UQM Technologies, Inc.
Annual Report 2009

Plain-text annual report

UQM Technologies, Inc.Annual Report 2009UQM Technologies7501 Miller Drive, PO Box 439Frederick, CO 80530303-278-2002 Fax 303-278-7007www.uqm.com Sales $ 8,728) 7,508)Gross Profi t 1,766) 1,077) Research and Development 593) 462) Net Loss ( 4,402)(4,586)Net Loss Per Common Share(.17)(.18)UQM Technologies, Inc. is a developer and manufacturer of power dense, high effi ciency 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. Th e 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.Cash and Short-Term Investments $ 5,794 9,766) Working Capital 6,641 10,510) Total Term Debt 417 523) Th is 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. Th ese 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 offi cers 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 diff er from those con-tained in the forward-looking statements are contained in our Form 10-K fi led on May 21, 2009 which is available through our website at www.uqm.com or at www.sec.gov.March 31, 2009 March 31, 2008Executive Offi cers Business UnitsBoard of Directors Corporate InformationWilliam G. RankinChairman of the BoardPresident and Chief Executive Offi cerDonald A. FrenchTreasurer, Secretary and Chief Financial Offi cerLieutenant General Jerome Granrud (ret.)ConsultantStephen J. RoyPrincipalSTL Capital Partners, LLCJoseph P. SellingerRetired Vice President and Group Executiveof Anheuser Busch CompaniesDonald W. VanlandinghamConsultant, Cadwest LLCRetired ChairmanBall Aerospace and Technology CorporationWilliam G. RankinChairman of the BoardPresident and Chief Executive Offi cerDonald A. FrenchTreasurer, Secretary and Chief Financial Offi cerRonald M. BurtonSenior Vice President of OperationsJon F. LutzVice President of TechnologyProduct Engineering Center and Corporate HeadquartersUQM Technologies, Inc.7501 Miller DriveFrederick, CO 80530Tel: 303-278-2002Fax: 303-278-7007www.uqm.comManufacturingUQM Power Products, Inc.7501 Miller DriveFrederick, CO 80530Tel: 303-278-2002Fax: 303-278-7007AuditorsGrant Th ornton LLPDenver, COLegal CounselHolme Roberts & Owen, LLPDenver, COInvestor RelationsFor 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: 303-278-7007or visit our web site at www.uqm.comTransfer AgentComputershare Trust Company, Inc.P.O. Box 43070Providence, RI 02940-3020Tel: 800-962-4284 303-262-0600Fax: 303-262-0700www.computershare.comAnnual MeetingTuesday, August 11, 200910 a.m. Mountain Daylight TimeTh e Golden Hotel800 Eleventh StreetGolden, Colorado 80401(303) 279-0100Stock ListingsUQM Technologies, Inc. common stock is listed on the NYSE Amex, Pacifi c, Chicago, Berlin and Frank-furt Stock Exchanges, under the ticker symbol UQM.To improve the capability, performance and energy effi ciency of our custom-ers’ products by providing them with technologically advanced electric power systems and components – motors, generators and power electronic control-lers – that are cost eff ective, reliable and of superior quality, creating a com-petitive advantage for them and a cleaner environment for life on our plan-et. Year Ended March 31, 2009 2008 Our Mission CompanyFinancial Profi le (Dollars in thousands, except per share amounts)To our shareholders “Our increase in revenue for the fi scal year was driven by a 59 percent increase in unit sales of our two primary electric and hybrid vehicle propulsion system products.“ For the third straight year, we achieved double-digit growth in our total revenue, driven by increasing prod- uct sales. Total revenue for fi scal 2009 increased 16 per- cent to $8.7 million with product sales increasing 22 percent to $6 million compared to last year. As a re- sult of increasing volume and improved productivity, our margins improved and losses decreased. Our gross profi t margins climbed to 20 percent resulting in an in- crease in gross profi t contribution of $.7 million to $1.8 million for the fi scal year. In the face of a major recession and declining econo- my, we were able to improve our fi nancial performance. Many companies, particularly in the automotive sector, have been reporting large decreases in revenue and in- creasing losses while we experienced the opposite. Our increase in revenue for the fi scal year was driven by a 59 percent increase in unit sales of our two primary electric and hybrid vehicle propul- sion system products. In- terest in, and demand for, these products continues to be strong and we are re- sponding to many new requests for quotes and propos- als. Th e threat of global warming, the likely return of high fuel prices, the constant reminder of our depen- dence on foreign oil and the expected benefi ts of the U.S. Government’s stimulus package appear to be ef- fectively motivating vehicle makers and users to keep vehicle electrifi cation a high priority. Production Programs Th e economic downturn has had a negative impact on our conventional actuator motor business. We expe- rienced a signifi cant decline in shipments of auxiliary actuator motors to Lippert Components for use in rec- reation vehicles, and auxiliary brake actuators to Club Car that are used in their eight passenger golf carts. Th is revenue decrease was more than off set by increased rev- enue from our large propulsion systems. In order to meet the increased demand for our large electric propulsion systems, we took a number of steps during fi scal year 2009 to increase our production capa- bility and capacity. We expanded our manufacturing or- ganization and installed, and are now operating, a Phase I assembly cell which will support the production of over 5,000 units per year on one shift of operation. Th is semi-automated cell includes a sophisticated material handling system, a motor fi nal assembly machine and a production tester. Th e cell occupies about 1800 square feet and is tooled for two frame size motors covering a power range from 50 to 200 kW. In addition to achiev- ing a signifi cant increase in production capacity, this new manufacturing cell has provided major improve- ments in productivity and reductions in assembly costs, 1 contributing to our improved margins. Establishing this manufacturing capability is a critically important step in winning production contracts with our larger customers and will be a key factor in our future success. In the truck market, we increased our deliveries of DC-to-DC converters to Eaton Corporation. Our con- verters are part of Eaton’s hybrid electric propulsion system which powers medium-duty hybrid trucks in- cluding International Truck and Engine Corporation’s DuraStar™ Hybrid, Peterbilt Motor Company’s Mod- el 330 and Model 335 hybrids and Freightliner Trucks Business Class® M2e Hybrid. In addition to DC-to-DC converters, we have developed a companion DC-to-AC inverter that we expect to move into volume production to meet the growing demand for onboard and export power requirements of hybrid trucks. We view Eaton as a strategic customer and expect to expand the breadth of components sold to them. With the addition of our new large propulsion motor assembly cell, we now have four dedicated manufacturing cells: 1) our auxiliary actuator motor cell for Lippert Components and Club Car, 2) our auxiliary compressor motor cell for Keith Products, 3) our DC- to-DC converter cell for Eaton Corporation and 4) our new large propulsion motor assembly cell. Technology Programs Despite the world economic slowdown, demand for our electric propulsion systems and related products has continued to be strong, driven by an expansion in the number of all-electric and hybrid electric vehicle plat- forms being developed for potential introduction into the automobile, truck, bus and military vehicle mar- kets. In order to meet this growing breadth of applica- tions, we have expanded our propulsion system product off erings. In May of 2008, we introduced a new 125 kW (167 horsepower) propulsion system that is a higher power version of our existing 75 kW propulsion system. Th e 125 kW system has the same package size as the 75 kW system and the highest power density of any of our propulsion systems. In April of 2009, we introduced a new 145 kW (194 horsepower) propulsion system by extending the length of the 125 kW system by 2 inches and increasing its weight by 20 lb. With these additions we now off er a product family that includes 50 kW, 75 kW, 125 kW and 145 kW peak power systems in our smaller 11-inch diameter frame size and 100 kW and 150 kW peak power systems in our larger 16-inch di- ameter frame size, allowing us to meet a wide range of vehicle performance requirements. In the passenger automobile market, we have in- creased our deliveries of prototype and evaluation pro- pulsion systems and/or generators to six international automobile manufacturers (up from three last year). We are also supplying an increased number of electric propulsion systems and/or generators to eight entrepre- neurial automobile developers (up from three last year). Several of these companies have announced plans to begin low volume production in 2009 and have tak- en delivery of limited quantities of our systems for fi eld testing. At the Detroit Auto Show held in mid-January 2009, seven electric and hybrid electric vehicles were displayed which incorporate UQM® propulsion systems and/or generators. A key factor in our growing penetration of the auto- mobile market has been the recommendation and selec- tion of UQM® systems by many vehicle integrators for use in electric and hybrid electric vehicle development programs that they are per- forming for their vehicle manufactur- ing customers. One of our most promi- nent interna- tionally based i n t e g r a t o r s , FEV, Inc., re- cently introduced a Dodge Caliber-based range extend- ed electric concept vehicle (ReEV) powered by a UQM® 125 kW propulsion system and 75 kW generator. Th e plug-in Caliber ReEV concept has an all-electric range of 40 miles, does 0 to 60 mph in 8.3 seconds and has a top speed of 84 mph. Our selection by FEV and oth- er integrators for their customer vehicle development programs is a clear indication of the performance and packaging advantages of our systems, their ease of ap- plication and the high level of support we provide our customers. FEV’s plug-in hybrid Caliber ReEV Although our primary focus in the truck market is through our relationship with Eaton Corporation, we are also working with both OEM and entrepreneurial electric and hybrid electric truck developers. One of our customers, Electrorides Inc., recently announced that it is developing an all-electric walk-in van based on a Freightliner Chassis. Th e vehicle is powered by a UQM PowerPhase® 150 electric propulsion system and will complement Electrorides’ ZeroTruck™, an all-elec- tric zero emission medium-duty truck also powered by a UQM® PowerPhase® electric propulsion system. On the bus front, we have been providing propulsion systems to several developers of electric and hybrid elec- tric buses, including the fl eet of 36 hybrid electric