mandates, such as diesel
engine emission standards and restrictions on emissions
arising from diesel engine idling. These products in-
clude electric propulsion systems, higher power engine
generators, electric auxiliaries and DC-to-DC and DC-
to-AC inverters. We intend to continue to aggressively
pursue the commercialization of our products for these
and other applications in the market for hybrid trucks
as it emerges over the next several years.
We are involved in a number of bus programs. Over
the last several years we have supplied generators and
motor controllers to the Denver Regional Transporta-
tion District (RTD) for its fleet of thirty-six MallRide
hybrid electric shuttle buses, the first large-scale de-
ployment of hybrid electric buses for use in the Unit-
ed States. The 45-foot MallRide hybrid electric shuttles
operate on the 16th Street Mall in downtown Denver,
providing a free ride for passengers across the 1.3 mile
long 16th Street Mall.
We also are the propulsion system supplier for a hy-
brid electric bus being developed by Mobile Energy So-
lutions, LLC, Golden, Colorado. The 40-foot compos-
ite body bus incorporates a battery dominant plug-in
hybrid power system, which provides a significant por-
tion of the vehicle’s power from batteries, which are re-
charged by being plugged into the electric power grid
at night.
In addition, we are supplying generators to Traction
Technology PLC to power their hybrid electric power
packs for use in city buses in the United Kingdom. The
Traction Technology hybrid electric power pack is ex-
pected to enable a city bus to meet the upcoming Euro
V Diesel Emissions Standards while at the same time im-
proving vehicle performance. Working in conjunction
with Transport for London operator Epsom Coaches,
Merseytravel and Ipswich Buses Limited, Traction Tech-
nology plans to develop the hybrid power packs to meet
the Low Emission Zone requirements set forth by the
2010 EU air quality objectives.
We also are the supplier of propulsion motors to a
collaborative advanced hybrid electric bus develop-
ment program being performed by the Flint Michigan
Mass Transportation Authority (“MTA”), Kettering
University, Michigan State University and Transporta-
tion Techniques LLC. MTA currently operates five hy-
brid electric cutaway buses on routes in Flint, Michigan
and throughout Genesee County. The replacement of
the existing propulsion systems with a UQM® propul-
sion system is expected to provide additional fuel effi-
ciency improvements of 15 percent to 20 percent over
that achieved by the current hybrid buses, or an overall
improvement of up to 40 percent over standard diesel-
powered vehicles.
We currently supply a vehicle auxiliary actuator mo-
tor to Lippert Components for use in conventional rec-
reational vehicles. During fiscal 2008 we manufactured
and shipped over 29,000 units of this product and have
shipped over 51,000 units since the launch of produc-
tion in fiscal 2007. There are a variety of specialty on-
road manufacturers of conventional vehicles who repre-
sent an opportunity for us to further expand the deploy-
ment of our products, and we intend to continue to ag-
gressively pursue the commercialization of our products
for these applications.
Off-road vehicles - There are a wide range of off-
road vehicles sold in the United States each year. These
vehicles range from the small - wheelchairs, golf carts,
fork trucks, riding lawn mowers, snowmobiles, all-ter-
rain vehicles, etc., - to large construction, agricultural
and mining equipment. The markets for small vehicles
are typically characterized by
relatively high volumes, low
power levels and commod-
ity pricing. During fiscal
2008, we began supplying
an electric brake actuation
motor to Club Car, Inc., a
major manufacturer of golf
carts and other utility ve-
hicles. In addition, we have
been supplying wheelchair
motors to Invacare Corpo-
ration for the last nine years
and expect to continue to supply field service parts for
wheelchairs into the next year. We expect to continue
to compete selectively in off-road vehicle markets where
the customer requires advanced technology or superior
Club Car golf cart
7
“During fiscal 2008, we began supplying an electric brake actuation motor to
Club Car, Inc., a major manufacturer of golf carts and other utility vehicles. “
performance and where acceptable gross profit margins
are obtainable.
The market for large equipment - tractors, construc-
tion, mining and other specialty equipment - possesses
many of the same characteristics as the over-the-road
truck market de-
scribed above. It
is estimated that
a p p r o x i m a t e l y
500,000 of these vehicles are sold in the United States
each year. Accordingly, we expect these vehicle manu-
facturers to purchase products with similar specifica-
tions as those required in the over-the-road truck and
bus market from suppliers who have developed techno-
logically advanced electric motors and power electron-
ic energy management controls that can be applied to
their vehicles. Although these vehicles are produced in
relatively lower volumes, they nevertheless represent a
substantial opportunity due to higher power levels, sub-
stantial technical complexity and therefore substantially
higher product content and dollar value per vehicle. We
currently have systems under evaluation in both agricul-
tural and construction vehicles for both electric propul-
sion and under-the-hood auxiliary applications, includ-
ing an advanced propulsion and waste heat recapture
system for an agricultural vehicle.
We have also developed electric products for the air-
craft and aerospace market and the boat and marine
market. In the aerospace market, we have developed
electric auxiliary motors and controllers used in aircraft
air conditioning systems. We have also developed aux-
iliary power units for the generation of onboard power
and propulsion systems for various boat applications.
We believe that some of the fuel efficiency benefits of
vehicle electrification can also be realized in the boat
and marine markets. Although our focus is primarily
on land applications, we will continue to leverage our
technology and products in these potentially large niche
markets as opportunities present themselves.
Military vehicles - The U.S. military purchases a wide
range of ground vehicles each year including combat ve-
hicles such as tanks, self-propelled artillery and armored
personnel carriers, as well as a variety of light, medium
and heavy-duty trucks for convoy and supply operations
and for the transport of fuel used on the battlefield. The
military is particularly interested in the electrification of
vehicles because the attributes that these vehicles possess
offer exceptional potential for the military to achieve its
long-term objectives of developing a highly mobile, le-
thal fighting force. Fuel economy improvements in mil-
itary vehicles transfer into substantial savings in support
infrastructure and transportation costs associated with
transporting fuel to the battlefield, which is typically
thousands of miles from the United States. For exam-
ple, if fuel economy improvements of 25 percent are
achieved in the average truck, a corresponding amount
of fuel does not have to be transported and therefore
a corresponding number of airplanes or tankers is not
required in the transportation process. Also, the avail-
ability of onboard electrical power on military vehicles
opens up new
opportunities for
the development
of sophisticated
surveillance, de-
tection and battlefield monitoring equipment and for
laser, microwave and electrical pulse weapon systems. It
is estimated that the military purchases approximately
8,000 trucks per year and greater numbers during peri-
ods of armed conflict. As is the case with large off-road
equipment, these vehicles are produced in relatively
lower volumes, operate at higher power levels, have sub-
stantial technical complexity and therefore substantially
higher product content and dollar value per vehicle. We
have, over the last several years, been working with a
number of military contractors and vehicle makers in-
cluding DRS Technologies, AM General, BAE Systems,
Boeing and others, on prototype hybrid electric vehicles,
high export power generators, electric auxiliaries, DC-
to-DC converters and DC-to-AC inverters. Although
this market has not yet begun to emerge, we believe that
this market may begin to emerge soon, driven by the
availability of hybrid electric components in the com-
mercial truck market that operate at similar power levels
as those required by many military vehicles.
Distributed power generation - As the price of
crude oil and natural gas has continued to rise over the
last several years, there has been an increased focus on
the development and adoption of clean, renewable en-
ergy products including wind turbine power generators,
solar panels and stationary fuel cell power generators.
In addition, many experts believe that power users will
increasingly consider on-site power generation using
diesel or natural gas fueled internal combustion engine
generators as an alternative to power supplied over the
electrical grid. We have developed and expect to contin-
ue to develop generators for this market. In addition, we
have also developed DC-to-AC electronic power invert-
ers for use in distributed power generation applications
to convert the DC output of these devices to usable AC
power for the homeowner or business. We are currently
developing, under the California Energy Commission’s
Public Interest Energy Research Program and with the
U.S. Department of Energy’s National Renewable En-
ergy Laboratory (NREL), an advanced grid-connect in-
verter under its Advanced Power Electronics Interface
(APEI) Initiative. The objective of the development ef-
fort is to design a cost-effective, flexible, readily-manu-
factured, ready to be commercialized prototype inter-
face that will standardize the interconnection for a mod-
ular, scalable range of APEI systems.
8
There is a developing industry initiative termed “ve-
hicle-to-grid”, or “V-to-G”, to potentially make avail-
able for use on the electric utility grid the large amount
of energy in battery electric, hybrid electric, plug-in hy-
brid electric and fuel cell electric vehicles. Under this
initiative, protocols, guidelines and electronic and soft-
ware technologies are being developed to allow for the
intelligent transfer of electric power from these to the
electric power grid. There are different versions of the
vehicle-to-grid concept: 1) A hybrid or fuel cell vehicle,
which generates power from storable fuel, uses its gener-
ator to produce power for a utility at peak electricity us-
age times. Here the vehicles serve as a distributed gener-
ation system, producing power from conventional fossil
fuels; and 2) A battery-powered or hybrid vehicle which
uses its excess rechargeable battery capacity to provide
power to the electric grid during peak load times. These
vehicles can then be recharged during off-peak hours at
cheaper rates while helping to absorb excess nighttime
generation. Here the vehicles serve as a distributed bat-
tery storage system to buffer power.
The V-to-G concept allows such vehicles to provide
power to help load balance (valley fill and peak shave)
localized grid segments during peak load periods when
the selling price of electricity can be very high, and to
buffer electricity, including in power outages. We are
currently developing inverter technology that we expect
will be capable of functioning in this dynamic energy
transfer environment when, and if, it develops into a
commercial opportunity.
Technology
Our technology base includes a number of propri-
etary technologies and patents relating to brushless per-
manent magnet motors, generators and power electron-
ic controllers, together with software code to intelligent-
ly manage the operation of our systems.
The typical architecture of a UQM® motor consists
of a stator winding employing a high pole count con-
figuration, which allows for high copper utilization
(minimizing energy loss and cost) and a hollow rotor
upon which powerful rare earth permanent magnets
are mounted on the outer circumference. The stator is
affixed to an aluminum housing containing a mount-
ing ring and bearings, which allows the rotor to be sus-
pended within the stator. Commutation of the machine
is accomplished electronically by sensing the position
of the rotor in relation to the stator and intelligently
pulsing electrical energy into the stator such that the
electric field generated by the stator interacts with the
magnetic field of the rotor, producing rotational mo-
tion (“motor operation”). Conversely, the application of
rotational motion to the rotor by an external force re-
sults in the generation of electrical power (“generator
operation”). UQM® machines can be operated in either
a forward or reverse direction of rotation and either in
motor or generator mode and can dynamically change
from one mode of operation to another in millisecond
response time. The hollow design of the rotor permits
the packaging of other components such as gears and
electromechanical brakes in the interior of the machine.
These design features contribute to lower usage of cop-
per and iron and other materials generally (due to small-
er package dimensions), reducing manufacturing cost
over those for conventional machines of similar power.
In addition, the utilization of neodymium-iron-boron
(“NdFeB”) magnet material in a wide range of consum-
er devices such as cell phones, disk drives and medical
devices has dramatically improved the availability, per-
formance and price of this material, allowing us to price
our advanced motors and controls
competitively with lesser performing
conventional motors, which we believe
will accelerate the rate of commercial-
ization of our technology.
Attributes of our permanent mag-
net motor technology include brush-
less electronic commutation, a relative-
ly large air-gap dimension (useful for
hybrid electric applications where the
motor is integrated with an engine or
transmission), the use of powerful rare
earth NdFeB magnet material, good
heat rejection, low iron and copper con-
tent and low mechanical losses. As a result, UQM® mo-
tors have high operating efficiencies, high power density
(high power output to weight ratio) and generally have
smaller external dimensions and weight for a given pow-
er output, improving packaging.
New 90 lb 168 hp
propulsion motor
Attributes of our microprocessor-based digital pow-
er electronic controllers include high power operation
(up to 500 amps at 400 volts), four-quadrant control
(forward/reverse and motoring/generation), reduced
switching losses, adaptive switch timing control and
controller area network (“CAN”) capability. As a result,
UQM® controllers have high operating efficiencies, high
power density (high power output to weight ratio) and
generally have smaller external dimensions and weight
for a given power output, improving packaging.
The UQM® embedded DSP software is the intelli-
gence that coordinates the interaction between the mo-
tor and motor controller, as well as interfacing with a
vehicle controller. Software control algorithms are a key
piece of the Company’s intellectual property portfolio.
One aspect of the software is a patented method of con-
trol referred to as Phase Timing Advancement that en-
ables UQM® motors to deliver both high output torque
at low operating speeds and high power at increasing
operating speeds. Conventional permanent magnet mo-
tor designs are limited to operating at either high torque
9
“During fiscal 2008 we filed two additional patent applica-
tions related to technology developments that have the
potential to further improve the performance of our motors.”
at low speeds, sacrificing power at high speed, or vice
versa. In most vehicle propulsion applications, high
torque is required to launch the vehicle from a standing
stop, with a subsequent transition to high power as the
vehicle is accelerated to highway speeds. In the majori-
ty of conventional internal combustion engine powered
vehicles, the transition from high torque to high power
is accomplished through the multiple gear changes per-
formed by a mechanical transmission. UQM® motors,
incorporating phase advance technology, are suited as
propulsion drives in electric, hybrid electric, plug-in hy-
brid electric and fuel cell electric vehicles due to their
ability to power a vehicle from a standing stop to high-
way speeds without mechanical gear changes, thereby
eliminating the size, weight, complexity and cost of me-
chanical transmissions.