buses that operate on the 16th Street Mall in downtown Den- ver. One of our most promising opportunities is with Proterra LLC, who in October 2008, introduced a 35- foot, lightweight, hybrid electric bus. Th is 37 passenger transit bus features a lightweight composite body and a UQM® PowerPhase® 150 electric propulsion system. A battery electric version of Proterra’s bus was recent- ly tested by the Pennsylvania Transportation Institute and achieved over 20 miles per gallon in fuel economy equivalency, which is up to 400 percent better perfor- mance than today’s conventional diesel and competitor’s hybrid electric transit buses. Our work on government programs, particularly for the U.S. military has remained strong and has the poten- tial of major growth. During the year, we made signifi - cant progress on our contracts with the U.S. Air Force to develop advanced silicon carbide based power elec- tronics, with the U.S. Navy to develop advanced ship- board electric motors and with the U.S. Department of Energy and California Energy Commission to develop a distributed electric power grid-connect interface system as part of the government’s “smart grid” initiative. We have been developing and supplying systems to several major defense contractors as part of the Future Tactical Truck System (FTTS) and Joint Light Tactical Vehicle (JLTV) programs for transport vehicles as well as for the expected replacement for the High Mobility Multipur- pose Wheeled Vehicle (HMMWV). We expect that our role in these programs will expand and lead to signifi - cant opportunities for the Company. Summary Although the weak economy has been a signifi cant challenge to everyone, fi scal 2009 was an exciting and productive year for UQM Technologies. We believe that demand for our electric propulsion systems will remain strong for the foreseeable future as vehicle makers con- tinue to focus on the development and introduction of electric and hybrid electric vehicles as part of the re- structuring of the global automotive industry. While many automotive suppliers are going to be negatively impacted by this shift in product direction, there are go- ing to be winners and we expect to be one of them. We are very well positioned to benefi t from Presi- dent Obama’s alternative energy push for energy inde- pendence, lower vehicle emissions and improved fuel ef- fi ciency. We are looking forward to additional revenue growth in fi scal 2010 as the positive impacts of the gov- ernment’s stimulus package take eff ect and the emerging markets we serve continue to develop and expand. May 21, 2009 William G. Rankin Chairman, President and Chief Executive Offi cer 2 “Potentially large markets are developing as a result of the electrifi cation of a wide-range of vehicle platforms.” General UQM Technologies, Inc., (“UQM”) is a developer and manufacturer of energy effi cient, power dense, elec- tric motors, generators and power electronic controllers. We were incorporated in the state of Colorado in 1967. Our primary focus is incorporating our advanced tech- nology into products aimed at emerging markets for electrically propelled vehicles that are expected to ex- perience rapid growth as well as selected existing com- mercial markets. We op- erate our business in two segments: 1) technology - which encompasses the further advancement and application of our proprietary motors, generators, power electronics and software; and 2) power products - which encompasses the manufac- ture of motors, generators, power electronic control- lers and related products. Our $0.01 par value com- mon stock trades on the NYSE Amex, Chicago, Pacifi c, Berlin and Frankfurt stock exchanges under the symbol “UQM.” Th e Company’s revenue is derived from two principal sources: 1) funded contract re- search and development servic- es performed for strategic part- ners, customers and the U.S. government directed toward either the advancement of our proprietary technology portfo- lio or the application of our proprietary technology to customers’ products; and 2) the manufacture and sale of products engineered by us. UQM® system under the hood of Caliber ReEV 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. (“UQM Power”) which is an ISO 9001 :2000 quality certifi ed manufacturer of our prod- ucts. Both operating companies are located in Freder- ick, Colorado. Vehicle Electrifi cation 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 3 proprietary technology include electric wheelchairs, golf carts, forklift trucks and other warehouse vehicles, air- craft tugs and other support equipment, commercial fl oor 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 manufac- tured by our wholly-owned subsidiary, UQM Power. Th ese products include a fan blower motor and a com- pressor drive motor that are used in aircraft air condi- tioning systems manufactured by Keith Products, Inc., a vehicle auxiliary actuator motor for a product manu- factured by Lippert Components, Inc. and an electric brake actuation motor that is used in selected golf carts manufactured by Club Car, Inc. We expect to continue to commercialize both tech- nologically advanced and low cost products that we de- velop to customer specifi cations in selected large, estab- lished markets. Emerging Markets Potentially large markets are developing as a result of the electrifi cation of a wide-range of vehicle plat- forms. Th e electrifi cation of vehicles is being pursued for a variety of application specifi c reasons including: 1) improved fuel economy, 2) lower vehicle emissions, 3) greater reliability and lower maintenance, 4) the need for higher levels of available onboard electric power to run electrical devices, and 5) improved performance and vehicle control. Of these reasons, improved fuel economy has emerged as a signifi cant factor in the de- velopment and potential rate of growth of the emerg- ing vehicle electrifi cation markets as crude oil prices are expected to resume their rise, and consumers and busi- nesses alike have to contend with higher gasoline and diesel prices. Th is trend toward higher fuel prices is ex- pected to continue for the foreseeable future, driven by tight supply levels, geopolitical turmoil in key oil pro- ducing countries and expected future increases in world demand, driven principally by escalating consumption of fossil fuels by developing countries such as China and India. In addition to these factors, government regu- lations mandating reductions in pollutants from diesel engines are expected to further accelerate the trend to- ward electrifi cation as increasingly stringent regulations continue, with the next reduction set for 2010. Fur- ther, Corporate Average Fuel Economy (CAFÉ) stan- dards recently received their fi rst overhaul in more than 30 years. Th e Energy Independence and Security Act of 2007 requires, in part, that automakers boost fl eet- wide gas mileage to 35 mpg by the year 2020. Th is re- “We believe that the trend toward increasing electrifi ca- tion of vehicles will continue at an accelerated pace.” quirement applies to all passenger automobiles, includ- ing “light trucks.” Other recent government legislation, including the Advanced Tech- nology Vehicles Manufactur- ing Incentive Program and the American Recovery and Reinvestment Act of 2009 (Stimulus Bill), encourage the development and introduction of environmentally friendly vehicles. A partial listing of some of the more notable provisions of this legislation includes: • • • • • Tax credits for the purchase of environmentally friendly vehicles Low cost loans to manufacturers and compo- nent suppliers to purchase infrastructure and de- velop manufacturing capacity for clean vehicles and components used in these vehicles Funding for government agencies to acquire en- vironmentally friendly vehicles Grants for the development of clean vehicles and clean vehicle component technology Grants for the development of a “smart” elec- tric grid Crude oil consumption in the United States as re- ported by the Transportation Energy Data Book; Edi- tion 27 and the EIA Annual Energy Outlook 2009 av- erages approximately 21 million barrels per day. Of this amount, approximately two-thirds are used for trans- portation. Th e electrifi cation 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 off er 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. Th e 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. 4 Internal combustion engines are relatively ineffi cient, typically converting only 25 to 35 percent of the input energy in the fuel to the output shaft to do useful work. Th e remaining 65 to 75 percent of the input energy is wasted by the engine as heat loss. Electric mo- tors on the other hand, are much more effi cient in con- verting input electric energy to the rotating shaft to do useful work. UQM® electric propulsion systems have some of the highest effi ciencies (input energy to output work) in the industry ranging from 80 to 95 percent. Th e electrifi cation of vehicles can range from sim- ply replacing ineffi cient belt and gear driven under-the- hood auxiliaries (water pump, power steering, HVAC, cooling fans etc.) with effi cient 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 effi ciency improves and the cost and complexity increases. With rising fuel prices, vehicle makers are fi nding it much more feasible to justify this added complexity and cost. We believe that the trend toward increasing electri- fi cation 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 diff erent degrees of vehicle electrifi cation follows: Electrifi cation of engine driven auxiliaries – In most existing conventional gasoline and diesel-powered vehicles, under-the-hood components such as water, oil and fuel pumps, power steering systems, cooling fans and air conditioning compressors are powered by en- gine belts, pulleys and gears. Th ese devices perform their functions very ineffi ciently and represent a sig- nifi cant load on the engine. Because they are directly connected to the engine, there is no way to indepen- dently vary their speed or modulate their power. Th e electrifi cation of these components provides numerous advantages including: 1) variable speed and power op- eration which improves effi ciency and fuel economy, 2) the ability to locate them strategically anywhere in the vehicle because an electric component does not re- quire proximity to an engine driven belt or gear, 3) im- proved controllability and reliability and 4) fl exible ar- chitectures and improved access for service and mainte- nance. Existing conventional alternators do not provide enough power to electrify the engine driven auxiliaries and must be replaced with a higher power generator. Th e typical UQM® generator is nearly twice as effi cient Th e range of vehicle electrifi cation and provides fi ve times the power of a conventional al- ternator. In addition, these higher power generators can provide export power to power other on-board or off - board equipment. Th is electrifi cation strategy is easily adopted because required changes to vehicle design and operation are the least disruptive and can improve ve- hicle fuel economy by 7 to 15 percent. Parallel hybrids - Parallel hybrid vehicles incorporate an electric motor to join the internal combustion engine in propelling the vehicle. In a low power confi guration, often referred to as a “mild hybrid”, a starter/motor/ generator that is typically integrated into the fl ywheel of an engine is used to combine three separate func- tions in one electric machine. Th e machine starts the engine, eliminating the need for a conventional starter, performs power generation, eliminating a convention- al belt driven alternator, and can be run in motoring mode, supplying supplemental power to the driveline to improve acceleration and vehicle performance. High- er power parallel hybrids incorporate additional system features such as regenerative braking and automatic en- gine shutdown and all-electric propulsion during cer- tain operating conditions. In a typical parallel hybrid vehicle, acceleration from a standing-stop is generally performed by the electric 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 energy that is normally lost as brake heat in conventional vehicles. Th e stored energy is then con- sumed by the electric motor in the next acceleration cy- cle. If the batteries need additional charging, the engine drives the electric machine in generator mode, sending electricity to charge the battery pack. Th ese vehicles have suffi cient battery charging capacity to be self-sus- taining thereby eliminating the need to plug the vehicle into the electric power grid. Depending on the vehicle’s level of electric motive power 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 electrifi cation than parallel hybrids. In a typical series hybrid vehicle, all of the motive power for the vehicle is supplied by electric motors, thereby eliminating conventional driveline components such as the transmission and drive shaft. Generally, series hy- brids contain a larger amount of batteries to store elec- trical energy and the engine’s principal function is to turn a separate generator to produce the electrical en- ergy necessary to maintain the state of charge of the on- board battery pack. As in a parallel hybrid, during brak- ing operations the electric motor is switched to power generation mode and used to recapture energy that is normally lost as brake heat in conventional vehicles. Th e stored energy is then consumed by the electric mo- tor in the next acceleration cycle. Also, as in the paral- lel hybrid, a series hybrid vehicle has suffi cient battery charging capacity to be self-sustaining, thereby eliminat- ing the need to plug the vehicle into the electric power grid. Because the engine serves as an under-the-hood power plant, series hybrids typically have large amounts of available onboard power to perform additional func- tions while the vehicle is operating or when it reaches its fi nal destination. Depending on vehicle confi guration 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 confi gured as either a parallel or a series hybrid. 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 requiring 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 effi cien- cies obtained from its hybrid confi guration, this catego- ry 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 on board by a fuel cell. In this category of ve- hicle, all motive power is produced by electric motors and there is no engine and associated fuel, driveline and exhaust components. Similarly, many vehicle functions currently performed by auxiliaries attached to the en- gine through belts or gears, such as power steering and air conditioning, must be performed using electric mo- tors. As with hybrid electric vehicles, all-electric bat- tery-powered vehicles can switch the electric propulsion motor during braking operations; the electric motor is switched to power generation mode and used to recap- ture energy that is normally lost as brake heat in con- ventional vehicles. Th e stored energy is then consumed by the electric motor in the next acceleration cycle. Th e energy needs of all-electric battery-powered vehicles are obtained by recharging their batteries using the electric power grid. Fuel cells are energy production devices that generate electricity through a chemical reaction re- sulting from combining hydrogen and oxygen. Th e by- 5 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 oppor- tunity for regenerative braking energy recapture. Fuel economy improvements for all-electric battery and fuel cell vehicles are generally 75 percent or greater. automotive suppliers. Many of these automobile com- panies are also developing fuel cell or battery-powered vehicles that they hope to introduce at a future date. We have recently shipped electric and hybrid electric propulsion systems and /or generators to fi ve interna- tional automobile companies for use in vehicle develop- ment programs. “We believe that our technology and products are well- suited for application in a wide-range of vehicles as the trend toward electrifi cation continues to gain momentum.“ Markets We have historically focused our resources on the de- velopment of highly effi cient electric propulsion systems for each category of vehicle described above with power levels of 0.5 kW to 150 kW, which are suitable for vehi- cles ranging from wheelchairs to passenger automobiles to large trucks, buses, tractors, construction equipment and military vehicles. In addi- tion, we have developed elec- tric motors, generators and electronic controls to power under-the-hood auxiliaries such as water, oil and fuel pumps, power steering, cooling fans and air condition- ing compressors. We have also developed DC-to-DC converters that step down high voltage electrical systems to 12 volts and DC-to-AC inverters that convert DC power to consumer friendly 110-volt alternating cur- rent power. We are pursuing the commercialization of our technology and products designed by us in numer- ous large emerging and existing markets where we in- tend to introduce technologically advanced products or lower cost systems or a combination of both. We believe that our technology and products are well-suited for application in a wide-range of vehicles as the trend toward electrifi cation continues to gain mo- mentum. In this regard, we have focused our attention on several niche markets where we believe we can most eff ectively compete and which we expect will have high- er than average rates of growth and expansion. A brief description of each of these markets follows: Passenger automobiles and light trucks - In past years, approximately 16 million passenger automobiles and light trucks were sold in the United States each year, although these production levels have declined dramatically over the last year to a current annual rate of approximately 9 million units. Over the last several years a market has developed for automobiles that are powered by hybrid electric powertrains. Th ese vehicles have good performance and provide above average fuel economy compared to conventional automobiles. Sev- eral automakers have introduced vehicle models incor- porating hybrid electric powertrains including Toyota, Lexus, Nissan, Honda, Ford, Saturn and General Mo- tors. Th ese automakers to date are using hybrid elec- tric powertrains that they have developed themselves or have acquired from other automakers or existing Tier 1 6 In addition to established automakers, there are a va- riety of small entrepreneurial companies that are devel- oping and hope to commercialize electric, hybrid elec- tric and/or plug-in hybrid electric cars. Although many of these companies lack substantial fi nancial resources and/or signifi cant automobile industry experience, they are pursuing a variety of strategies to introduce these types of automo- biles into either niche markets, such as for fl eet users or high-end luxury sports car buyers, or the consumer vehicle market gen- erally. Should any of these companies be successful in commercializing their product off erings, it could cause the growth rate of this market to accelerate signifi cantly. Th ese companies are generally using electric or hybrid electric powertrains that they have developed them- selves or have been developed by other entrepreneur- ial companies. We have recently shipped electric and hybrid electric propulsion systems and/or generators to eight of these companies and have been and continue to be in discussions with nearly all of these companies regarding the use of our equipment in their vehicle de- velopment programs. Trucks, Buses and Recreational Vehicles - Th e U.S. Department of Energy estimated that in 2007, trucks consumed 6.3 million barrels of crude oil per day and they project that by 2030, trucks will consume approxi- mately 55 percent of all crude oil used in transporta- tion, or 10 million barrels of crude oil per day. In recent years, approximately 6 million trucks, bus- es and other medium and heavy-duty on-road vehicles were sold in the United States each year, although these quantities have declined substantially over the last year. Th e market for these vehicles is characterized by a large number of suppliers, a wide-range of vehicle designs and confi gurations, diverse power and performance lev- els and relatively low production volumes for each mod- el. As a result, the typical truck, bus and other medium and heavy-duty vehicle manufacturer is unlikely to have the technical expertise or fi nancial resources to internal- ly develop components that can compete in emerging markets for increasingly electrifi ed vehicles. According- ly, we expect these manufacturers to purchase products from suppliers who have developed technologically ad- vanced electric motors; generators and power electron- ic energy management controls that can be applied to their vehicles. Proterra’s all-electric bus We are currently supplying an automotive qualifi ed DC-to-DC convert- er to Eaton Corpo- ration which is used onboard 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 growing onboard and export power requirements of hybrid trucks. Some medium and heavy-duty hybrid electric trucks manu- factured 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 vehi- cles gain a greater understanding of their operational, environmental and economic advantages. In addition to our supplier relationship with Eaton, we have been and expect to continue to be in discussion with truck OEMs regarding potential niche vehicle programs. We have supplied a hybrid electric propulsion system to a commercial truck manufacturer in the Middle East and have been selected as the propulsion system supplier for the ZeroTruck™, an all-electric medium-duty truck be- ing developed by Electrorides, Inc. 