We have also developed a technology that allows
our permanent magnet motors to achieve a 10 to 1 top
speed to base speed ratio. This technology also provides
both high torque and high-speed capability in the same
machine, but at levels greater than that of other mo-
tor technology. Many electric motor applications re-
quire high torque capa-
bility for starting and
low speed operation, but
must also achieve high
speed. For military ve-
hicles, high torque at
low speed translates into obstacle and grade climbing
capability, while high speed enables pursuit, dash and
evasive maneuvers as well as onroad convoy transport.
Many commercial applications have similar require-
ments. Conventional vehicles achieve the high torque
required for launch and low end acceleration and the
constant power required for high road speed by using
a transmission and multiple gear changes. Prior to this
performance breakthrough, UQM® systems incorporat-
ing phase advance were able to achieve a top speed to
base speed ratio of 4 to 1. Electrically propelled vehicles
designed around a 4 to 1 limitation sometimes require
unwanted gearing and/or have less than desired perfor-
mance. This has particularly been the case in the more
demanding off-highway equipment and military vehicle
applications. Providing vehicle developers with electric
propulsion systems capable of a top speed to base speed
ratio of 10 to 1 overcomes a significant limitation and
opens up potential new application opportunities for
UQM® systems.
We recently have extended the capability of Phase
Advance Control by using Adaptive Control tech-
niques. These proprietary software algorithms alter the
switching strategy as a function of DC voltage, operat-
ing speed and output power, optimizing system perfor-
mance under dynamic conditions. The result is maxi-
mized output and efficiency which decreases fuel con-
10
sumption in hybrid electric vehicles and increases the
range of battery electric vehicles. Adaptive Control also
optimizes the output per unit of voltage and current,
maximizing the utilization of the onboard stored energy
and other electrical devices by extracting power from
substantially the entire electrical cycle of the motor.
These performance enhancements have increased peak
and continuous power output of our standard system by
50 percent and improved efficiency at various operating
points by 2 to 8 percent.
In addition, our motor controllers now have user
configurable functionality and increased data transmis-
sion speeds and response times, improving vehicle ca-
pability. Included in this functionality is the ability to
switch between torque, speed and voltage control dy-
namically, which is especially useful for parallel hybrids
and generator applications of our technology. For ve-
hicle developers, our new Graphical User Interface pro-
vides the means to tailor any UQM® system to create
the desired driving experience.
During fiscal 2008, we continued the development
of a patent pending motor architecture that significant-
ly increases torque densi-
ty for wheel motors. This
technology creates torque
in both axial and radial
planes of rotation, instead
of one or the other as is typical with present motor tech-
nology. Innovative powdered iron geometry and wind-
ing patterns are utilized to create this output improve-
ment. We believe this technology to be useful in special-
ized applications that require high peak output torque
from a compact motor.
During fiscal 2008 we filed two additional patent ap-
plications related to technology developments that have
the potential to further improve the performance of our
motors. We also began an internally-funded project to
increase the functionality of the microprocessor soft-
ware we use to intelligently control our motor control-
lers. Some of these enhancements include torque, speed
and voltage control improvements that enable more so-
phisticated hybrid electric operating strategies, refined
generator voltage regulation to facilitate improved bat-
tery pack management and further improvements in
system efficiency and power output through advances
in motor control algorithms. In addition to these activi-
ties, the U.S. Air Force has contracted us to manage a
research and development project in cooperation with
Mississippi State University, directed toward the devel-
opment of high temperature power switching devices
using silicon carbide that may lead to improved power
handling capability for our motor controllers.
The majority of our research and development activi-
ties are the result of projects contracted with and funded
by customers, for which we typically retain intellectual
property rights in the resulting technology developed.
Customer funded development activities are recorded
in our financial statements as contract services revenue
and the associated development costs are shown as cost
of contract services.
In recent years, we have focused our research and de-
velopment activities on the development of commercial
products and production engineering activities to lower
the cost of manufacture, as well as enhance the perfor-
mance and capability of our systems, as opposed to ba-
sic research in the field. We believe our future growth is
dependent, in part, on the continued advancement of
our technology portfolio and our ability to commercial-
ize our technology in additional product applications
and markets. Accordingly, we expect to continue to pur-
sue additional customer funded programs and to selec-
tively invest in internally funded development projects
to accomplish these objectives.
Manufacturing
It is our primary objective to become a major manu-
facturer of electric motors, generators and power elec-
tronic power systems that incorporate the Company’s
proprietary technology and to supply these products
to electric, hybrid electric and fuel cell electric vehicle
OEMs and/or their Tier 1 suppliers. We have estab-
lished and are continuing to expand our manufacturing
capability and presence through a planned technology
progression driven by key customer demands to address
future vehicle requirements.
In 1998, we established our volume manufacturing
operation with the launch of production of wheelchair
motors for Invacare Corporation and achieved ISO 9002
quality certification. During fiscal year 2002, we pro-
duced over 10,000 of these motors and were recognized
for our quality and on-time delivery performance.
In March of 2006, we began the volume production
of vehicle auxiliary actuator motors for Lippert Com-
ponents. This production is performed on
a highly automated, flexible, mixed model
assembly system which is computer con-
trolled and monitored for quality assurance
and consistent performance. The develop-
ment and installation of this assembly sys-
tem by our organization was instrumental
in demonstrating our manufacturing know-
how and capability to existing, as well as po-
tentially new, vehicle OEM and Tier 1 sup-
plier customers. We recently received an ad-
ditional order for auxiliary actuator motors
from Club Car, Inc. that are produced on
this assembly system.
Vehicle auxiliary actuator motor
In September of 2006, we began the volume produc-
tion of DC-to-DC converters for Eaton Corporation as
11
part of their hybrid electric
power system for the heavy
truck market. We designed
and installed a manufactur-
ing cell for these electronic
boxes that includes the robotic application of sealant,
sixteen hours of burn-in cycling between hot and cold
temperature extremes, pressure testing for cooling leaks
and complete functional testing.
DC-to-DC converter
Over the last several years we have established a pro-
duction engineering group with decades of manufactur-
ing design and production experience, much of which
is specific to the automotive industry. Today, this team
consists of nearly twenty professionals. In the last two
years we have made significant improvements in manu-
facturing systems, facilities and space utilization and we
have adopted the Advanced Product Quality Planning
(“APQP”) automotive quality procedures.
In order to insure our cost competitiveness, we have
adopted a manufacturing strategy for the near term
of designing all product components and then sourc-
ing these parts with quality suppliers. Final assembly,
testing, pack-out and shipping of the product are per-
formed at our Frederick, Colorado facility. We have es-
tablished relationships with many high-quality, low-cost
suppliers, including a number of international compa-
nies. Future plans are to continue the development and
introduction of more advanced and automated manu-
facturing systems which we believe will ensure our com-
petitiveness in new and emerging markets.
With the successful introduction of electric auxiliary
motors and power electronic boxes currently in produc-
tion vehicles, we are now turning our attention to the
volume production of high power generators and elec-
tric propulsions systems. We believe that the Company
is well positioned to leverage its technology and pur-
sue significant production programs with major OEMs
and/or their Tier 1 suppliers.
Our Opportunity
We have developed a range of products including
electric propulsion systems, generators, motor control-
lers and other power electronic products that we believe
are ideally suited to the emerging markets for electric,
hybrid electric and fuel cell electric vehicles and the dis-
tributed power market.
Hybrid electric passenger vehicle sales have grown
substantially since their introduction in the North
American market in 2000, achieving sales of 324,318
units in 2007 and over one million units since their
introduction. As a result, the fuel economy and emis-
sion benefits of hybrid electric technology are broadly
understood by consumers worldwide. This, in concert
with record oil prices, tax credits for hybrid electric ve-
hicle purchasers, stricter government emission regula-
tions and a growing environmental consciousness, has
generated market demand for this class of vehicle. Until
recently, passenger vehicle makers have elected to devel-
op their own hybrid electric systems and components,
either individually or in cooperation with Tier 1 auto-
motive suppliers; however, we have recently supplied
our propulsion systems to two international automo-
tive manufacturers as part of their electric and hybrid
electric vehicle development activities. Should either of
these automakers elect to utilize our products in future
model launches, it would have a material impact on our
future rate of growth. We are also in discussions with an
international Tier 1 automotive supplier regarding gen-
erators for use in hybrid electric vehicles.
In addition to the passenger automobile market, ve-
hicle makers of all types have been evaluating the po-
tential of applying hybrid electric technology to their
vehicle platforms. Of these manufacturers, agricultural,
construction and medium and heavy-duty truck build-
ers have been the most active, driven by the perfor-
mance and fuel economy advantages available from this
technology, the availability of large amounts of onboard
and exportable power and stricter diesel emission man-
dates.
During the second half of this fiscal year, Interna-
tional Truck and Engine Corporation, a Navistar Com-
pany, announced that it was the first company to enter
line production of hybrid electric commercial trucks, in-
troducing the International® DuraStar™ Hybrid, a die-
sel electric medium-duty truck. Similarly, Peterbilt Mo-
tors Company, a division of PACCAR Inc., announced
plans for full production of its Model 330 and Model
335 medium-duty hybrid trucks at its manufacturing
facility in Ste. Therese, Quebec, Canada in the summer
of 2008, and Freightliner Trucks, a division of Daimler
Trucks North America LLC, has introduced its Business
Class® M2e hybrid truck. All of these truck manufac-
turers use the Eaton Corporation hybrid electric system
and related electronic products. In addition, in March
2008, Caterpillar, Inc. introduced the D7E crawler trac-
tor incorporating an electric drive system for track-type
tractors with an electric system that provides power to
electric auxiliaries so that no engine belts are required.
We believe that these industry developments signal the
beginning of a potentially large-scale deployment of
electric propulsion and related electronic products into
markets other than mass-market passenger automo-
biles. Should these products receive broad customer ac-
ceptance, as we expect they will, potentially substantial
opportunities will likely develop over time for our com-
pany and other similarly situated companies that have
developed technologically advanced products in antici-
pation of the emergence of these markets.
The operating characteristics of electric motors for
vehicle propulsion are different from those of more con-
ventional industrial motors. Propulsion motors ideally
deliver high levels of torque efficiently at slow rotational
speeds and possess the ability to transition from high
torque to high speed over a relatively constant power
curve allowing, in many cases, the elimination of con-
ventional transmissions. Our proprietary propulsion
systems have been specifically developed for these ap-
plications and deliver exceptional torque and high ro-
tational speeds in a compact, energy efficient machine.
We believe that our portfolio of propulsion systems,
power electronic controllers and related electronic prod-
ucts has well positioned our company to compete ef-
fectively in these emerging markets. Electric and hybrid
electric vehicle makers to-date have generally adopted a
340-volt electrical system to deliver the energy from the
battery pack to the electric components and vice versa.
Conventional gasoline vehicles generally have a 12-volt
electrical system that operates dashboard instruments,
lights, horns, etc. The higher electrical system voltages
of electric and hybrid vehicles are creating opportuni-
ties for companies, such as ours, to enter the automotive
market with a wide range of under-the-hood auxiliaries
These products include generators and motors to drive
water, oil and power steering pumps, air conditioning
compressors and cooling fans that operate at the new
higher voltage.
These industry developments, as well as the poten-
tial production requirements of our existing customers,
will require us to invest a substantially greater amount
of financial and human resources in fiscal 2009 and be-
yond in the commercial launch of products. Specifical-
ly, we currently expect to potentially double the size of
our production engineering group and to significantly
increase the level of our capital expenditures for man-
ufacturing equipment and tooling, and potentially for
the expansion of our manufacturing facility in Freder-
ick, Colorado. We believe these investments are neces-
sary to support our strategy of aggressively rolling out
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 po-
tentially rapid growth in our revenue coincident with
the introduction of electric products by our custom-
ers. In parallel to these activities in emerging markets,
we expect to continue to pursue additional production
opportunities for our proprietary technology in exist-
ing markets where the performance of our products can
provide our customers with a competitive advantage in
the markets they serve.
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. These statements appear in a number of places in this
Report and include statements regarding our plans, beliefs or current expectations; including those plans, beliefs and
expectations of our officers and directors with respect to, among other things, the development of markets for our
products, the adequacy of our cash balances and liquidity to meet future operating needs, and our ability to issue equity
or debt securities.
Introduction
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 fiscal year ended March 31, 2008 our
total revenue increased 12.9 percent to $7,508,322, driven primarily by increased product sales which rose 31.3 percent to
$4,916,383. Gross profit margins on contract services improved to 21.3 percent this fiscal year versus 8.3 percent last fiscal
year, while gross profit margins on product sales declined slightly to 10.7 percent.
During the fiscal year, we allocated substantially greater engineering resources to internally funded research and
development and production engineering activities. Research and development expenditures, which increased 43.8 percent
this fiscal year versus last fiscal year, were primarily focused on software enhancements to our motor controllers.
Production engineering expenses for the year ended March 31, 2008 rose 32.7 percent to $1,706,978, reflecting engineering
activities associated with the launch of production for Phoenix Motorcars, Inc. under a $9.25 million purchase order and
associated supply agreement both of which were unilaterally cancelled by Phoenix in October 2007. As a result of this
cancellation, we have filed a $5.1 million arbitration claim against Phoenix for breach of contract which we expect to be
heard by an arbitration panel in the fall of calendar 2008.
Loss from continuing operations for the current fiscal year rose to $4,572,646 or $0.18 per common share versus
$3,402,566, or $0.14 per common share and $2,757,386, or $0.11 per common share for the fiscal years ended March 31,
2007 and 2006, respectively. The increase in losses versus last fiscal year and the fiscal year ended March 31, 2006 is
attributable to higher levels of research and development expenditures, production engineering expenses and selling, general
and administrative expenses.
In May 2004, we divested a contract electronics manufacturing business. Operating losses from this business for all periods
presented have been reclassified to discontinued operations and contributed nil per common share to our consolidated net
loss for the fiscal years ended March 31, 2008, 2007 and 2006.