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. Th ese products in- clude electric propulsion systems, higher power engine generators, electric auxiliaries and DC-to-DC convert- ers and DC-to-AC inverters. We intend to continue to aggressively pursue the commercialization of our prod- ucts for these and other applications in the market for electric and hybrid trucks as it emerges over the next several years. We are also involved in a number of bus programs. Over the last several years we have supplied generators and motor controllers to the Denver Regional Trans- portation District (RTD) for its fl eet of thirty-six Mall- Ride hybrid electric shuttle buses, the fi rst large-scale deployment of hybrid electric buses for use in the Unit- ed States. Th e 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 hybrid electric bus being developed by Proterra LLC, Golden, Colorado. Th e 40-foot composite body bus is being developed in both an all-electric battery and plug- in hybrid confi guration. We are also 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 fi ve hy- brid electric cutaway buses on routes in Flint, Michigan and throughout Genesee County. Th e 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, Inc. for use in convention- al recreational vehicles. We have manufactured and shipped over 65,000 units since the launch of produc- tion in fi scal 2007. Th ere are a variety of specialty on- road manufacturers of conventional vehicles who rep- resent an opportunity for us to further expand the de- ployment of our products, and we intend to continue to pursue the commercialization of our products for these applications. Off -road vehicles - Th ere are a wide-range of off - road vehicles sold in the United States each year. Th ese vehicles range from small - wheelchairs, golf carts, fork trucks, riding lawn mowers, snowmobiles, all-terrain vehicles, etc., - to large construction, agricultural and mining equipment. Th e markets for small vehicles are typically characterized by relatively high volumes, low power levels and commodity pricing. We expect to continue to compete selectively in off -road vehicle mar- kets where the customer re- quires advanced technolo- gy or superior performance and where acceptable gross profi t margins are obtain- able. Th e market for large equipment - tractors, con- struction, mining and oth- er specialty equipment - possesses many of the same characteristics as the over- the-road truck market described above. In recent past years, it is estimated that approximately 500,000 of these vehicles were sold in the United States each year. Accordingly, we expect these vehicle manufacturers to purchase products with similar specifi cations as those re- Club Car golf cart 7 “We are currently supplying an automotive qualifi ed DC-DC converter to Eaton Corporation which is used onboard medium and heavy-duty hybrid trucks. “ quired in the over-the-road truck and bus markets from suppliers who have developed technologically advanced electric motors and power electronic energy manage- ment controls that can be applied to their vehicles. Al- though these vehicles are produced in relatively lower volumes, they nevertheless represent a substantial op- portunity due to higher power lev- substantial els, technical com- plexity and therefore substantially higher product con- tent and dollar value per vehicle. We currently have sys- tems under evaluation by several large off -road vehicle developers for both electric propulsion and under-the- hood auxiliary applications. We have also developed electric power products for the aircraft and aerospace market and the boat and ma- rine market. In the aerospace market, we have devel- oped electric auxiliary motors and controllers used in aircraft air conditioning systems. We have also devel- oped auxiliary power units for the generation of on- board power and propulsion systems for various boat applications. We believe that some of the fuel effi ciency benefi ts of vehicle electrifi cation can also be realized in the boat and marine market. Although our focus is pri- marily on land applications, we will continue to leverage our technology and products in these potentially large niche markets as opportunities present themselves. Military vehicles - Th e U.S. military purchases a wide-range of ground vehicles each year including com- bat vehicles 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 sup- ply operations and for the transport of fuel used on the battlefi eld. Th e military is particularly interested in the electrifi cation of vehicles because the attributes that these vehicles possess off er exceptional potential for the military to achieve its long-term objectives of develop- ing a highly mobile, lethal fi ghting force. Fuel economy improvements in military vehicles transfer into substan- tial savings in support infrastructure and transportation costs associated with transporting fuel to the battlefi eld, which is typically thousands of miles from the United States. For example, if fuel economy improvements of 25 percent are achieved in the average truck, a corre- sponding amount of fuel does not have to be transport- ed and therefore a corresponding number of airplanes or tankers are not required in the transportation process. Also, the availability of onboard electrical power on mil- itary vehicles opens up new opportunities for the devel- opment of sophisticated surveillance, detection and bat- tlefi eld 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 periods of armed con- 8 fl ict. As is the case with large off -road equipment, these vehicles are produced in relatively lower volumes, op- erate at higher power levels, have substantial 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 mil- itary contrac- tors and vehicle includ- makers ing DRS Tech- nologies, AM General, BAE Systems, Boeing, General Dynamics and others, on prototype hybrid electric ve- hicles, high export power generators, electric auxiliaries, DC-to-DC converters and DC-to-AC inverters. Al- though this market has not yet begun to emerge, we be- lieve that it may begin to soon, driven by the availability of hybrid electric components in the commercial truck market that operate at similar power levels as those re- quired by many military vehicles. Distributed power generation - Th ere has recently been an increased focus on the development and adop- tion of clean, renewable energy 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. Th e Stimulus Bill recently passed by the U.S. government has allocat- ed substantial funding for power generation technolo- gies and development of a “smart grid”. We have de- veloped generators for potential use in this market and 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. Th e objective of the development ef- fort is to design a cost-eff ective, fl exible, readily-man- ufactured, and ready to be commercialized prototype interface that will standardize the interconnection for a modular, scalable range of APEI systems. We expect to compete for additional development funds available under the Stimulus Bill to further advance our power generation and management technology and potentially expand our product off erings in this market. Th ere is also a developing industry initiative termed “vehicle-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 vehicles to the electric power grid. Th ere are diff erent versions of the vehicle-to-grid concept: 1) A hybrid or fuel cell vehicle, which generates power from storable fuel, uses its generator to produce power for a utility at peak elec- tricity usage times. Here the vehicles serve as a distribut- ed power generation system; and 2) A battery-powered or hybrid vehicle which uses its excess rechargeable bat- tery capacity to provide power to the electric grid during peak load times. Th ese 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 battery storage system to buff er power. Th e V-to-G concept allows such vehicles to provide power to help load balance (valley fi ll and peak shave) localized grid segments during peak load periods when the selling price of electricity can be very high, and to buff er 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. Th e typical architecture of a UQM®motor consists of a stator winding employing a high pole count confi gura- tion, which allows for high copper utilization (minimiz- ing energy loss and cost) and a hollow rotor upon which powerful rare earth permanent magnets are mounted on the outer circumference. Th e stator is affi xed to a hous- ing containing a mounting ring and bearings, which al- lows the rotor to be suspended within the stator. Com- mutation 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 fi eld generated by the stator interacts with the magnetic fi eld of the rotor, producing rotational motion (“motor operation”). Conversely, the application of rotational motion to the rotor by an ex- ternal force results in the generation of electrical power (“generator operation”). UQM® machines can be oper- ated in either a forward or reverse direction of rotation and either in motor or generator mode and can dynami- cally change from one mode of operation to another in millisecond response time. Th e hollow design of the ro- tor permits the packaging of other components such as gears and electromechanical brakes in the interior of Improvements to UQM® propulsion systems the machine. Th ese design features contribute to lower usage of copper and iron and other materials generally (due to smaller package dimensions), reducing manu- facturing cost over those for conventional machines of similar power. In addition, the utilization of neodymi- um-iron-boron (“NdFeB”) magnet material in a wide- range of consumer devices such as cell phones, disk drives and medical devices, has dramatically improved the availability, performance and price of this material, allowing us to price our advanced motors and controls competitively with lesser performing conventional mo- tors, which we believe will accelerate the rate of com- mercialization of our technology. Attributes of our permanent magnet motor technol- ogy include brushless electronic commutation, a rela- tively large air-gap dimension (useful for hybrid elec- tric 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 content and low mechanical losses. As a re- sult, UQM® motors have high operating effi ciencies, high power density (high power output to weight ra- tio) and generally have smaller external dimensions and weight for a given power output, improving packaging. 