During the last half of the fiscal year there were three significant industry events that we believe may lead to a significant
expansion of the market for hybrid electric products. In November 2007, International Truck and Engine Corporation, a
Navistar Company announced that it was the first company to enter line production of hybrid electric commercial trucks,
introducing the International(cid:147) DuraStar(cid:149) Hybrid, a diesel electric medium-duty truck. In March 2008, Peterbilt Motors
Company, a division of PACCAR Inc. announced plans for full production of its Model 330 and Model 335 medium-duty
hybrid trucks at its manufacturing facility in Ste. Therese, Quebec, Canada in summer 2008 and Freightliner Trucks
recently introduced its Business Class(cid:147) M2e Hybrid truck. All of these truck manufacturers use the Eaton Corporation
hybrid electric system and related electronic products. The automotive certified DC-to-DC converter manufactured by us
for Eaton Corporation will be on board many of these recently introduced hybrid trucks which will contribute to higher
levels of product sales in fiscal 2009 and beyond. Also in March 2008, Caterpillar, Inc. introduced the D7E crawler
tractor incorporating an electric drive system for track-type tractors with an electric system that provides power to electric
auxiliaries so that no engine belts are required. We believe that these industry developments signal the beginning of a
potentially large-scale deployment of electric propulsion and related electronic products into markets other than mass-
market passenger automobiles. Should these products receive broad customer acceptance over time, as we expect they
will, potentially large opportunities will likely develop for our company and other similarly situated companies that have
developed technologically advanced products in anticipation of the emergence of these market opportunities.
These industry developments as well as the potential production requirements of our existing customers will require us to
13
invest a substantially greater amount of financial and human resources in fiscal 2009 and beyond on the commercial
launch of products. Specifically, we currently expect to potentially double the size of our production engineering group
and to significantly increase the level of our capital expenditures for manufacturing equipment and tooling, and potentially
the expansion of our manufacturing facility in Frederick, Colorado. We believe these investments are necessary to support
our strategy of aggressively rolling out 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.
We believe our existing cash and short-term investments, which amounted to approximately $9.8 million at fiscal year end,
will be adequate to fund our anticipated growth for the fiscal year ended March 31, 2009 and likely beyond, however, if our
growth continues to accelerate beyond fiscal 2009 we may require additional capital.
Financial Condition
Cash and cash equivalents and short-term investments at March 31, 2008 were $9,765,892 and working capital (the excess
of current assets over current liabilities) was $10,510,175 compared with $7,934,005 and $8,909,577, respectively, at March
31, 2007. The increase in cash and short-term investments and working capital is primarily attributable to the completion of
a private placement of 1,250,000 shares of common stock during the first quarter which resulted in net cash proceeds of
$5,183,677, offset by higher operating losses, investments in property and equipment, and slower invoicing on certain
contract service programs in progress at March 31, 2008.
Accounts receivable decreased $130,547 to $1,304,139 at March 31, 2008 from $1,434,686 at March 31, 2007. The
decrease is primarily attributable to lower levels of contract service billings as of March 31, 2008 and a slower payment
profile by one customer during the fourth quarter of fiscal 2008. During the fiscal year ended March 31, 2006 a customer
with an outstanding account receivable balance filed for bankruptcy protection resulting in a charge to bad debt expense of
$63,000. Despite the occurrence of this event, substantially all of our customers are large well-established companies of
high credit quality. Accordingly, we have not established an allowance for bad debts at March 31, 2008 and similarly, no
allowance for bad debts was deemed necessary at March 31, 2007.
Costs and estimated earnings on uncompleted contracts increased $461,757 to $649,670 at March 31, 2008 versus
$187,913 at March 31, 2007. The increase is due to less favorable billing terms on certain contracts in process at March
31, 2008 versus March 31, 2007. Estimated earnings on contracts in process increased to $377,822 or 11.1 percent of
contracts in process of $3,396,292 at March 31, 2008 compared to estimated earnings on contracts in process of $155,436
or 7.5 percent of contracts in process of $2,071,818 at March 31, 2007. The increase in estimated margins on contracts in
process is attributable to improved overhead absorption.
Inventories increased $61,604 to $961,489 at March 31, 2008 principally due to increased levels of raw materials and
work-in-process inventories which increased $69,303 and $69,469, respectively, reflecting higher levels of scheduled
product shipments. Finished goods inventory decreased $77,168, reflecting lower levels of auxiliary motors on hand at
March 31, 2008.
Prepaid expenses and other current assets decreased to $119,647 at March 31, 2008 from $279,343 at March 31, 2007
primarily due to lower levels of prepayments on capital equipment purchases at the end of the current fiscal year versus
the prior fiscal year end.
We invested $616,488 for the acquisition of property and equipment during the fiscal year compared to $397,008 last
fiscal year. The increase in capital expenditures is primarily due to building improvements and increased purchases of
manufacturing equipment during the year ended March 31, 2008.
Patent and trademark costs decreased $34,538 to $447,765 at March 31, 2008 versus $482,303 at March 31, 2007 due to
systematic amortization of patent issuance costs, which was partially offset by the costs associated with the initiation of
two new patent applications.
Other assets increased $185,899 to $241,549 at March 31, 2008 from $55,650 at March 31, 2007 due to higher levels of
prepayments on capital equipment purchases at the end of the current fiscal year versus the prior fiscal year end.
14
Accounts payable decreased $242,404 to $740,527 at March 31, 2008 from $982,931 at March 31, 2007, primarily due to
improved payment processing during the current fiscal year.
Other current liabilities increased $27,333 to $372,285 at March 31, 2008 from $344,952 at March 31, 2007. The increase
is primarily attributable to higher levels of accrued warranty reserves arising from increased product sales.
Short-term deferred compensation under executive employment agreements increased to $364,000 at March 31, 2008
versus $149,325 at March 31, 2007 reflecting an amendment to an executive employment agreement during the current
year which accelerated the recording of future severance obligations under the agreement.
Liabilities and commitments of discontinued operations were zero at March 31, 2008 compared to $13,847 at March 31,
2007. The decrease is attributable to payments during the fiscal year on the master lease for the facility previously
occupied by our discontinued contract electronics business. See also Results of Discontinued Operations below and note
11 to the consolidated financial statements.
Billings in excess of costs and estimated earnings on uncompleted contracts increased $395,311 to $707,848 at March 31,
2008 from $312,537 at March 31, 2007 reflecting increased levels of billings on certain engineering contracts in process at
the end of the fiscal year ended March 31, 2008 in advance of the performance of the associated work versus the prior
fiscal year.
Long-term debt, less current portion decreased $106,002 to $416,923 at March 31, 2008 from $522,925 at March 31, 2007
reflecting scheduled principal repayments on the mortgage debt for our Frederick, Colorado facility.
Long-term deferred compensation under executive employment agreements increased $237,659 to $633,873 at March 31,
2008 from 396,214 at March 31, 2007 primarily due to an amendment to executive employment agreements during the
current fiscal year, which accelerated the recording of future severance obligations under the agreements.
Common stock and additional paid-in capital increased to $265,267 and $77,819,041, respectively, at March 31, 2008
compared to $251,769 and $71,376,462 at March 31, 2007. The increases were primarily attributable to the completion of
a private placement of 1,250,000 shares of common stock during the first quarter this fiscal year and the recording of non-
cash share based payments under Statement of Financial Accounting Standards No. 123 (revised), Share-Based Payment
(“SFAS 123(R)”).
Results of Continuing Operations
Continuing operations for the fiscal year ended March 31, 2008, resulted in a loss of $4,572,646, or $0.18 per common
share, compared to a loss from continuing operations of $3,402,566, or $0.14 per common share, and $2,757,386, or $0.11
per common share, for the fiscal years ended March 31, 2007 and 2006, respectively. The increase in the current year loss
from continuing operations is primarily attributable to higher levels of equity-based compensation, internally funded
research and development, production engineering activities, and higher levels of compensation expense. Noncash stock
option expense for the fiscal year ended March 31, 2008 required by SFAS 123R was allocated as follows:
Cost of contract services
Cost of product sales
Research and development
Production engineering
Selling, general and administrative
$ 113,507
60,933
25,652
132,494
842,349
$ 1,174,935
Stock option expense for the fiscal year ended March 31, 2007 required by the adoption of SFAS 123R was allocated as
follows:
Cost of contract services
Cost of product sales
Research and development
Production engineering
Selling, general and administrative
$ 154,828
48,606
22,612
113,013
618,697
$ 957,756
15
No stock option expense was recorded in our consolidated statements of operations for the fiscal years ended March 31,
2006.
Revenue from contract services decreased $315,597, or 10.9 percent, to $2,591,939 for the fiscal year ended March 31,
2008 versus $2,907,536 for the fiscal year ended March 31, 2007. The decrease is attributable to the increased allocation
of engineering resources to production engineering activities this fiscal year versus last fiscal year. Revenue from contract
services increased 16.2 percent to $2,907,536 for the fiscal year ended March 31, 2007 compared to $2,502,098 for the
fiscal year ended March 31, 2006. The increase was primarily attributable to higher levels of material and subcontract
revenue during fiscal 2007 versus fiscal 2006.
Product sales this fiscal year increased to $4,916,383 compared to $3,745,658 for the fiscal year ended March 31, 2007.
Product sales for the fiscal year ended March 31, 2007 more than doubled to $3,745,658 compared to $1,820,468 for the
year ended March 31, 2006. Power products segment revenue for the year ended March 31, 2008 increased $490,170, or
18.7 percent, to $3,117,109 compared to $2,626,939 for fiscal year ended March 31, 2007 due to increased shipments of
vehicle auxiliary motors and the shipment of electric propulsion systems. Power products segment revenue for the year
ended March 31, 2007 more than tripled to $2,626,939 versus $862,666 for fiscal year ended March 31, 2006 due to
increased production levels for auxiliary motors and the launch of production of DC-to-DC converters for hybrid electric
trucks. Technology segment product revenue for the fiscal year ended March 31, 2008 increased to $1,799,274 compared
to $1,118,719 for fiscal year ended March 31, 2007 due to higher levels of shipments of low volume propulsion systems.
Technology segment product revenue for the fiscal year ended March 31, 2007 increased $160,917, or 16.8 percent, to
$1,118,719 compared to $957,802 for fiscal year ended March 31, 2006 due to increased shipments of low volume
generators and controllers to the Denver Regional Transportation District for use in their hybrid electric shuttle buses.
Gross profit margins for the current fiscal year increased to 14.3 percent compared to 10.0 percent for the fiscal year
ended March 31, 2007. Gross profit margins for the fiscal year ended March 31, 2007 increased to 10.0 percent compared
to 4.2 percent for the fiscal year ended March 31, 2006. Gross profit margins on contract services increased to 21.3
percent this fiscal year compared to 8.3 percent for the fiscal year ended March 31, 2007 due to improved program
execution during the current fiscal year. Gross profit margins on contract services increased to 8.3 percent for the fiscal
year ended March 31, 2007 compared to 1.2 percent for the fiscal year ended March 31, 2006 due to fewer cost overruns
on programs during the fiscal year ended March 31, 2007. Gross profit margins on product sales this fiscal year decreased
to 10.7 percent compared to 11.3 percent for fiscal 2007. The decrease is primarily due to decreased overhead absorption.
Gross profit margins on product sales for the fiscal year ended March 31, 2007 increased to 11.3 percent compared to 8.2
percent for the fiscal year ended March 31, 2006 due to improved overhead absorption.
Research and development expenditures for the fiscal year ended March 31, 2008 increased to $461,791 compared to
$321,160 and $241,563 for the fiscal years ended March 31, 2007 and 2006, respectively. The increase in research and
development expenditures for the fiscal year ended March 31, 2008 compared to the prior fiscal year was primarily due to
increased levels of internally funded software development projects. The increase in research and development
expenditures for fiscal 2007 versus fiscal 2006 was primarily due to expenditures to enhance the capability and function of
the embedded microprocessor that manages the operation of our motor controllers and additional compensation expense
arising from the expensing of stock options.
Production engineering costs were $1,706,978 for the fiscal year ended March 31, 2008 versus $1,286,761 and $783,579
for the prior two fiscal years. The increase for the fiscal year ended March 31, 2008 versus fiscal 2007 is primarily
attributable to additional staffing during the current year. The increase for the fiscal 2007 versus fiscal 2006 is primarily
attributable to the debugging and activation of our semi-automated motor production cell, production engineering
activities related to the launch of high volume production for the Phoenix Motorcars propulsion system and additional
compensation expense arising from the expensing of stock options.
Selling, general and administrative expense this fiscal year was $3,905,495 compared to $2,855,213 and $2,191,289 for
the fiscal years ended March 31, 2007 and 2006, respectively. The increase for this fiscal year versus last fiscal year is
primarily attributable to increased levels of compensation and bonuses, and the amendment of executive employment
agreements, which accelerated the recording of deferred compensation expense associated with the severance provisions
of these agreements. The increase for fiscal 2007 versus fiscal 2006 is primarily attributable to deferred compensation
expense associated with executive employment agreements, higher levels of selling expenses, and additional
compensation expense arising from the expensing of stock options.
Impairment of long-lived assets for the fiscal year ended March 31, 2008 of $11,155 is primarily attributable to the
impairment of obsolete equipment. The impairment of long-lived assets for the fiscal years ended March 31, 2007 and
16
March 31, 2006 were $889 and $2,963, respectively, and are attributable to the write-down of costs associated with
abandoned patent applications.
Interest income rose to $463,248 for the current fiscal year compared to $445,578 and $344,751 for the fiscal years ended
March 31, 2007 and 2006, respectively. The increase for fiscal 2008 versus fiscal 2007 is attributable to higher invested
balances during the current fiscal year. The increase for fiscal 2007 versus fiscal 2006 is attributable to higher returns on
invested cash balances.
Interest expense decreased to $40,652 for the year ended March 31, 2008 compared to $47,422 and $63,003 for the fiscal
years ended March 31, 2007 and 2006, respectively. The decrease is due to lower average mortgage borrowings
outstanding throughout the fiscal year as compared to the prior fiscal year.
Results of Discontinued Operations
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 for $0.9 million in cash and a 15 percent ownership interest in the purchaser. We did not record any value
for the common stock of the purchaser received in this transaction due to uncertainty regarding our ability to realize
economic value on the resale of our ownership interest. In addition, the purchaser executed a sublease on our St. Charles,
Missouri manufacturing facility for the remaining term of our lease. Due to substantial doubt regarding the purchaser’s
financial capability to meet its obligation under the sublease, we recorded a liability, at that time, of $204,985, which
represented our best estimate of the present value of future cash outflows that may arise if the purchaser defaulted on the
sublease prior to the completion of its term. During the year ended March 31, 2006, we wrote-off uncollectible past due
rent receivables from the sublessee in the amount of $95,880 and reduced the fair value estimate of our potential liability
under the master lease at that time by $67,122 to reflect our expectations regarding our ability to identify a new tenant and
complete a new sublease on the facility. In December 2005, the purchaser sold the assets of its business to another
business at a price, which rendered our equity investment worthless. Coincident with this transaction we received a
promissory note in the amount of $98,420 from the original purchaser together with an assignment of future commission
income to be earned under a commission agreement between the buyer and the original purchaser. Income assignments
are to cease when the promissory note is paid in full. Due to substantial doubt regarding our ability to receive payments
under the assignment agreement and promissory note, we have fully reserved the value of the promissory note on our
books reducing its recorded value to zero. The acquiring business entered into a sublease agreement on the facility with us
for the remaining term of our master lease, which expired by its terms on March 31, 2007.
The operating results of this business for the year ended March 31, 2008, 2007 and 2006 have 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 as discontinued operations.
Loss from discontinued operations for the fiscal year ended March 31, 2008 was $13,459, or nil per common share
compared to a loss from discontinued operations of $28,791, or nil per common share, and $27,584, or nil per common
share, for the fiscal years ended March 31, 2007 and 2006, respectively. See also Note 11 to the consolidated financial
statements.
Liquidity and Capital Resources
Our cash balances and liquidity throughout the fiscal year ended March 31, 2008 were adequate to meet operating needs.
At March 31, 2008, we had working capital (the excess of current assets over current liabilities) of $10,510,175 compared
to $8,909,577 at March 31, 2007.
For the year ended March 31, 2008, net cash used in operating activities of continuing operations was $2,560,514
compared to net cash used in operating activities of continuing operations of $2,579,911 and $1,597,381 for the years
ended March 31, 2007 and 2006, respectively. The decrease in cash used for the year ended March 31, 2008 is primarily
attributable to higher non-cash charges for equity-based compensation, higher levels of deferred compensation and higher
levels of billings in excess of costs and estimated earnings on certain uncompleted contracts, offset by higher operating
losses. The increase in cash used for the year ended March 31, 2007 is primarily attributable to higher operating losses,
higher levels of accounts receivables and inventories offset by non-cash charges for depreciation and amortization and
equity-based compensation and higher levels of accounts payable and other current liabilities and deferred compensation.
17
Net cash used in investing activities of continuing operations for the fiscal year ended March 31, 2008 was $1,446,752
compared to $428,914 for the previous fiscal year and $4,246,130 for fiscal 2006. The change this fiscal year versus last
fiscal year was primarily due to higher expenditures for building improvements and manufacturing equipment and
increased purchases of short-term investment securities. Net cash used in investing activities of continuing operations for
fiscal 2007 decreased to $428,914 versus $4,246,130 for fiscal 2006 primarily due to increased purchases of short-term
investment securities during the fiscal year ended March 31, 2006.
Net cash provided by financing activities of continuing operations was $5,182,382 for the fiscal year ended March 31,
2008 versus $1,037,241 for the preceding fiscal year. The increase this fiscal year versus fiscal year 2007 is attributable to
the completion of a private placement in the first quarter, which resulted in 5.2 million in cash proceeds. Net cash
provided by financing activities of continuing operations was $1,037,241 for the fiscal year ended March 31, 2007 versus
$4,309,003 for the fiscal year ended March 31, 2006. The decrease in fiscal 2007 versus 2006 is attributable to the effect
of a follow-on offering of $3.9 million in fiscal 2006, which was partially offset by increased cash proceeds from the
exercise of stock options and warrants in fiscal 2007.
We expect to invest substantially greater financial and human resources during fiscal 2009 on the commercialization of
our products in emerging markets, including a significant increase in the amount of capital expenditures for equipment and
tooling. As a result of these activities our losses are expected to increase and our working capital requirements may
increase substantially during fiscal 2009 as a result of an increase in our losses and total revenue. Although 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, our planned working capital requirements may consume a
substantial portion of our cash reserves at March 31, 2008. 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. We can, however, not
provide any assurance that our existing financial resources will be sufficient to execute our business plan beyond next
fiscal year. 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.
Contractual Obligations
The following table presents information about our contractual obligations and commitments as of March 31, 2008:
Long-term debt obligations
Interest on long-term debt obligations
Purchase obligations
Executive employment agreements (1)
Total
Payments due by Period
Total
$ 522,925
52,052
901,097
997,873
$ 2,473,947
Less Than
1 Year
106,002
33,737
901,097
364,000
1,404,836
2 - 3 Years
416,923
18,315
-
628,000
1,063,238
4 - 5 Years
-
-
-
-
-
More than
5 Years
-
-
-
5,873
5,873
(1) Includes severance pay obligations under executive employment agreements, but not annual cash compensation under
the agreements.
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 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, and recoverability of inventories. 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.
18
Accounts Receivable
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. During fiscal 2006 a large, well
established customer filed for bankruptcy protection. As a result we charged-off $63,000 owed to us by the customer as a
bad debt expense. Because substantially all of our customers are large well-established companies with excellent credit
worthiness and our view that the bad debt expense associated with our customer’s bankruptcy filing is an isolated,
customer specific event, we have not established a reserve at March 31, 2008 and 2007 for potentially uncollectible trade
accounts receivable. 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.
Inventories
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 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 March 31, 2008 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.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN No. 48”). FIN No. 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken, or expected to be taken, in a tax return. This interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN No. 48 in connection with
the preparation of our annual financial statements for the fiscal year ending March 31, 2008. The adoption of this standard
did not have a material impact on our financial statements.
In September 2006, the 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. Under the terms of FSP 157-2, the provisions of SFAS 157 will be adopted
by us for financial instruments on April 1, 2008, and when required for nonfinancial assets and nonfinancial liabilities on
April 1, 2009 (except for those that are recognized or disclosed at fair value in the financial statements on a recurring
basis). We do not expect the provisions of this standard to be adopted by us on April 1, 2008 to have a material effect on
our financial statements and have not yet determined the impact on our financial statements of adopting the provisions
related to nonfinancial assets and liabilities.
19
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(“SFAS No. 158”). SFAS No. 158 requires an employer to recognize a plan’s overfunded or underfunded status in its
balance sheets and recognize the changes in a plan’s funded status in comprehensive income in the year which the changes
occur. These provisions of SFAS No. 158 were adopted last fiscal year. In addition, SFAS No. 158 requires an employer
to measure plan assets and obligations that determine its funded status as of the end of its fiscal year, with limited
exceptions. This provision of SFAS No. 158 is effective for our fiscal year ending March 31, 2009. The provisions that
were effective last fiscal year did not have a material effect on our financial statements and the provisions effective for our
fiscal year ending March 31, 2009 are not expected to have a material effect on our financial statements.
In February 2007 the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (“SFAS No. 159”). This standard permits companies to choose to measure
many financial instruments and certain other items at fair value, following the provisions of SFAS No. 157. SFAS No.
159 is effective for our fiscal year beginning April 1, 2008. We do not expect the adoption of this standard to have a
material impact on our financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business
Combinations ("FAS 141(R)") and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements ("FAS 160"). These standards goal 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 FAS 141(R) and FAS 160 are effective for the fiscal year beginning April 1, 2009.
We have not yet determined the impact of adopting these standards.
In December 2007, The Securities and Exchange Commission issued Staff Accounting Bulletin 110 (SAB 110). SAB 110
permits entities, under certain conditions, the continued use of a simplified method to estimate the expected term of certain
stock options. SAB 110 amended SAB 107 to permit the use of this simplified method beyond December 31, 2007. The
adoption of this standard did not have a material effect on our financial statements.
In September 2006 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”).
Historically, there have been two widely used methods for quantifying the effects of financial statement misstatements.
These methods are referred to as the “roll-over” and “iron-curtain” method. The “roll-over” method quantifies the amount
by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result
in the accumulation of errors on the balance sheet that may or may not have been material to any individual income
statement, but which may misstate one or more balance sheet accounts. The “iron curtain” method quantifies the error as
the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet
approach can result in disregarding the effects of errors in the current year income statement that result from the correction
of an error existing in previously issued financial statements. SAB 108 provides that prior year uncorrected immaterial
misstatements be evaluated under both the “roll-over” and “iron-curtain” approaches. In the event a misstatement is
deemed material to the current period financial statements and the related financial statement disclosures under either
approach, SAB 108 requires that the misstatement be corrected by either retroactively adjusting prior financial statements
as if the dual approach had always been used, or by correcting it in the current period financial statements by presenting
the cumulative effect of the prior period errors as an adjustment to the beginning balance of accumulated deficit and the
related assets or liabilities for the current fiscal year. We adopted SAB 108 using the cumulative effect transition method
in connection with the preparation of our annual financial statements for the fiscal year ending March 31, 2007. As a
result, we recorded a cumulative effect charge to the beginning balance of accumulated deficit as of April 1, 2006 of
$208,911 and a corresponding increase to the liability for long-term deferred compensation under executive employment
agreements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
20
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21
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
of UQM Technologies, Inc.
We have audited the accompanying consolidated balance sheets of UQM Technologies, Inc. (a Colorado Corporation)
and subsidiaries (the “Company”) as of March 31, 2008 and 2007, and the related consolidated statements of operations,
stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2008. We also have audited
UQM Technologies, Inc. and subsidiaries internal control over financial reporting as of March 31, 2008 based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). UQM Technologies, Inc.’s management is responsible for these financial statements,
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting included in Item 9A. Our responsibility is to express an opinion on these financial statements and an
opinion on UQM Technologies, Inc.’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
22
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM, Continued
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of UQM Technologies, Inc. and subsidiaries as of March 31, 2008 and 2007, and the results of their operations
and their cash flows for each of the three years in the period ended March 31, 2008 in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, UQM Technologies, Inc. and
subsidiaries, maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008,
based on criteria established in Internal Control - Integrated Framework issued by COSO.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on April 1, 2008 and the provisions of Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements during the year ended March 31, 2007, also as discussed in Note 2 to the consolidated
financial statements during the year ended March 31, 2007, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment, using the modified prospective method.
/s/ GRANT THORNTON LLP
Denver, Colorado
May 21, 2008
23
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Accounts receivable from discontinued operations
Costs and estimated earnings in excess of billings on
uncompleted contracts
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, at cost:
Land
Building
Machinery and equipment
Less accumulated depreciation
Net property and equipment
Patent and trademark costs, net of accumulated amortization
of $677,957 and $622,320
Other assets
March 31, 2008 March 31, 2007
$ 3,176,084
6,589,808
1,304,139
-
649,670
961,489
119,647
1,952,177
5,981,828
1,434,686
76,097
187,913
899,885
279,343
12,800,837
10,811,929
181,580
2,460,103
3,558,524
6,200,207
(3,317,812)
181,580
2,306,154
3,152,296
5,640,030
(2,977,305)
2,882,395
2,662,725
477,765
482,303
241,549
55,650
Total assets
$ 16,402,546
14,012,607
(Continued)
See accompanying notes to consolidated financial statements.
24
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Other current liabilities
Current portion of long-term debt
Short-term deferred compensation under executive employment
agreements
Liabilities and commitments of discontinued operations
Billings in excess of costs and estimated earnings on
uncompleted contracts
Total current liabilities
Long-term debt, less current portion
Long-term deferred compensation under executive employment agreements
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 50,000,000 shares
authorized; 26,526,737 and 25,176,889 shares
issued and outstanding
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
March 31, 2008
March 31, 2007
$ 740,527
372,285
106,002
982,931
344,952
98,760
364,000
-
149,325
13,847
707,848
312,537
2,290,662
1,902,352
416,923
633,873
1,050,796
522,925
396,214
919,139
3,341,458
2,821,491
265,267
77,819,041
(65,023,220)
251,769
71,376,462
(60,437,115)
13,061,088
11,191,116
Total liabilities and stockholders’ equity
$ 16,402,546
14,012,607
See accompanying notes to consolidated financial statements.
25
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Revenue:
Contract services
Product sales
Operating costs and expenses:
Costs of contract services
Costs of product sales
Research and development
Production engineering
Selling, general and administrative
Loss (gain) on disposal of assets
Year Ended
Year Ended
March 31, 2008 March 31, 2007 March 31, 2006
Year Ended
$ 2,591,939
4,916,383
7,508,322
2,907,536
3,745,658
6,653,194
2,502,098
1,820,468
4,322,566
2,039,017
4,392,442
461,791
1,706,978
3,905,495
(2,159)
12,503,564
2,666,316
3,323,577
321,160
1,286,761
2,855,213
889
10,453,916
2,471,625
1,671,206
241,563
783,579
2,191,289
2,963
7,362,225
Loss from continuing operations before other
income (expense)
(4,995,242)
(3,800,722)
(3,039,659)
Other income (expense):
Interest income
Interest expense
Other
463,248
(40,652)
-
422,596
445,578
(47,422)
-
398,156
344,751
(63,003)
525
282,273
Loss from continuing operations
(4,572,646)
(3,402,566)
(2,757,386)
Discontinued operations - loss from operations of
discontinued electronic products segment
(13,459)
(28,791)
(27,584)
Net loss
$ (4,586,105)
(3,431,357)
(2,784,970)
Net loss per common share-basic and diluted:
Continuing operations
Discontinued operations
$(0.18)
-
$(0.18)
(0.14)
-
(0.14)
(0.11)
-
(0.11)
Weighted average number of shares of common
stock outstanding - basic and diluted
26,196,278
25,116,354
24,283,523
See accompanying notes to consolidated financial statements.