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 effi ciencies, high power density (high power output to weight ratio) and generally have smaller external dimensions and weight for a given power output, improving packaging. Th e 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- 9 ables UQM® motors to deliver both high output torque at low operating speeds and high power at increasing operating speeds. We have extended the capability of Phase Advance Control by using Adaptive Control tech- niques. Th ese 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. Th e result is maxi- mized output and effi ciency which decreases fuel con- 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. Th e application of these proprietary control strategies has al- lowed us to recently increase the peak and continuous power output and improve the effi ciency of our systems. In addition, our motor controllers now have user con- fi gurable functionality and increased data transmission speeds and response times, improving vehicle capability. Included in this functionality is the ability to switch be- tween torque, speed, and voltage control dynamically, which is especially useful for parallel hybrids and gen- erator applications of our technology. For vehicle de- velopers, our new Graphical User Interface provides the means to tailor any UQM® system to create the desired driving experience. Conventional permanent magnet motor designs are limited to operating at either high torque at low speeds, sacrifi cing 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 sub- sequent transition to high power as the vehicle is accel- erated to highway speeds. In the majority of conven- tional internal combustion engine powered vehicles, the transition from high torque to high power is accom- plished through the multiple gear changes performed by a mechanical transmission. UQM® motors, incorpo- rating phase advance technology, are suited as propul- sion drives in electric, hybrid electric, plug-in hybrid electric and fuel cell electric vehicles due to their abil- ity to power a vehicle from a standing-stop to highway speeds without mechanical gear changes, thereby elimi- nating the size, weight, complexity and cost of mechani- cal 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. Th is technology also provides both high torque and high-speed capability in the same machine, but at levels greater than that of other motor technologies. Many electric motor applications require high torque capability for starting and low speed opera- tion, 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 on-road convoy transport. Many commercial applications have similar requirements. Conventional vehicles achieve the high torque required for launch and low end accel- eration and the constant power required for high road speed by using a transmission and multiple gear chang- es. Prior to this performance breakthrough, UQM® sys- tems incorporating 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 performance. Th is has particularly been the case in the more demanding off -highway equipment and military vehicle applications. Providing vehicle de- velopers with electric propulsion systems capable of a top speed to base speed ratio of 10 to 1 overcomes a sig- nifi cant limitation and opens up potential new applica- tion opportunities for UQM® systems. We have also developed proprietary DC-to-DC con- verters that convert energy from hybrid electric vehi- cles with 250 volt to 450 volt battery packs to 12 volts to power lower voltage devices onboard these vehicles and high voltage DC-to-AC inverter technology with output effi ciencies of up to 93 percent for use onboard electric, hybrid-electric and fuel cell-electric vehicles. Our inverters convert DC power stored in vehicle bat- tery packs with nominal operating voltages of 340 volts to high quality 110 volt or 220 volt AC power. We are also developing grid-connect capable inverters and as- sociated smart metering technology for potential future application as the utility industry pursues “smart-grid” development. We have two patent applications pending related to technology developments that have the potential to fur- ther improve the performance of our motors. We are also performing internally funded research and devel- opment to continually improve the functionality of the microprocessor software we use to intelligently con- trol our motor/controller system. Some of these en- hancements include torque, speed and voltage control improvements that enable more sophisticated hybrid electric operating strategies, refi ned generator voltage regulation to facilitate improved battery pack manage- ment and further improvements in system effi ciency and power output through advances in motor control algorithms. In addition to these activities, the U.S. Air Force has contracted us to manage a research and de- velopment project in cooperation with Mississippi State University, directed toward the development of high temperature power switching devices using silicon car- bide that may lead to improved power handling capabil- ity for our motor controllers. Th e majority of our research and development activi- ties are the result of projects contracted with and funded 10 “In 2009 we installed a production cell to assemble our larger frame size, higher power motors in higher volumes.” by customers, for which we typically retain intellectual property rights in the resulting technology developed. Customer funded development activities are recorded in our fi nancial statements as contract services revenue and the associated development costs are shown as cost of contract services. Internally-funded research and de- velopment expenditures are charged to research and de- velopment expense when incurred. In recent years, we have focused our research and de- velopment activities on the development of commercial products and production engi- neering activities to lower the cost of manufacture, as well as enhance the performance and capability of our systems, as opposed to basic research in the fi eld. We believe our future growth is dependent, in part, on the continued advancement of our technol- ogy portfolio and our ability to commercialize our tech- nology in additional product applications and markets. Accordingly, we expect to continue to pursue additional customer funded programs and to selectively invest in internally funded development projects to accomplish these objectives. Manufacturing It is our primary objective to become a major man- ufacturer of electric motor, generator and other pow- er electronic products that incorporate our proprietary technology and to supply these products to electric, hy- brid electric and fuel cell electric vehicle manufacturers and/or their Tier 1 suppliers. We have established and are continuing to expand our manufacturing capability and presence through a planned technology progression driven by key customer demands to address future ve- hicle requirements. Our manufacturing operations are ISO 9001:2000 quality certifi ed. In March of 2006, we began the volume pro- duction of vehicle auxil- iary actuator motors for Lippert Components. Th is production is per- formed on a highly au- tomated, fl exible, mixed model assembly system which is computer con- trolled and monitored for quality assurance and consistent performance. Th e development and in- stallation of this assembly system by our organiza- tion was instrumental in demonstrating our manu- facturing know-how and 11 Motor handling system capability to existing, as well as potentially new, vehicle OEM and Tier 1 supplier cus- tomers. We also produce auxiliary actuator motors for Club Car, Inc. on this assembly system. DC-to-DC converter In September of 2006, we began the volume produc- tion of DC-to-DC converters for Eaton Corporation as part of their hybrid electric power system for the heavy truck market. We designed and installed a manufac- turing cell for these electronic boxes that includes the robotic application of sealant, sixteen hours of burn-in cy- cling between hot and cold temperature extremes, pressure testing for cooling leaks and com- plete functional testing. 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 specifi c to the automotive industry. Today, this team consists of nearly twenty professionals. In the last two years we have made signifi cant improvements in manu- facturing systems, facilities and space utilization and we have adopted the Advanced Product Quality Planning (“APQP”) automotive quality procedures. In fi scal year 2009 we installed a production cell to assemble our larger frame size, higher power motors in higher volumes. Th e capacity of this cell is estimated to be 5,000 systems annually per shift. In order to ensure our cost competitiveness, we have adopted a manufacturing strategy for the near term of designing all product components and then sourcing these parts with quality suppliers. Final assembly, test- ing, pack-out and shipping of the product is performed at our Frederick, Colorado facility. We have established relationships with many high-quality, low-cost suppli- ers, including a number of international companies. Future plans are to continue the development and in- troduction of more advanced and automated manufac- turing 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 signifi cant 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. Hybrid electric passenger vehicle sales have grown substantially since their introduction in the North American market in 2000, with over one million units being sold since their introduction. As a result, the fuel economy and emission benefi ts of hybrid electric tech- nology are broadly understood by consumers world- wide. Th is, in concert with higher oil prices, tax credits for hybrid electric vehicle purchasers, stricter govern- ment emission regulations and growing environmen- tal consciousness, has generated market demand for this class of vehicle. Until recently, passenger vehicle makers have elected to develop their own hybrid elec- tric systems and components, either individually or in cooperation with Tier 1 automotive suppliers; however, we have recently supplied our propulsion systems to six international automotive manufacturers as part of their electric and hybrid electric vehicle development activi- ties. Should any of these automakers elect to utilize our products in future model launches, it would have a ma- terial impact on our future rate of growth. 