26
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Balances at March 31, 2005
Issuance of common stock in follow-on
offering, net of offering costs
Issuance of common stock under
employee stock purchase plan
Issuance of common stock upon
exercise of employee options
Issuance of common stock upon
exercise of warrants
Net loss
Number of
common
shares
issued
23,177,133
Common
stock
$ 231,771
Additional
paid-in
capital
64,767,975
Accumulated
deficit
(54,011,877)
Total
stockholders’
equity
10,987,869
1,365,188
13,652
3,872,206
3,961
40
10,688
120,839
1,208
362,665
-
-
-
108,921
-
1,089
-
279,927
-
-
(2,784,970)
3,885,858
10,728
363,873
281,016
(2,784,970)
Balances at March 31, 2006
24,776,042
247,760
69,293,461
(56,796,847)
12,744,374
Issuance of common stock under
employee stock purchase plan
Issuance of common stock upon
exercise of employee options
Issuance of common stock upon
exercise of warrants
Issuance of common stock to
directors
Compensation expense from
employee and director stock
option and common stock grants
Cumulative effect of adoption of
SAB 108
Net loss
7,095
71
17,695
215,440
2,154
681,539
165,812
1,659
426,136
12,500
125
39,875
-
-
-
-
17,766
683,693
427,795
40,000
-
-
-
-
917,756
-
917,756
-
(208,911)
(208,911)
-
-
-
(3,431,357)
(3,431,357)
Balances at March 31, 2007
25,176,889
251,769
71,376,462
(60,437,115)
11,191,116
Issuance of common stock in follow-on
offering, net of offering costs
Issuance of common stock under
employee stock purchase plan
Issuance of common stock upon
exercise of employee options
Issuance of common stock under
stock bonus plan
Compensation expense from
employee and director stock
option and common stock grants
1,250,000
12,500
5,171,177
14,664
24,362
60,822
146
244
608
40,644
56,431
46,623
-
-
-
-
5,183,677
40,790
56,675
47,231
-
-
1,127,704
-
1,127,704
Net loss
-
-
-
(4,586,105)
(4,586,105)
Balances at March 31, 2008
26,526,737
$ 265,267
77,819,041
(65,023,220)
13,061,088
See accompanying notes to consolidated financial statements.
27
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Cash flows from operating activities of continuing operations:
Net loss
Loss from discontinued operations
Loss from continuing operations
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities
of continuing operations:
Depreciation and amortization
Gain on disposal of assets
Impairment of long-lived assets
Non-cash equity based compensation
Change in operating assets and liabilities:
Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable and other current liabilities
Billings in excess of costs and estimated
earnings on uncompleted contracts
Deferred compensation under executive
employment agreements
Net cash used in operating activities
Year Ended
Year Ended
Year Ended
March 31, 2007 March 31, 2007 March 31, 2006
$(4,586,105)
13,459
(4,572,646)
(3,431,357)
28,791
(3,402,566)
(2,784,970)
27,584
(2,757,386)
437,799
(13,314)
11,155
1,174,935
(331,210)
(61,604)
159,696
2,101
(215,071)
414,322
-
889
957,756
(660,146)
(432,400)
(160,904)
2,102
484,358
364,068
-
2,963
-
363,981
180,688
(9,241)
(4,203)
(104,228)
395,311
90,911
155,116
452,334
(2,560,514)
125,767
(2,579,911)
210,861
(1,597,381)
Cash flows from investing activities of continuing operations:
Maturities (purchases) of short-term investments
Increase in other long-term assets
Prepayments on property and equipment
Acquisition of property and equipment
Increase in patent and trademark costs
Proceeds from sale of assets
Net cash used in investing activities
(607,980)
(2,217)
(186,633)
(616,488)
(51,099)
17,665
$ (1,446,752)
27,566
(52,699)
-
(397,008)
(6,773)
-
(428,914)
(3,788,800)
-
-
(420,990)
(36,340)
-
(4,246,130)
See accompanying notes to consolidated financial statements.
(Continued)
28
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Cash flows from financing activities of continuing operations:
Repayment of debt
Issuance of common stock in follow-on offering,
net of offering costs
Issuance of common stock upon exercise of
employee options
Issuance of common stock upon exercise of warrants
Issuance of common stock under employee stock
purchase plan
Net cash provided by financing activities
Year Ended
Year Ended
Year Ended
March 31, 2008 March 31, 2007 March 31, 2006
$ (98,760)
(92,013)
(232,472)
5,183,677
-
3,885,858
56,675
-
683,693
427,795
363,873
281,016
40,790
5,182,382
17,766
1,037,241
10,728
4,309,003
Net cash provided by (used in) continuing operations
1,175,116
(1,971,584)
(1,534,508)
Discontinued operations - net cash provided by (used in)
operating activities
48,791
(153,045)
(176,918)
Increase (decrease) in cash and cash equivalents
1,223,907
(2,124,629)
(1,711,426)
Cash and cash equivalents at beginning of year
1,952,177
4,076,806
5,788,232
Cash and cash equivalents at end of year
$ 3,176,084
1,952,177
4,076,806
Supplemental Cash Flow Information:
Interest paid in cash during the year
$ 40,979
47,726
64,143
See accompanying notes to consolidated financial statements.
29
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Description of Business
UQM Technologies, Inc. and our wholly-owned subsidiary UQM Power Products, Inc. are engaged in the
research, development and manufacture of permanent magnet electric motors and the electronic controls for
such motors. Our facility is located in Frederick, Colorado. We were engaged in the manufacture and sale of
electronic printed circuit board assemblies, wire harness assemblies and other electronic products prior to the
operations being discontinued in the fiscal year ended March 31, 2004 (see note 11). Our revenue is derived
primarily from product sales to customers in the automotive, agriculture, industrial, medical and aerospace
markets, and from contract research and development services. We are impacted by other factors such as the
continued receipt of contracts from industrial and governmental parties, our ability to protect and maintain the
proprietary nature of our technology, continued product and technological advances and our ability together
with our partners, to commercialize our products and technology.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of UQM Technologies, Inc. and those of all
majority-owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation.
(c) Cash and Cash Equivalents and Short-term Investments
We consider cash on hand and investments with original maturities of three months or less to be cash and cash
equivalents. Investments with original maturities of greater than three months and less than one year from the
balance sheet date are classified as short-term.
(d) Investments
We have an investment policy approved by the Board of Directors that governs the quality, acceptability and
dollar concentration of our investments. Investments are comprised of marketable securities and consist
primarily of commercial paper, asset-backed and mortgage-backed notes and bank certificates of deposits with
original maturities beyond three months. All marketable securities are held in our name at two major financial
institutions who hold custody of the investments. All of our investments are held-to-maturity investments that
we have the positive intent and ability to hold until maturity. These securities are recorded at amortized cost.
Investments with an original maturity of greater than three months and less than one year from the balance
sheet date are classified as short-term.
The amortized cost and unrealized gain or loss of our investments were:
Short-term investments:
U.S. government and government agency securities
Commercial paper, corporate and foreign bonds
Certificates of deposit
Long-term investment:
Certificates of deposit
March 31, 2008
March 31, 2007
Amortized Cost Gain (Loss) Amortized Cost Gain (Loss)
$ 1,656,515
1,912,779
3,020,514
6,589,808
(3,193)
(9,050)
-
(12,243)
3,391,728
2,320,479
269,621
5,981,828
(43,456)
(41,545)
-
(85,001)
54,916
$ 6,644,724
-
(12,243)
52,699
6,034,527
-
(85,001)
30
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The time to maturity of held-to-maturity securities were:
Three to six months
Six months to one year
Over one year
(e) Accounts Receivable
March 31,
2008
$ 1,311,373
5,278,435
54,916
$ 6,644,724
2007
627,829
5,353,999
52,699
6,034,527
We extend unsecured credit to most of our customers following a review of the customers’ financial condition
and credit history. We establish an allowance for doubtful accounts based upon a number of factors including
the length of time trade receivables are past due, the customer’s ability to pay its obligation to us, the condition
of the general economy, estimates of credit risk, historical trends and other information. We write off accounts
receivable when they become uncollectible against our allowance for uncollectible accounts receivable. At
March 31, 2008 and 2007, no allowance for uncollectible accounts receivable was deemed necessary.
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
Inventory reserves are based on our assessment of recoverability of slow moving or obsolete inventory items.
We did not have any reserves recorded as of March 31, 2008 and 2007.
(g) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to five years, except for buildings, which are
depreciated over 27.5 years. Maintenance and repairs are charged to expense as incurred. Depreciation
expense for the fiscal years ended March 31, 2008, 2007 and 2006 was $382,162, $337,470 and $268,613,
respectively.
(h) Patent and Trademark Costs
Patent and trademark costs consist primarily of legal expenses, and represent those costs incurred by us for the
filing of patent and trademark applications. Amortization of patent and trademark costs is computed using the
straight-line method over the estimated useful life of the asset, typically 17 years for patents, and 40 years for
trademarks. Amortization expense for the fiscal years ended March 31, 2008, 2007 and 2006 was $55,637,
$76,852 and $95,455, respectively.
( i) Impairment of Long-Lived Assets
We periodically evaluate whether circumstances or events have affected the recoverability of long-lived assets
including intangible assets with finite useful lives. The assessment of possible impairment is based on our
ability to recover the carrying value of the asset or groups of assets from expected future cash flows
(undiscounted and without interest charges) estimated by management. If expected future cash flows are less
than the carrying value, an impairment loss is recognized to adjust the asset to fair value as determined by
expected discounted future cash flows.
31
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
( j) Revenue and Cost Recognition
We manufacture proprietary products and other products. Revenue from sales of products are generally
recognized at the time title to the goods and the benefits and risks of ownership passes to the customer which is
typically when products are shipped based on the terms of the customer purchase agreement.
Revenue relating to long-term fixed price contracts is recognized using the percentage of completion method.
Under the percentage of completion method, contract revenues and related costs are recognized based on the
percentage that costs incurred to date bear to total estimated costs.
Changes in job performance, estimated profitability and final contract settlements may result in revisions to
cost and revenue, and are recognized in the period in which the revisions are determined.
Contract costs include all direct materials, subcontract and labor costs and other indirect costs. Selling, general
and administrative costs are charged to expense as incurred. At the time a loss on a contract becomes known,
the entire amount of the estimated loss is accrued.
The aggregate of costs incurred and estimated earnings recognized on uncompleted contracts in excess of
related billings is shown as a current asset, and billings on uncompleted contracts in excess of costs incurred
and estimated earnings is shown as a current liability.
(k) Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (“SFAS 109”). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax basis and
operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The valuation of deferred tax assets may be reduced if future realization is not assured.
The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date.
( l) Research and Development
Costs of researching and developing new technology, or significantly altering existing technology, are
expensed as incurred.
(m) Loss per Common Share
Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”), requires
presentation of both basic earnings per share and diluted earnings per share. Basic earnings per share is
computed by dividing income or loss available to common stockholders by the weighted average number of
common shares outstanding during the periods presented. Diluted earnings per share is computed by dividing
income or loss available to common stockholders by all outstanding and potentially dilutive shares during the
periods presented, unless the effect is antidilutive. At March 31, 2008, 2007 and 2006, respectively, issued but
not yet earned common shares of 283,480, 136,035, and zero were being held in safekeeping by the Company.
For the fiscal years 2008, 2007, and 2006, shares in the amount of 7,887, 9,767, and zero shares were
potentially included in the calculation of diluted loss per share under the treasury stock method but were not
included, because to do so would be antidilutive. At March 31, 2008, 2007 and 2006, options to purchase
2,679,740, 2,771,914 and 3,065,610 shares of common stock, respectively, and warrants to purchase 85,267,
157,267 and 439,088 shares of common stock, respectively, were outstanding. For the fiscal years ended
March 31, 2008, 2007 and 2006, respectively, options and warrants for 1,400,051, 1,582,262 and 1,791,858
shares were not included in the computation of diluted loss per share because the option or warrant exercise
32
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
price was greater than the average market price of the common stock. In-the-money options and warrants
determined under the treasury stock method to acquire 335,477 shares, 381,096 shares and 496,815 shares of
common stock for the fiscal years ended March 31, 2008, 2007 and 2006, respectively, were potentially
includable in the calculation of diluted loss per share but were not included, because to do so would be
antidilutive.
(n) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America, 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 financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
(o) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
(p) New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN No. 48”). FIN No. 48
prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a tax return. This interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. We adopted FIN No. 48 in connection with the preparation of our annual financial statements for
the fiscal year ending March 31, 2008. The adoption of this standard did not have a material effect on our
financial statements.
In September 2006, the 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. Under the terms of FSP
157-2, the provisions of SFAS 157 will be adopted by us for financial instruments on April 1, 2008, and when
required for nonfinancial assets and nonfinancial liabilities on April 1, 2009 (except for those that are
recognized or disclosed at fair value in the financial statements on a recurring basis). We do not expect the
provisions of this standard to be adopted by us on April 1, 2008 to have a material effect on our financial
statements and have not yet determined the impact on our financial statements of adopting the provisions
related to nonfinancial assets and liabilities.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize a plan’s
overfunded or underfunded status in its balance sheets and recognize the changes in a plan’s funded status in
comprehensive income in the year which the changes occur. These provisions of SFAS No. 158 were adopted
last fiscal year. In addition, SFAS No. 158 requires an employer to measure plan assets and obligations that
determine its funded status as of the end of its fiscal year, with limited exceptions. This provision of SFAS No.
158 is effective for our fiscal year ending March 31, 2009. The provisions that were effective last fiscal year
did not have a material effect on our financial statements and the provisions effective for our fiscal year ending
March 31, 2009 are not expected to have a material effect on our financial statements.
In February, 2007 the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). This standard permits companies to
choose to measure many financial instruments and certain other items at fair value, following the provisions of
33
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
SFAS No. 157. SFAS No. 159 is effective for our fiscal year beginning April 1, 2008. We do not expect the
adoption of this standard to have a material impact on our financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),
Business Combinations ("FAS 141(R)") and Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements ("FAS 160"). These standards goal 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 FAS 141(R) and FAS 160 are
effective for the fiscal year beginning April 1, 2009. We have not yet determined the impact of adopting these
standards.
In December 2007, The Securities and Exchange Commission issued Staff Accounting Bulletin 110 (SAB
110). SAB 110 permits entities, under certain conditions, the continued use of a simplified method to estimate
the expected term of certain stock options. SAB 110 amended SAB 107 to permit the use of this simplified
method beyond December 31, 2007. The adoption of this standard did not have a material effect on our
financial statements.
In September, 2006 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”). Historically, there have been two widely used methods for quantifying the
effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron-
curtain” method. The “roll-over” method quantifies the amount by which the current year income statement is
misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the
balance sheet that may or may not have been material to any individual income statement, but which may
misstate one or more balance sheet accounts. The “iron curtain” method quantifies the error as the cumulative
amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach
can result in disregarding the effects of errors in the current year income statement that result from the
correction of an error existing in previously issued financial statements. SAB 108 provides that prior year
uncorrected immaterial misstatements be evaluated under both the “roll-over” and “iron-curtain” approaches.
In the event a misstatement is deemed material to the current period financial statements and the related
financial statement disclosures under either approach, SAB 108 requires that the misstatement be corrected by
either retroactively adjusting prior financial statements as if the dual approach had always been used, or by
correcting it in the current period financial statements by presenting the cumulative effect of the prior period
errors as an adjustment to the beginning balance of accumulated deficit and the related assets or liabilities for
the current fiscal year. We adopted SAB 108 using the cumulative effect transition method in connection with
the preparation of our annual financial statements for the fiscal year ending March 31, 2007. As a result, we
recorded a cumulative effect charge to the beginning balance of accumulated deficit as of April 1, 2006 of
$208,911 and a corresponding increase to the liability for long-term deferred compensation under executive
employment agreements.
(2) Stock Based Compensation
Stock Option Plans
As of March 31, 2008 we had 1,190,081 shares of common stock available for future grant to employees,
consultants and key suppliers under our 2002 Equity Incentive Plan (“Plan”). Under the Plan, the exercise price of
each option is set at the fair value of the common stock on the date of grant and the maximum term of the option is
10 years from the date of grant. Options granted to employees generally vest ratably over a three-year period. The
maximum number of options that may be granted to an employee under the Plan in any calendar year is 500,000
options. Forfeitures under the Plan are available for re-issuance at any time prior to expiration of the Plan in 2013.
Options granted under the Plan to employees require the option holder to abide by certain Company policies, which
restrict their ability to sell the underlying common stock. Prior to the adoption of the Plan, we issued stock options
under our 1992 Incentive and Non-Qualified Option Plan, which expired by its terms in 2002. Forfeitures under the
1992 Incentive and Non-Qualified Option Plan may not be re-issued.
34
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Non-Employee Director Stock Option Plan
In February 1994 our Board of Directors ratified a Stock Option Plan for Non-Employee Directors (“Directors
Plan”) pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services
as directors. As of March 31, 2008, we had 295,579 shares of common stock available for future grant under the
Directors Plan. Option terms range from 3 to 10 years from the date of grant. Option exercise prices are equal to
the fair value of the common shares on the date of grant. Options granted under the plan generally vest
immediately. Forfeitures under the Directors Plan are available for re-issuance at a future date.
Stock Purchase Plan
We have established a Stock Purchase Plan under which eligible employees may contribute up to 10 percent of
their compensation to purchase shares of our common stock at 85 percent of the fair market value at specified dates.
As of March 31, 2008 we had 90,237 shares of common stock available for issuance under the Stock Purchase Plan.
During the years ended March 31, 2008, and March 31, 2007, respectively, 14,664 and 7,095 shares of common
stock were issued under the Stock Purchase Plan.
Stock Bonus Plan
We have a Stock Bonus Plan (“Stock Plan”) administered by the Board of Directors. As of March 31, 2008 there
were 198,142 shares of common stock available for future grant under the Stock Plan. Under the Stock Plan, shares
of common stock may be granted to employees, key consultants, and directors who are not employees as additional
compensation for services rendered. Vesting requirements for grants under the Stock Plan, if any, are determined
by the Board of Directors at the time of grant. There were 204,558 and 149,735 shares granted under the Stock
Plan during the years ended March 31, 2008, and March 31, 2007, respectively.
Effective April 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) requires share-based awards such as stock options
and restricted stock to be accounted for under the fair value method. Accordingly, share-based compensation is
measured at the grant date, based on the estimated fair value of the award. We previously accounted for awards
granted under our equity incentive plans using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No.25”), and related interpretations, and
provided the required pro forma disclosures prescribed by SFAS No. 123, Accounting for Stock-Based
Compensation, as amended. Accordingly, no share-based compensation arising from the issuance of stock options
to employees and directors was recognized in the financial statements prior to April 1, 2006.
Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost we have
recognized beginning April 1, 2006 includes (a) compensation cost for all employee and director stock option
awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards
granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123(R). We use the straight-line attribution method to recognize share-based compensation costs over
the requisite service period of the award.
Options granted by us generally expire ten years from the grant date. Options granted to existing and newly hired
employees generally vest over a three-year period from the date of the grant. The exercise price of options is equal
to the market price of our common stock (defined as the closing price reported by the American Stock Exchange)
on the date of grant.
We use the Black-Scholes-Merton option pricing model for estimating the grant date fair value of stock options
issued. Such fair value estimates form the basis for recording share based compensation recognized after April 1,
2006 as a result of the adoption of SFAS No. 123(R) as well as the pro forma disclosures according to the original
provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R).
35
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total share-based compensation expense for the years ended March 31, 2008, and March 31, 2007, was $1,174,935
and $957,756, respectively. The following table shows the classification of these expenses:
Cost of contract services
Cost of product sales
Research and development
Production engineering
Selling, general and administrative
Year Ended
March 31, 2008
$ 113,507
60,933
25,652
132,494
842,349
Year Ended
March 31, 2007
154,828
48,606
22,612
113,013
618,697
$ 1,174,935
957,756
Share-based compensation capitalized in inventories was insignificant as of March 31, 2008 and 2007.
In accordance with SFAS No. 123(R), we adjust share-based compensation on a quarterly basis for changes to the
estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the
forfeiture rate for all expense amortization after April 1, 2006 is recognized in the period the forfeiture estimate is
changed. The effect of forfeiture adjustments in the quarter and year ended March 31, 2008 was insignificant.
All options granted under the Non-Employee Director Stock Option Plan are vested. A summary of the status of
non-vested shares under the Equity Incentive Plan as of March 31, 2008 and 2007 and changes during the years
ended March 31, 2008 and 2007 are presented below:
Year Ended
March 31, 2008
Weighted-Average
Grant Date
Fair Value
$ 1.71
-
$ 2.10
$ 2.01
$ 1.70
$ 1.89
$ 1.52
$ 1.61
$ 1.75
-
$ 1.63
$ 1.61
$ 1.83
$ 1.03
$ 1.41
-
$ 1.85
Shares Under
Option
554,940
-
(10,000)
(2,387)
542,553
106,159
(39,702)
(2,000)
607,010
-
(246,455)
(2,000)
358,555
6,000
(26,667)
-
337,888
Year Ended
March 31, 2007
Weighted-Average
Grant Date
Fair Value
$ 1.61
-
$ 2.10
$ 1.17
$ 1.61
$ 1.53
-
$ 1.59
$ 1.60
-
$ 1.63
-
$ 1.60
$ 2.69
$ 1.23
$ 1.78
$ 1.71
Shares Under
Option
926,197
-
(10,000)
(14,481)
901,716
119,605
-
(48,276)
973,045
-
(252,117)
-
720,928
5,000
(165,520)
(5,468)
554,940
Non-vested at March 31
Granted
Vested
Forfeited
Non-vested at June 30
Granted
Vested
Forfeited
Non-vested at September 30
Granted
Vested
Forfeited
Non-vested at December 31
Granted
Vested
Forfeited
Non-vested at March 31
As of March 31, 2008, there was $321,430 of total unrecognized compensation costs related to stock options
granted under our stock option plans. The unrecognized compensation cost is expected to be recognized over a
weighted average period of 18 months. The total fair value of stock options that vested during the quarter and year
ended March 31, 2008 was $37,617, and $519,978, respectively.
36
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the non-vested shares under the Stock Bonus Plan as of March 31, 2008 and 2007 and changes
during the years ended March 31, 2008 and 2007 is presented below:
Year Ended
March 31, 2008
Weighted-Average
Grant Date
Fair Value
$ 3.20
Shares Under
Contract
136,035
-
-
-
136,035
-
(45,349)
-
90,686
204,558
(11,764)
-
283,480
-
-
-
283,480
$ -
$ -
$ -
$ 3.20
$ -
$ 3.20
$ -
$ 3.20
$ 3.40
$ 3.40
$ -
$ 3.34
$ -
$ -
$ -
$ 3.34
Non-vested at March 31
Granted
Vested
Forfeited
Non-vested at June 30
Granted
Vested
Forfeited
Non-vested at September 30
Granted
Vested
Forfeited
Non-vested at December 31
Granted
Vested
Forfeited
Non-vested at March 31
Shares Under
Contract
Year Ended
March 31, 2007
Weighted-Average
Grant Date
Fair Value
$ -
$ -
$ -
$ -
$ -
-
-
-
-
-
149,735
(12,500)
(1,200)
136,035
-
-
-
136,035
-
-
-
136,035
$ 3.20
$ 3.20
$ 3.20
$ 3.20
$ -
$ -
$ -
$ 3.20
$ -
$ -
$ -
$ 3.20
As of March 31, 2008 there was $232,439 of total unrecognized compensation costs related to common stock
granted under our Stock Bonus Plan. The unrecognized compensation cost is expected to be recognized over a
weighted average period of 9 months. The total fair value of common stock granted under the Stock Bonus Plan
that vested during the years ended March 31, 2008 and 2007 was $185,114 and $40,000, respectively.
37
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Pro forma information required under SFAS No. 123 for the year ended March 31, 2006, as if we had applied the
fair value recognition provisions of SFAS No. 123 to options granted under our stock option plans, was as follows:
Net loss, as reported
Less: total share-based employee compensation determined
under the fair value method for all awards, net of tax
Pro forma net loss
Reported basic and diluted net loss per common share
Pro forma basic and diluted net loss per common share
Year Ended
March 31, 2006
$(2,784,970)
(644,871)
$(3,429,841)
$ (.11)
$ (.14)
During the years ended March 31, 2008 and 2007 options to acquire 201,060 and 148,344 shares of common
stock, respectively, were granted under our Equity Incentive and Non-Employee Director Stock Option Plans.
The weighted average estimated values of employee and director stock option grants, as well as the weighted
average assumptions that were used in calculating such values during the years ended March 31, 2008, 2007 and
2006, were based on estimates at the date of grant as follows:
Weighted average estimated
fair value of grant
Expected life (in years)
Risk free interest rate
Expected volatility
Expected dividend yield
Year Ended March 31,
2006
2007
2008
$ 3.41 Per option
3.3 years
4.17 %
60.03 %
0.0 %
3.24 Per option
3.5 years
4.9 %
59.7 %
0.0 %
1.99 Per option
6.0 years
4.8 %
48.7 %
0.0 %
Expected volatility is based on historical volatility. The expected life of options granted is based on the simplified
calculation of expected life, described in the U.S. Securities and Exchange Commission’s Staff Accounting
Bulletin 107 whereby the simple average of the vesting period and contractual term is utilized as the expected life
for grants prior to December 31, 2007.