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, medium and heavy-duty truck and bus builders have been the most active, driven by the per- formance and fuel economy advantages available from this technology, the availability of large amounts of on- board and exportable power and stricter diesel emission mandates. Last year, International Truck and Engine Corpora- tion, a Navistar Company, announced that it was the fi rst company to enter line production of hybrid elec- tric commercial trucks, introducing the Internation- al® DuraStar™ Hybrid, a diesel electric medium-duty truck. Similarly, Peterbilt Motors Company, a division of PACCAR Inc., began full production of its Model 330 and Model 335 medium-duty hybrid trucks at its manufacturing facility in Ste. Th erese, Quebec, Canada in the summer of 2008 and Freightliner Trucks, a divi- sion of Daimler Trucks North America LLC has intro- duced its Business Class® M2e Hybrid Truck. All of these truck manufacturers use the Eaton Corporation hybrid electric system. Th e automotive certifi ed DC- to-DC converter manufactured by us for Eaton Cor- poration is on board many of these hybrid trucks. In addition, Caterpillar, Inc. recently introduced the D7E crawler tractor incorporating an electric drive system for track-type tractors with an electric system that pro- vides power to electric auxiliaries so that no engine belts are required. We believe that these industry develop- ments signal the beginning of a potentially large-scale deployment of electric propulsion and related electronic products into markets other than mass-market passen- ger automobiles. Should these products receive broad customer acceptance, as we expect they will, potentially substantial opportunities will likely develop over time for our company and other similarly situated companies that have developed technologically advanced products in anticipation of the emergence of these markets. Th e operating characteristics of electric motors for vehicle propulsion are diff erent from those of more con- ventional industrial motors. Propulsion motors ideally deliver high levels of torque effi ciently 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 specifi cally developed for these ap- plications and deliver exceptional torque and high ro- tational speeds in a compact, energy effi cient machine. We believe that our portfolio of propulsion systems, power electronic controllers and related electronic prod- ucts has well positioned our company to compete eff ec- tively 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. Th e 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 including generators and motors to drive water, oil and power steering pumps, air conditioning compressors, and cooling fans, that operate at the new higher volt- age. Th ese industry developments, as well as the poten- tial production requirements of our existing customers, may require us to invest a substantially greater amount of fi nancial and human resources in fi scal 2010 and be- yond in the commercial launch of products. We believe these investments are necessary to support our strategy of aggressively rolling out automotive certifi ed products to satisfy our customers’ requirements as these new mar- ket 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, 2009 our total revenue increased 16 percent to $8,728,311, driven primarily by increased product sales which rose 22 percent to $6,011,065. Production engineering expenses for the year ended March 31, 2009 rose 10 percent to $1,869,848, reflecting engineering activities associated with the design and installation of a new production cell for our larger propulsion motors and production design activities on our motor and controller products. Net loss for the current fiscal year decreased by $184,086 to $4,402,019 or $0.17 per common share versus $4,586,105 or $0.18 per common share and $3,431,357, or $0.14 per common share for the fiscal years ended March 31, 2008 and 2007, respectively. The decrease in losses versus last fiscal year is attributable to higher levels of revenue and higher gross profit margins on product sales revenue. During the last year the automotive industry experienced a substantial reduction in demand resulting from the global credit crisis and recessions in the primary national economies worldwide. In reaction to these developments, many countries around the world passed legislation designed to stimulate industry within their countries, loosened monetary policy to counteract the credit crisis and promote increased lending activities and, in some cases, nationalized certain companies or loaned them government funds. In the automotive industry, General Motors and Chrysler both received substantial government funds, Chrysler has filed for bankruptcy protection and there is, at this time, substantial doubt regarding General Motor’s ability to avoid seeking bankruptcy protection. Despite these developments in one of the primary industries served by our company, we experienced strong demand for our propulsion system products. This demand was fueled, in part, by the efforts of numerous automobile companies worldwide to develop and introduce more fuel-efficient vehicles including all-electric, hybrid-electric and plug-in hybrid-electric automobiles. Although we are continuing to experience strong demand for our electric propulsion systems and generators at this time, future developments in the automobile industry related to original equipment manufacturers or their large suppliers could adversely affect the future demand for our products. Despite the turmoil automakers are experiencing currently, numerous automobile companies have publicly announced their strategies to field an increasing number of fuel-efficient vehicles in the future to better match their product offerings to the type of vehicle consumers demand in an environment of rising oil and gasoline prices. Many of these new vehicle offerings are expected to be powered by either all-electric or hybrid-electric powertrains. Should these strategies be implemented, we may experience a substantial increase in product sales revenue arising from the commercial introduction of this class of vehicles powered by our propulsion systems and/or generators. In the event industry developments lead to additional demand from our customers, we may be required to invest a substantial amount of financial and human resources on the commercial launch of our products. Specifically, we may need to 1) increase the size of our production engineering group, 2) increase the level of our capital expenditures for manufacturing equipment and tooling, and 3) expand our manufacturing facility in Frederick, Colorado. We believe these investments may be 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. We believe our existing cash and short-term investments, which amounted to approximately $5.8 million at fiscal year end, will be adequate to fund our anticipated growth for the fiscal year ended March 31, 2010 and likely beyond, however, if our growth continues to accelerate we may require additional capital sooner. 1313 Financial Condition Cash and cash equivalents and short-term investments at March 31, 2009 were $5,793,666 and working capital (the excess of current assets over current liabilities) was $6,640,877 compared with $9,765,892 and $10,510,175, respectively, at March 31, 2008. The decrease in cash and short-term investments and working capital is primarily attributable to operating losses, higher levels of inventories and investments in property and equipment offset by lower levels of accounts receivable. Accounts receivable decreased $387,040 to $917,099 at March 31, 2009 from $1,304,139 at March 31, 2008. The decrease is primarily attributable to lower levels of contract service billings as of March 31, 2009. Substantially all of our customers are large well-established companies of high credit quality. Although we have not established an allowance for bad debts at March 31, 2009 and no allowance for bad debts was deemed necessary at March 31, 2008, in light of current economic conditions we may need to establish an allowance for bad debts in the future. Costs and estimated earnings on uncompleted contracts decreased $6,572 to $643,098 at March 31, 2009 versus $649,670 at March 31, 2008. The decrease is due to more favorable billing terms on certain contracts in process at March 31, 2009 versus March 31, 2008. Estimated earnings on contracts in process decreased to $194,861 or 4.2 percent of contracts in process of $4,609,747 at March 31, 2009 compared to estimated earnings on contracts in process of $377,822 or 11.1 percent of contracts in process of $3,396,292 at March 31, 2008. The decrease in estimated margins on contracts in process is attributable to higher cost incurrence than expected on the performance of these contracts. Inventories increased $345,682 to $1,307,171 at March 31, 2009 versus $961,489 at March 31, 2008 principally due to increased levels of raw materials, work-in-process and finished goods inventories which increased $73,372, $239,885 and $32,425, respectively; reflecting higher levels of low volume product builds in process at March 31, 2009. Prepaid expenses and other current assets decreased to $117,768 at March 31, 2009 from $119,647 at March 31, 2008 primarily due to lower levels of prepaid rent at the end of the current fiscal year versus the prior fiscal year end. We invested $570,986 for the acquisition of property and equipment during the fiscal year compared to $803,121 last fiscal year. The decrease in capital expenditures is primarily due to fewer building improvements and purchases of manufacturing equipment during fiscal 2009. Patent and trademark costs decreased $39,581 to $438,184 at March 31, 2009 versus $477,765 at March 31, 2008 due to systematic amortization of patent issuance costs, which was partially offset by the costs associated with the filing of a new patent application. Other assets decreased $165,106 to $76,443 at March 31, 2009 from $241,549 at March 31, 2008 due to lower levels of prepayments on capital equipment purchases at the end of the current fiscal year versus the prior fiscal year end. Accounts payable decreased $89,398 to $651,129 at March 31, 2009 from $740,527 at March 31, 2008, primarily due to improved payment processing during the current fiscal year. Other current liabilities increased $228,387 to $600,672 at March 31, 2009 from $372,285 at March 31, 2008. The increase is primarily attributable to higher levels of accrued payroll and employee benefits and higher levels of unearned revenue associated with customer prepayments. Current portion of long-term debt increased $310,921 to $416,923 at March 31, 2009 from $106,002 at March 31, 2008 and long-term debt, less current portion, decreased $416,923 to zero at March 31, 2009. Both changes are due to a scheduled balloon payment in November of 2009 on the mortgage for our Frederick, Colorado facility. We expect to extend the term of this mortgage debt prior to its maturity; however, we cannot assure you that an extension will be completed. Short-term deferred compensation under executive employment agreements increased to $397,834 at March 31, 2009 versus $364,000 at March 31, 2008 reflecting periodic accruals of future severance obligations under executive employment agreements. Billings in excess of costs and estimated earnings on uncompleted contracts decreased $636,481 to $71,367 at March 31, 2009 from $707,848 at March 31, 2008 reflecting decreased levels of billings on certain engineering contracts in process at the end of the fiscal year ended March 31, 2009 in advance of the performance of the associated work versus the prior fiscal year. 14 Long-term deferred compensation under executive employment agreements increased $41,842 to $675,715 at March 31, 2009 from 633,873 at March 31, 2008 reflecting periodic accruals of future severance obligations under executive employment agreements. Common stock and additional paid-in capital increased to $267,277 and $78,767,154, respectively, at March 31, 2009 compared to $265,267 and $77,819,041 at March 31, 2008. The increase