38
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Additional information with respect to stock option activity during the year ended March 31, 2008 under our
incentive and non-qualified stock option plans is as follows:
Outstanding at March 31, 2007
Granted
Exercised
Forfeited
Outstanding at June 30, 2007
Granted
Exercised
Forfeited
Outstanding at September 30, 2007
Granted
Exercised
Forfeited
Outstanding at December 31, 2007
Granted
Exercised
Forfeited
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
5.7 years
$ 1,972,876
$ 2,942
5.4 years
$ 2,070,665
$ 8,193
5.2 years
$ 1,343,718
5.0 years
$ 1,006,016
Shares
Under
Option
2,692,400
-
(1,599)
(3,579)
2,687,222
106,159
(4,245)
(2,000)
2,787,136
-
-
(2,000)
2,785,136
6,000
-
(247,830)
Weighted
Average
Exercise
Price
$ 4.33
$ -
$ 2.41
$ 2.68
$ 4.33
$ 3.57
$ 2.41
$ 3.57
$ 4.30
$ -
$ -
$ 3.57
$ 4.30
$ 1.69
$ -
$ 8.00
Outstanding at March 31, 2008
2,543,306
$ 3.94
5.2 years
$ -
Exercisable at March 31, 2008
2,205,418
$ 3.99
4.9 years
$ -
Vested and expected to vest at March 31, 2008
2,523,959
$ 3.94
5.2 years
$ -
39
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Additional information with respect to stock option activity during the year ended March 31, 2007 under our
incentive and non-qualified stock option plans is as follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Outstanding at March 31, 2006
Granted
Exercised
Forfeited
Outstanding at June 30, 2006
Granted
Exercised
Forfeited
Outstanding at September 30, 2006
Granted
Exercised
Forfeited
Outstanding at December 31, 2006
Granted
Exercised
Forfeited
Shares
Under
Option
3,006,329
-
(186,814)
(9,037)
2,810,478
119,605
-
(99,758)
2,830,325
-
-
(11,666)
2,818,659
5,000
(28,626)
(102,633)
$ 4.28
$ -
$ 3.29
$ 2.26
$ 4.35
$ 3.20
$ -
$ 5.61
$ 4.26
$ -
$ -
$ 2.17
$ 4.27
$ 4.31
$ 2.43
$ 3.31
Aggregate
Intrinsic
Value
$ 306,117
6.1 years
$ 518,535
6.0 years
$ 330,706
5.7 years
$ 307,679
$ 51,606
Outstanding at March 31, 2007
2,692,400
$ 4.33
5.7 years
$ 1,972,876
Exercisable at March 31, 2007
2,137,460
$ 4.58
4.9 years
$ 1,540,910
Vested and expected to vest at March 31, 2007
2,666,940
$ 4.33
5.6 years
$ 1,957,156
40
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Additional information with respect to stock option activity during the year ended March 31, 2008 under our non-
employee director stock option plan is as follows:
Outstanding at March 31, 2007
Granted
Exercised
Forfeited
Outstanding at June 30, 2007
Granted
Exercised
Forfeited
Outstanding at September 30, 2007
Granted
Exercised
Forfeited
Outstanding at December 31, 2007
Granted
Exercised
Forfeited
Outstanding at March 31, 2008
Shares
Under
Option
70,520
-
-
-
70,520
24,039
(18,518)
(9,259)
66,782
57,918
-
-
124,700
6,944
-
-
131,644
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
$ 2.91
$ -
$ -
$ -
$ 2.91
$ 3.57
$ 2.30
$ 2.30
$ 3.40
$ 3.40
$ -
$ -
$ 3.40
$ 1.95
$ -
$ -
$ 3.33
1.4 years
$ 87,911
1.2 years
$ 92,083
$ 21,111
2.0 years
$ 21,111
2.8 years
$ 7,614
2.7 years
-
Exercisable at March 31, 2008
131,644
$ 3.33
2.7 years
-
Vested and expected to vest at March 31, 2008
131,644
$ 3.33
2.7 years
-
41
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Additional information with respect to stock option activity during the year ended March 31, 2007 under our non-
employee director stock option plan is as follows:
Outstanding at March 31, 2006
Granted
Exercised
Forfeited
Outstanding at June 30, 2006
Granted
Exercised
Forfeited
Outstanding at September 30, 2006
Granted
Exercised
Forfeited
Outstanding at December 31, 2006
Granted
Exercised
Forfeited
Outstanding at March 31, 2007
Exercisable at March 31, 2007
Vested and expected to vest at March 31, 2007
Shares
Under
Option
59,281
-
-
-
59,281
23,739
-
-
83,020
-
-
-
83,020
-
-
(12,500)
70,520
70,520
70,520
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
$ 2.90
$ -
$ -
$ -
$ 2.90
$ 3.20
$ -
$ -
$ 2.99
$ -
$ -
$ -
$ 2.99
$ -
$ -
$ 3.40
$ 2.91
1.2 years
$ 16,666
1.2 years
$ 16,666
1.6 years
$ 12,222
1.4 years
$ 11,666
1.4 years
$ 87,911
$ 2.91
1.4 years
$ 87,911
$ 2.91
1.4 years
$ 87,911
Cash received by us upon the exercise of stock options for the years ended March 31, 2008 and 2007 was $97,465
and $701,459 respectively. The source of shares of common stock issuable upon the exercise of stock options is
from authorized and previously unissued common shares.
(3) Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of
Costs and Estimated Earnings on Uncompleted Contracts
At March 31, 2008, the estimated period to complete contracts in process ranged from one to eighteen months, and
we expect to collect substantially all related accounts receivable arising therefrom within sixty days of billing.
42
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following summarizes contracts in process:
Costs incurred on uncompleted contracts
Estimated earnings
Less billings to date
Included in the accompanying balance sheets as follows:
Costs and estimated earnings in excess of billings on
uncompleted contracts
Billings in excess of costs and estimated earnings on
uncompleted contracts
(4) Inventories
Inventories consist of:
Raw materials
Work-in-process
Finished products
March 31, 2008
March 31, 2007
$ 3,018,470
377,822
3,396,292
(3,454,470)
$ (58,178)
1,916,382
155,436
2,071,818
(2,196,442)
(124,624)
$ 649,670
187,913
(707,848)
$ (58,178)
(312,537)
(124,624)
March 31, 2008
March 31, 2007
$ 721,291
179,385
60,813
$ 961,489
651,988
109,916
137,981
899,885
Our raw material inventory is subject to obsolescence and potential impairment due to bulk purchases in excess of
customers’ requirements. We periodically assess our inventory for recovery of its carrying value based on
available information, expectations and estimates, and adjust inventory carrying-value to the lower of cost or
market for estimated declines in the realizable value.
(5) Impairment of Long-Lived Assets
During the fiscal year ended March 31, 2008, we recorded total impairment charges of $11,155 for obsolete
equipment.
During the fiscal year ended March 31, 2007 and 2006, we recorded total impairment charges of $889 and $2,963,
respectively, for obsolete equipment and abandoned patent applications.
Average annual depreciation expense for the equipment impaired during the fiscal year ended March 31, 2008, for
years preceding the year of impairment, was $4,308.
Impairments for the fiscal year ended March 31, 2006 consists solely of capitalized costs, principally legal fees,
associated with the preparation and filing of patent applications that were subsequently abandoned. Because no
patents were issued, none of these patent application costs were amortized prior to their impairment.
43
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Other Current Liabilities
Other current liabilities consist of:
Accrued payroll and employee benefits
Accrued personal property and real estate taxes
Accrued warranty costs
Accrued losses on engineering contracts
Unearned revenue
Accrued royalties
Other
(7) Long-Term Debt
Long-term debt consists of:
March 31, 2008
March 31, 2007
$ 125,677
58,184
117,645
5,209
20,690
33,923
10,957
$ 372,285
118,357
42,103
74,850
14,592
61,323
24,172
9,555
344,952
Note payable to bank, payable in monthly installments
with interest at 7.0%; matures November 2009;
secured by land and building
Less: current portion
March 31, 2008 March 31, 2007
$ 522,925
106,002
621,685
98,760
Long-term debt, less current portion
$ 416,923
522,925
Prior to March 31, 2006 the loan agreement related to our facility in Frederick, Colorado included covenants
which required us to maintain certain financial ratios as defined in the agreement. For periods after March 31,
2006 these financial covenants were eliminated.
The annual aggregate contractual maturities of long-term debt for each of the next five fiscal years are as follows:
2009
2010
Thereafter
$ 106,002
416,923
-
$ 522,925
44
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes
Income tax benefit attributable to loss from continuing operations differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent as a result of the following:
Year Ended
Year Ended
March 31, 2008 March 31, 2007 March 31, 2006
Year Ended
Computed “expected” tax benefit
Increase (decrease) in taxes resulting from:
Adjustment of expiring net operating loss
carry-forwards
Adjustment to deferred tax assets and liabilities
$(1,554,700)
(1,156,872)
(937, 511)
1,124,302
825,774
-
for prior period corrections
(104,562)
865,148
(2,319,149)
Increase (decrease) in valuation allowance for
net deferred tax assets
Other, net
588,902
(53,942)
(525,326)
(8,724)
3,217,427
39,233
Income tax benefit
$ -
-
-
The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are
presented below:
Deferred tax assets:
Research and development credit carry-forwards
Net operating loss carry-forwards
Deferred compensation
Property and equipment
Intangible assets
Stock compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Total deferred tax liabilities
Net deferred tax assets
March 31, 2008 March 31, 2007
$ 130,798
20,259,647
369,790
343,429
-
363,974
26,197
21,493,835
185,171
19,894,496
202,155
430,169
47,517
130,584
-
20,890,092
14,841
14,841
-
-
21,478,994
20,890,092
Less valuation allowance
(21,478,994)
(20,890,092)
Net deferred tax assets, net of valuation allowance
$ -
-
As of March 31, 2008 we had net operating loss carry-forwards (NOL) of approximately $59 million for U.S.
income tax purposes that expire in varying amounts through 2027. Approximately $4.5 million of the net
operating loss carry-forwards are attributable to stock options, the benefit of which will be credited to additional
paid-in capital if realized. However, due to the provisions of Section 382 of the Internal Revenue Code, the
utilization of a portion of these NOLs may be limited. Future ownership changes under Section 382 could occur
that would result in additional Section 382 limitations, which could further restrict the use of NOLs. In addition,
45
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
any Section 382 limitation could reduce our ability for utilization to zero if we fail to satisfy the continuity of
business enterprise requirement for the two-year period following an ownership change.
The valuation allowance for deferred tax assets of $21.5 million and $20.9 million at March 31, 2008 and March
31, 2007, respectively, relates principally to the uncertainty of the utilization of certain deferred tax assets,
primarily net operating loss carry forwards in various tax jurisdictions. The Company continually assesses both
positive and negative evidence to determine whether it is more-likely-than-not that the deferred tax assets can be
realized prior to their expiration. Based on the Company’s assessment it has determined the deferred tax assets are
not currently realizable.
(9) Stockholders’ Equity
In June 2007 we completed a private placement of 1,250,000 shares of our common stock to two institutional
investors. Cash proceeds, net of offering costs, were $5,183,677.
In November 2004 we completed a follow-on offering of 3,600,000 shares of our common stock. The placement
agent was issued four-year warrants to acquire 360,000 shares of common stock at an exercise price of $2.58 per
share, which were recorded at fair value. Cash proceeds, net of offering costs, were $6,767,465. Warrants to
acquire 85,267 shares of our common stock were outstanding at March 31, 2008 and 2007.
(10) Significant Customers
We have historically derived significant revenue from a few key customers. Revenue from Invacare Corporation
totaled $508,903, $830,637 and $681,000 for the years ended March 31, 2008, 2007 and 2006, respectively, which
was 7 percent, 12 percent and 16 percent of total revenue, respectively. Revenue from Lippert Components, Inc.
totaled $1,271,502, $1,059,930 and $64,263 for the years ended March 31, 2008, 2007 and 2006, respectively,
which was 17 percent, 16 percent and 1 percent of total revenue, respectively. Revenue from the Denver Regional
Transportation District totaled $864,540, $417,750 and $283,526 for the years ended March 31, 2008, 2007 and
2006, respectively, which was 12 percent, 6 percent and 7 percent of total revenue, respectively.
Trade accounts receivable from Invacare Corporation were 16 percent and 24 percent of total accounts receivable
as of March 31, 2008 and 2007, respectively. Inventories consisting of raw materials, work-in-progress and
finished goods for this customer totaled $45,615 and $99,958 as of March 31, 2008 and 2007, respectively. Trade
accounts receivable from Lippert Components, Inc. were 8 percent and 7 percent of total accounts receivable as of
March 31, 2008 and 2007, respectively. Inventories consisting of raw materials, work-in-progress and finished
goods for this customer totaled $211,571 and $196,623 as of March 31, 2008 and 2007, respectively. Trade
accounts receivable from the Denver Regional Transportation District were 20 percent and nil of total accounts
receivable as of March 31, 2008 and 2007, respectively. Inventories consisting of raw materials, work-in-progress
and finished goods for this customer totaled zero as of March 31, 2008 and 2007.
Contract services revenue derived from contracts with agencies of the U.S. Government and from subcontracts
with U.S. Government prime contractors totaled $2,329,248, $2,313,856 and $1,847,300 for the years ended
March 31, 2008, 2007 and 2006, respectively, which was 31 percent, 35 percent and 43 percent of total revenue,
respectively. Accounts receivable from government-funded contracts represented 12 percent and 32 percent of
total accounts receivable as of March 31, 2008 and 2007, respectively.
(11) Discontinued Operations
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.
The operating results of this business for the years ended March 31, 2008, 2007 and 2006 have been reported
separately as discontinued operations. Loss from discontinued operations does not include allocations of general
46
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
Net loss from the discontinued electronic products segment is shown in the following table:
Year Ended March 31,
2006
2007
2008
Net loss of electronic products segment
$(13,459)
(28,791)
(27,584)
Assets and liabilities of the discontinued electronic products segment were as follows:
Assets of discontinued electronic products segment
Liabilities of discontinued electronic products segment
March 31, 2008 March 31, 2007
$ -
$ -
76,097
13,847
Net assets of discontinued electronic products segment
$ -
62,250
(12) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable:
The carrying amounts approximate fair value because of the short maturity of these instruments.
Short-term investments:
The carrying value of these instruments is the amortized cost of short-term investments which approximates fair
value. See Note 1(d).
Long-term debt:
The carrying amount of our long-term debt approximates fair value because the interest rate on this debt
approximates the interest rate currently available on similar financing offering comparable security to the lender.
(13) 401(k) Employee Benefit Plan
We have established a 401(k) Savings Plan (“401K Plan”) under which eligible employees may contribute up to
15 percent of their compensation. Employees over the age of 18 who have been employed by us at least six
months are eligible to participate in the 401K Plan. At the direction of the participants, contributions are invested
in several investment options offered by the 401K Plan. We currently match 33 percent of participants’
contributions, subject to certain limitations. These matching contributions vest ratably over a three-year period.