in additional paid-in capital was primarily attributable to the recording of non-cash share based payments. Results of Operations Operations for the fiscal year ended March 31, 2009, resulted in a net loss of $4,402,019, or $0.17 per common share, compared to a net loss of $4,586,105, or $0.18 per common share, and $3,431,357, or $0.14 per common share, for the fiscal years ended March 31, 2008 and 2007, respectively. The reduction in the current year net loss is primarily attributable to higher levels of product sales revenue, expanded gross profit margins on product sales, and lower selling, general and administrative expenses. Non-cash expense arising from share-based payments for the fiscal year ended March 31, 2009, 2008 and 2007 was allocated as follows: Cost of contract services Cost of product sales Research and development Production engineering Selling, general and administrative Year Ended March 31, 2009 $ 110,329 84,875 37,903 128,553 711,383 Year Ended March 31, 2008 Year Ended March 31, 2007 113,507 60,933 25,652 132,494 842,349 154,828 48,606 22,612 113,013 618,697 $ 1,073,043 1,174,935 957,756 Revenue from contract services increased $125,307, or 4.8 percent, to $2,717,246 for the fiscal year ended March 31, 2009 versus $2,591,939 for the fiscal year ended March 31, 2008. The increase is primarily attributable to higher levels of material purchases for billable programs this fiscal year versus last fiscal year. Revenue from contract services decreased 10.9 percent to $2,591,939 for the fiscal year ended March 31, 2008 compared to $2,907,536 for the fiscal year ended March 31, 2007. The decrease was primarily attributable to the increased allocation of engineering resources to production engineering activities during fiscal 2008 versus fiscal 2007. Product sales this fiscal year increased 22.3 percent to $6,011,065 compared to $4,916,383 for the fiscal year ended March 31, 2008. Product sales for the fiscal year ended March 31, 2008 increased 31.3 percent to $4,916,383 compared to $3,745,658 for the year ended March 31, 2007. Power products segment revenue for the year ended March 31, 2009 increased $155,268, or 5.0 percent, to $3,272,377 compared to $3,117,109 for fiscal year ended March 31, 2008 due to increased shipments of DC-to-DC converters and the shipment of electric propulsion systems. Power products segment revenue for the year ended March 31, 2008 increased to $3,117,109 versus $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. Technology segment product revenue for the fiscal year ended March 31, 2009 increased $939,414 or 52.2 percent to $2,738,688 compared to $1,799,274 for fiscal year ended March 31, 2008 due to increased shipments of low volume propulsion systems. Technology segment product revenue for the fiscal year ended March 31, 2008 increased $680,555, or 60.8 percent, to $1,799,274 compared to $1,118,719 for fiscal year ended March 31, 2007 due to increased shipments of low volume propulsion systems. Gross profit margins for the current fiscal year increased to 20.2 percent compared to 14.3 percent for the fiscal year ended March 31, 2008. Gross profit margins for the fiscal year ended March 31, 2008 increased to 14.3 percent compared to 10.0 percent for the fiscal year ended March 31, 2007. Gross profit margins on contract services decreased to 16.1 percent this fiscal year compared to 21.3 percent for the fiscal year ended March 31, 2008 due to higher incurred costs than planned on certain engineering contracts in process during the current fiscal year. Gross profit margins on contract services increased to 21.3 percent for the fiscal year ended March 31, 2008 compared to 8.3 percent for the fiscal year ended March 31, 2007 due to improved program execution during fiscal year 2008. Gross profit margins on product sales this fiscal year increased to 22.1 percent compared to 10.7 percent for fiscal 2008. The improvement is primarily due to lower material costs and improved overhead absorption arising from higher production levels during the fiscal year ended March 31, 2009. Gross profit margins on product sales for the fiscal year ended March 31, 2008 decreased to 10.7 percent compared to 11.3 percent for the fiscal year ended March 31, 2007 due to reduced overhead absorption. 15 Research and development expenditures for the fiscal year ended March 31, 2009 increased to $593,209 compared to $461,791 and $321,160 for the fiscal years ended March 31, 2008 and 2007, respectively. The increase in research and development expenditures for the fiscal year ended March 31, 2009 compared to the prior fiscal year was primarily due to increased costs on internally funded programs. The increase in research and development expenditures for fiscal 2008 versus fiscal 2007 was primarily due to increased costs on internally funded software development programs. Production engineering costs were $1,869,848 for the fiscal year ended March 31, 2009 versus $1,706,978 and $1,286,761 for the prior two fiscal years. The increase for the current fiscal year versus fiscal year 2008 is primarily attributable to engineering activities associated with the design and installation of a new production cell for our larger propulsion motors and production design activities on our motor and controller products. The increase for the fiscal year ended March 31, 2008 versus fiscal 2007 is primarily attributable to additional staffing during fiscal year 2008. Selling, general and administrative expense this fiscal year was $3,782,840 compared to $3,905,495 and $2,855,213 for the fiscal years ended March 31, 2008 and 2007, respectively. The decrease for this fiscal year is primarily attributable to lower levels of equity based compensation and lower deferred compensation expense recorded during the current fiscal year partially offset by increased legal fees for litigation. The increase for fiscal 2008 versus fiscal 2007 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. Impairment of long-lived assets for the fiscal years ended March 31, 2009, 2008, 2007 were zero, $11,155 and $889, respectively. The impairment of long-lived assets for the fiscal year ended March 31 2008 was attributable to the impairment of obsolete equipment. The impairment of long-lived assets for the fiscal year ended March 31, 2007 was attributable to the write-down of costs associated with an abandoned patent application. Interest income declined to $198,947 for the current fiscal year compared to $463,248 and $445,578 for the fiscal years ended March 31, 2008 and 2007, respectively. The decrease for fiscal 2009 versus fiscal 2008 is attributable to lower invested balances and lower yields during the current fiscal year. The increase for fiscal 2008 versus fiscal 2007 is attributable to higher invested cash balances. Interest expense decreased to $33,387 for the year ended March 31, 2009 compared to $40,652 and $47,422 for the fiscal years ended March 31, 2008 and 2007, respectively. The decrease is due to lower average mortgage borrowings outstanding throughout the fiscal year as compared to the prior fiscal year. Liquidity and Capital Resources Our cash balances and liquidity throughout the fiscal year ended March 31, 2009 were adequate to meet operating needs. At March 31, 2009, we had working capital (the excess of current assets over current liabilities) of $6,640,877 compared to $10,510,175 at March 31, 2008. For the year ended March 31, 2009, net cash used in operating activities was $3,065,281 compared to net cash used in operating activities of $2,511,723 and $2,732,956 for the years ended March 31, 2008 and 2007, respectively. The increase in cash used in operating activities in fiscal 2009 is primarily attributable to higher levels of inventories, increased levels of billings in excess of costs on uncompleted contracts partially offset by lower operating losses, increased depreciation and amortization and impairment expense. The decrease in cash used for the year ended March 31, 2008 is primarily attributable to higher levels of billings in excess of costs and estimated earnings on certain uncompleted contracts, partially offset by higher operating losses. Net cash provided by investing activities for the fiscal year ended March 31, 2009 was $2,620,118 compared to cash used in investing activities of $1,446,752 for the previous fiscal year and $428,914 for fiscal 2007, respectively. The change this fiscal year versus last fiscal year was primarily due to higher levels of maturities of short-term investments offset by lower expenditures for building improvements and manufacturing equipment. Net cash used in investing activities for fiscal 2008 increased to $1,446,752 versus $428,914 for fiscal 2007 primarily due to higher expenditures for building improvements and manufacturing equipment and increased purchases of short-term investment securities. Net cash used in financing activities was $228,922 for the fiscal year ended March 31, 2009 versus cash provided by financing activities of $5,182,382 and $1,037,241 for the fiscal years ended March 31, 2008 and 2007, respectively. The change this fiscal year versus fiscal year 2008 is attributable to the purchase of treasury stock this fiscal year, and to the completion of a private placement in the first quarter of fiscal 2008, which resulted in $5.2 million in cash proceeds. The 16 increase in fiscal 2008 versus 2007 is attributable to the completion of a private placement in the first quarter of fiscal 2008, which resulted in 5.2 million in cash proceeds. 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 may need to invest in substantially greater financial resources during fiscal 2010 on the commercialization of our products in emerging markets, including a significant increase in human resources, investments and increased the amounts for equipment, tooling and facilities. 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, 2009. If customer demand accelerates substantially, our losses over the short-term may increase together with our working capital requirements. If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future. Over the last year, access to the capital markets has been severely restricted or nonexistent for most companies due to the global credit crisis. In light of current market conditions and the uncertainty regarding the ability of the capital markets to recover from the credit crisis, we cannot assure you that we will be able to secure additional capital should it be required to implement our current business plan. In the event financing or equity capital to fund future growth is not available on terms acceptable to us or at all, 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, 2009: Long-term debt obligations (2) Interest on long-term debt obligations Purchase obligations Executive employment agreements (1) Total Payments due by Period Total $ 416,923 18,315 677,607 1,073,549 $ 2,186,394 Less Than 1 Year 416,923 18,315 677,607 397,834 1,510,679 2 - 3 Years - - - 654,000 654,000 4 - 5 Years - - - - - More than 5 Years - - - 21,715 21,715 (1) Includes severance pay obligations under executive employment agreements contingently payable upon six months notice by two officers of the company, but not annual cash compensation under the agreements. (2) Represents a balloon payment on a facility mortgage which we expect to refinance. Off-Balance Sheet Arrangements None. 