Matching contributions to the 401K Plan were $75,028, $65,658 and $55,061, for the years ended March 31, 2008,
2007, and 2006, respectively.
(14) Segments
At March 31, 2008, we had 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
47
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
development and job shop production of prototype components. The power products segment encompasses the
manufacture and sale of permanent magnet motors and electronic controllers. As discussed in note 11, we
discontinued our electronic products segment in fiscal year 2004, and accordingly, the financial results of this
operation are no longer reported in continuing operations in all periods presented. Salaries of the executive
officers and corporate general and administrative expense are allocated to our segments annually based on a
variety of factors including revenue level of the segment and administrative time devoted to each segment by
senior management. The percentage allocated to the technology segment and power products segment for the
fiscal year ended March 31, 2008 was 75 percent and 25 percent, respectively. The percentage allocated to the
technology segment and power products segment for the fiscal years ended March 31, 2007, and 2006 were 61
percent and 39 percent, and 74 percent and 26 percent, in each year, respectively.
Intersegment sales or transfers, which were eliminated upon consolidation, were $710,416, $143,880 and $64,882
for the years ended March 31, 2008, 2007, and 2006, 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
$169,562, $184,164 and $184,164 for the years ended March 31, 2008, 2007 and 2006, respectively, and were
eliminated upon consolidation.
The following table summarizes significant financial statement information for continuing operations of each of
the reportable segments as of and for the year ended March 31, 2008:
Revenue
Interest income
Interest expense
Depreciation and amortization
Impairment of long-lived assets
Segment loss from continuing operations
Assets of continuing operations
Expenditures for long-lived segment assets
Technology
$ 4,391,213
$ 454,466
$ -
$ (223,815)
$ ( 820)
$ (3,861,180)
$ 12,511,384
$ (423,670)
Power
Products
3,117,109
8,782
(40,652)
(213,984)
(10,335)
(711,466)
3,891,162
(243,917)
Total
7,508,322
463,248
(40,652)
(437,799)
(11,155)
(4,572,646)
16,402,546
(667,587)
The following table summarizes significant financial statement information for continuing operations of each of
the reportable segments as of and for the year ended March 31, 2007:
Revenue
Interest income
Interest expense
Depreciation and amortization
Impairment of long-lived assets
Segment loss from continuing operations
Assets of continuing operations
Expenditures for long-lived segment assets
Technology
$ 4,026,255
$ 439,460
$ -
$ (244,401)
$ -
$ (2,841,516)
$ 10,092,842
$ (162,690)
Power
Products
2,626,939
6,118
(47,422)
(169,921)
(889)
(561,050)
3,843,668
(241,091)
Total
6,653,194
445,578
(47,422)
(414,322)
(889)
(3,402,566)
13,936,510
(403,781)
48
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table summarizes significant financial statement information for continuing operations of each of
the reportable segments as of and for the year ended March 31, 2006:
Revenue
Interest income
Interest expense
Depreciation and amortization
Impairment of long-lived assets
Segment loss from continuing operations
Assets of continuing operations
Expenditures for long-lived segment assets
(15) Commitments and Contingencies
Employment Agreements
Technology
$ 3,459,900
$ 333,022
$ -
$ (251,748)
$ (2,963)
$ (2,599,906)
$ 12,166,688
$ (260,790)
Power
Products
862,666
11,729
(63,003)
(112,320)
-
(157,480)
2,629,400
(196,540)
Total
4,322,566
344,751
(63,003)
(364,068)
(2,963)
(2,757,386)
14,796,088
(457,330)
The Company has entered into Employment Agreements with Messrs. Rankin, French, Burton and Lutz pursuant
to which each has agreed to serve in his present capacity for a five year term expiring on August 22, 2012.
Pursuant to the Employment Agreements, Messrs. Rankin, French, Burton and Lutz shall receive an annual base
salary of $314,000, $208,000, $180,000 and $170,000, respectively. Each executive also receives the use of an
automobile and may receive bonuses, stock awards and stock options.
Messrs. Rankin and French’s Employment Agreements provide that if employment is terminated by the Company
or the executive without cause during or after the term of the agreement upon attaining twenty years of service as
an officer, or upon retirement after attaining age 62 1/2, the officer shall receive 24 months salary. If the officer
voluntarily terminates his employment after attaining twenty years of service as an officer and provides at least six
months notice, he shall receive one month of pay for each year of service as an officer up to a maximum payment
of 24 months pay. If the executive has less than twenty years of service or does not provide at least six months
notice, he shall receive three months salary, unless the Company is in default under the Agreement, which shall be
considered termination by the Company without cause.
Messrs. Burton and Lutz’s Employment Agreements provide that if employment is terminated by the Company or
the executive without cause during or after the term of the agreement, the officer shall receive the greater of six
months pay or one month of pay for each year of service as an officer. If the officer voluntarily terminates his
employment and provides at least six months notice, he shall receive six months pay. If the executive does not
provide at least six months notice, he shall receive two months salary, unless the Company is in default under the
Agreement, which shall be considered termination by the Company without cause. If the Executive provides at
least six months notice of his voluntary retirement after attaining 62 1/2 years of age, executive shall receive a
total payment consisting of one month of pay for each year of service as an officer plus six months of pay, up to a
maximum total payment of 24 months pay.
Messrs. Rankin, French, Burton and Lutz’s Employment Agreements provide that upon termination by the
Company following a hostile change of control of the Company, the officer shall receive twice the payment due
on a termination by the Company. If an officer dies during employment, his estate shall receive three months
compensation. If the officer elects to retire at 62 1/2 years of age or upon attaining 20 years of service with the
Company, the officer shall be entitled to continue to participate in the Company’s group health insurance plan (at
the same cost as employees) until attaining age 65.
The employment agreements further provide that the Company shall maintain at its expense, life insurance
coverage on Messrs. Rankin, French, Burton and Lutz payable to their designees in an amount equal to three times
the annual compensation payable to each executive.
49
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The aggregate future base salary payable to these four executive officers under the Employment Agreements over
their remaining fifty-three month term is $3,851,333. In addition, the Company has recorded a liability of
$997,873 representing the potential future compensation payable to Messrs. Rankin, French, Burton and Lutz
under the retirement and voluntary termination provisions of their Employment Agreements.
Lease Commitments
At March 31, 2008 there were no operating leases with initial non-cancelable terms in excess of one year.
Rental expense, after deducting sublease payments of zero, $185,500 and $134,260 for the years ended March 31,
2008, 2007 and 2006, respectively, was $59,400, $66,644 and $128,691, of which, $59,400, zero and $10,807
were reported as continuing operations for the years ended March 31, 2008, 2007 and 2006, respectively, and zero,
$66,644 and $117,884 were reported as discontinued operations for the years ended March 31, 2008, 2007 and
2006, respectively.
Litigation
We have filed an arbitration claim with the American Arbitration Association against Phoenix MC, Inc., as
successor by merger to Phoenix Motorcars, Inc. seeking damages in excess of $5.1 million for breach of contract.
The claim is currently scheduled for hearing before an arbitration panel in the fall of 2008.
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.
(16) Interim Financial Data (Unaudited)
Quarter Ended
June 30
September 30
December 31
March 31
Fiscal year 2008(A)
Sales
Gross profit
Loss from continuing operations
Discontinued operations
Net loss
Net loss per common share basic and diluted:
Continuing operations
Discontinued operations
$ 1,454,452
28,903
$
$(1,128,751)
$
-
$(1,128,751)
1,990,591
363,902
(1,139,894)
-
(1,139,894)
1,714,858
273,570
(1,322,849)
15,853
(1,306,996)
2,348,421
410,488
(981,152)
(29,312)
(1,010,464)
$(0.05)
-
$(0.05)
(0.04)
-
(0.04)
(0.05)
-
(0.05)
(0.04)
-
(0.04)
Note (A)
Includes expenses associated with the expensing of employee stock options and share issuances upon the
adoption of SFAS 123R. See note 2 above.
50
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Quarter Ended
June 30
September 30
December 31
March 31
Fiscal year 2007(A)
Sales
Gross profit
Loss from continuing operations
Discontinued operations
Net loss
Net loss per common share basic and diluted:
Continuing operations
Discontinued operations
$ 1,301,332
$ 122,131
$ (760,684)
$ (2,112)
$ (762,796)
1,614,218
121,840
(864,930)
(14,640)
(879,570)
1,726,526
153,186
(818,297)
(5,722)
(824,019)
$(0.03)
-
$(0.03)
(0.04)
-
(0.04)
(0.03)
-
(0.03)
2,011,118
266,144
(958,655)
(6,317)
(964,972)
(0.04)
-
(0.04)
Note (A)
Includes expenses associated with the expensing of employee stock options and share issuances upon the
adoption of SFAS 123R. See note 2 above.
Quarter Ended
June 30
September 30
December 31
March 31
Fiscal year 2006
Sales
Gross profit
Loss from continuing operations
Discontinued operations
Net loss
Net loss per common share basic and diluted:
Continuing operations
Discontinued operations
$ 1,153,205
$ (113,037)
$ (720,374)
$ (10,431)
$ (730,805)
$(0.03)
-
$(0.03)
884,000
85,044
(543,438)
(33,270)
(576,708)
(0.02)
-
(0.02)
1,144,156
189,346
(536,106)
18,042
(518,064)
1,141,205
18,382
(957,468)
(1,925)
(959,393)(A)
(0.02)
-
(0.02)
(0.04)
-
(0.04)
Note (A) During the quarter ended March 31, 2006, the Company corrected an error related to the accrual of
deferred compensation payable under executive employment agreements. Management had been
disclosing the existence of contingent future payments under the agreements rather than accruing a pro-
rata portion of the obligation over the expected service period of the executive. As of March 31, 2006 the
Company established a long-term liability for deferred compensation payable under the agreements in the
amount of $210,861 and recorded compensation expense of $181,646 during the fourth quarter of fiscal
2006. Management does not believe this item is material to any prior reported quarterly or annual
financial statements, nor do they believe that the amount is material to the annual operating results for
Fiscal 2006.
51
UQM TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Valuation and Qualifying Accounts
Balance at
Beginning
of Year
Additions
Charged to Charged
Costs and
to Other
Expenses Accounts
Deductions
Balance at End
of Year
$ 74,850
98,434
-
55,639 (A)
117,645
$ 13,847
-
-
13,847 (B)
-
$ 39,480
85,955
-
50,585 (A)
74,850
$ 62,004
13,847
-
62,004 (C)
13,847
$ -
63,000
-
63,000 (B)
-
$ 48,690
53,298
-
62,508 (A)
39,480
$ 211,338
-
-
149,334 (C)
62,004
Year ended March 31, 2008
Not deducted from asset accounts:
Accrued warranty cost
Liabilities and commitments of
discontinued operations
Year ended March 31, 2007
Not deducted from asset accounts:
Accrued warranty cost
Liabilities and commitments of
discontinued operations
Year ended March 31, 2006
Deducted from asset accounts:
Bad debt expense
Not deducted from asset accounts:
Accrued warranty cost
Liabilities and commitments of
discontinued operations
Note (A) Represents actual warranty payments for units returned under warranty.
Note (B) Represents reduction in trade accounts receivable.
Note (C) Represents payments on the leased facility formerly occupied by our discontinued electronics
segment and the payment of trade accounts payable and other accrued liabilities.
52
Board of Directors
William G. Rankin
Chairman of the Board
President and Chief Executive Officer
Ernest H. Drew
Investor
Former Chief Executive Officer
Westinghouse Industries & Technology Group
Stephen J. Roy
Principal
STL Capital Partners, LLC
Executive Officers
William G. Rankin
Chairman of the Board
President and Chief Executive Officer
Donald A. French
Treasurer, Secretary and Chief Financial Officer
Business Units
Product Engineering Center
and Corporate Headquarters
UQM Technologies, Inc.
7501 Miller Drive
Frederick, CO 80530
Tel: 303-278-2002
Fax: 303-278-7007
www.uqm.com
Corporate Information
Auditors
Grant Thornton LLP
Denver, CO
Legal Counsel
Holme Roberts & Owen, LLP
Denver, CO
Investor Relations
For copies of the Company’s annual
report on Form 10-K and quarterly
reports on Form 10-Q at no cost, or for
additional information, please contact:
Investor Relations
Tel: 303-278-2002
Fax: 303-278-7007
or visit our web site at www.uqm.com
Joseph P. Sellinger
Retired Vice President and Group Executive
of Anheuser Busch Companies
Donald W. Vanlandingham
Consultant, Cadwest LLC
Retired Chairman
Ball Aerospace and Technology Corporation
Lieutenant General Jerome Granrud (ret.)
Consultant
Ronald M. Burton
Senior Vice President of Operations
Jon F. Lutz
Vice President of Technology
Manufacturing
UQM Power Products, Inc.
7501 Miller Drive
Frederick, CO 80530
Tel: 303-278-2002
Fax: 303-278-7007
Transfer Agent
Computershare Trust Company, Inc.
P.O. Box 43070
Providence, RI 02940-3020
Tel: 800-962-4284
303-262-0600
Fax: 303-262-0700
www.computershare.com
Annual Meeting
Wednesday, July 23, 2008
10 a.m. Mountain Daylight Time
The Golden Hotel
800 Eleventh Street
Golden, Colorado 80401
(303) 279-0100
Stock Listings
UQM Technologies, Inc. common stock is listed on
the American, Pacific, Chicago, Berlin and Frankfurt
Stock Exchanges, under the ticker symbol UQM.
UQM Technologies, Inc. 7501 Miller Drive, PO Box 439 Frederick, CO 80530
303-278-2002 Fax 303-278-7007 www.uqm.com