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, the recoverability of inventories and the fair value of financial and long-lived assets. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements. 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. Because substantially all of our customers are large well-established companies with excellent credit worthiness, we have not established a reserve at March 17 31, 2009 and 2008 for potentially uncollectible trade accounts receivable. In light of current economic conditions we may need to establish an allowance for bad debts in the future. It is also reasonably possible, that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses. 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, 2009 could be materially different from management’s estimates, and any modification of management’s estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects. Fair Value Measurements and Asset Impairment Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. Fair value estimates and judgments may be required by management for those assets that do not have quoted prices in active markets. These estimates and judgments may include fair value determinations based upon the extrapolation of quoted prices for similar assets and liabilities in active or inactive markets, for observable items other than the asset or liability itself, for observable items by correlation or other statistical analysis, or from our assumptions about the assumptions market participants would use in valuing an asset or liability when no observable market data is available. Similarly, management evaluates both tangible and intangible assets for potential impairments in value. In conducting this evaluation, management may rely on a number of factors to value anticipated future cash flows including operating results, business plans and present value techniques. Rates used to value and discount cash flows may include assumptions about interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of asset impairment. Changes in any of the foregoing estimates and assumptions or a change in market conditions could result in a material change in the value of an asset or liability resulting in a material adverse change in our operating results. New Accounting Pronouncements In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 which delayed the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities. We adopted the provisions of SFAS No. 157 related to financial instruments on April 1, 2008, and the provisions related to nonfinancial assets and liabilities on April 1, 2009 (except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis). The provisions of this standard adopted by us on April 1, 2008 did not have a material effect on our financial statements and the adoption of the provisions effective April 1, 2009 will not have a material effect on our financial statements. 18 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 goals are to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for our fiscal year beginning April 1, 2009. We intend to adopt these standards for future acquisitions after the effective date. In April 2008, the FASB issued FASB Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets (”FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this standard will not have a material effect on our financial statements. In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The adoption of this standard will not have a material effect on our financial statements. In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements (“EITF 08-3”). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this EITF will not have a material effect on our financial statements. In October 2008, the FASB issued FASB Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did not have a material effect on our financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 is effective for us beginning in the first quarter of fiscal year 2010. The adoption of FSP 157-4 will not have a material impact on our consolidated financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 115-2 and Statement of Financial Accounting Standards (FAS) No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairment (“FSP 115-2/FAS No. 124-2”). FSP 115- 2/FAS No. 124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing “intent and ability” indicator. Additionally, FSP 115-2/FAS No. 124-2 changes the presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. FSP 115-2/FAS No. 124-2 is effective for us beginning in the first quarter of fiscal year 2010. The adoption of this standard will not have a material effect on our financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 107-1 and Accounting Principals Board (APB) Opinion 28-1, Interim Disclosure about Fair Value of Financial Instruments (“FSP 107-1/APB 28-1”). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, Disclosures about the Fair Value of Financial Instruments. Additionally, FSP 107-1/APB 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments and is effective for us beginning in the first quarter of fiscal year 2010. The adoption of this standard will not have a material effect on our financial statements. 19 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. 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(cid:83)(cid:101)(cid:101)(cid:32)(cid:97)(cid:99)(cid:99)(cid:111)(cid:109)(cid:112)(cid:97)(cid:110)(cid:121)(cid:105)(cid:110)(cid:103)(cid:32)(cid:110)(cid:111)(cid:116)(cid:101)(cid:115)(cid:32)(cid:116)(cid:111)(cid:32)(cid:99)(cid:111)(cid:110)(cid:115)(cid:111)(cid:108)(cid:105)(cid:100)(cid:97)(cid:116)(cid:101)(cid:100)(cid:32)(cid:102)(cid:105)(cid:110)(cid:97)(cid:110)(cid:99)(cid:105)(cid:97)(cid:108)(cid:32)(cid:115)(cid:116)(cid:97)(cid:116)(cid:101)(cid:109)(cid:101)(cid:110)(cid:116)(cid:115)(cid:46)(cid:32) (cid:32) (cid:32) (cid:78)(cid:101)(cid:116)(cid:32)(cid:112)(cid:114)(cid:111)(cid:112)(cid:101)(cid:114)(cid:116)(cid:121)(cid:32)(cid:97)(cid:110)(cid:100)(cid:32)(cid:101)(cid:113)(cid:117)(cid:105)(cid:112)(cid:109)(cid:101)(cid:110)(cid:116)(cid:32) (cid:111)(cid:102)(cid:32)(cid:32)(cid:36)(cid:55)(cid:51)(cid:51)(cid:44)(cid:53)(cid:57)(cid:52)(cid:32)(cid:97)(cid:110)(cid:100)(cid:32)(cid:36)(cid:54)(cid:55)(cid:55)(cid:44)(cid:57)(cid:53)(cid:55)(cid:32) (cid:32) (cid:84)(cid:111)(cid:116)(cid:97)(cid:108)(cid:32)(cid:97)(cid:115)(cid:115)(cid:101)(cid:116)(cid:115)(cid:32) (cid:32) (cid:32) (cid:50)(cid:50) 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 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; 26,727,694 and 26,526,737 shares issued and outstanding Additional paid-in capital Accumulated deficit Total stockholders’ equity March 31, 2009 March 31, 2008 $ 651,129 600,672 416,923 740,527 372,285 106,002 397,834 364,000 71,367 707,848 2,137,925 2,290,662 - 675,715 675,715 416,923 633,873 1,050,796 2,813,640 3,341,458 267,277 78,767,154 (69,425,239) 265,267 77,819,041 (65,023,220) 9,609,192 13,061,088 Total liabilities and stockholders’ equity $ 12,422,832 $ 16,402,546 See accompanying notes to consolidated financial statements. 23 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 March 31, 2009 Year Ended Year Ended March 31, 2008 March 31, 2007 $ 2,717,246 6,011,065 8,728,311 2,591,939 4,916,383 7,508,322 2,907,536 3,745,658 6,653,194 2,279,956 4,682,711 593,209 1,869,848 3,782,840 ( 510) 13,208,054 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 Loss before other income (expense) (4,479,743) (4,995,242) (3,800,722) Other income (expense): Interest income Interest expense Impairment of investment Other 198,947 (33,387) (89,369) 1,533 77,724 463,248 (40,652) - (13,459) 409,137 445,578 (47,422) - (28,791) 369,365 Net loss $ (4,402,019) (4,586,105) (3,431,357) Net loss per common share-basic and diluted: $(0.17) (0.18) (0.14) Weighted average number of shares of common stock outstanding - basic and diluted 26,651,130 26,196,278 25,116,354 See accompanying notes to consolidated financial statements. 24 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity Balances at April 1, 2006 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 Number of common shares issued 24,776,042 7,095 215,440 165,812 12,500 - - Common stock $ 247,760 Additional paid-in capital 69,293,461 Accumulated deficit (56,796,847) Total stockholders’ equity 12,744,374 71 17,695 681,539 426,136 39,875 917,756 2,154 1,659 125 - - - - - - - 17,766 683,693 427,795 40,000 917,756 - - - (3,431,357) (3,431,357) - (208,911) (208,911) 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 Issuance of common stock under employee stock purchase plan Purchase of treasury stock Issuance of common stock under stock bonus plan Compensation expense from employee and director stock option and common stock grants 22,268 (70,269) 248,958 223 (703) 2,490 33,994 (156,434) (2,490) - - - 34,217 (157,137) - - - 1,073,043 - 1,073,043 Net loss - - - (4,402,019) (4,402,019) Balances at March 31, 2009 26,727,694 $ 267,277 78,767,154 (69,425,239) 9,609,192 See accompanying notes to consolidated financial statements. 25 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Gain on disposal of assets Impairment of long-lived assets Impairment of investment Impairment of inventories 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 Cash flows from investing activities: 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 provided by (used in) investing activities Year Ended Year Ended Year Ended March 31, 2009 March 31, 2008 March 31, 2007 $(4,402,019) (4,586,105) (3,431,357) 546,843 (510) - 89,369 41,613 1,073,043 393,612 (387,295) 1,879 - 138,989 437,799 (13,314) 11,155 - - 1,174,935 414,322 - 889 - - 957,756 (255,113) (61,604) 159,696 2,101 (228,918) (736,243) (432,400) (160,904) 2,102 436,201 (636,481) 395,311 90,911 75,676 (3,065,281) 452,334 (2,511,723) 125,767 (2,732,956) 3,208,772 (607,980) 27,566 (2,122) (188,427) (382,559) (16,056) 510 $ 2,620,118 (2,217) (186,633) (616,488) (51,099) 17,665 (1,446,752) (52,699) - (397,008) (6,773) - (428,914) See accompanying notes to consolidated financial statements. (Continued) 26 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Cash flows from financing activities: Repayment of debt Issuance of common stock in follow-on offering, net of offering costs Issuance of common stock upon exercise of employee options Purchase of treasury stock Issuance of common stock upon exercise of warrants Issuance of common stock under employee stock purchase plan Net cash provided by (used in) financing activities Year Ended Year Ended Year Ended March 31, 2009 March 31, 2008 March 31, 2007 $ (106,002) (98,760) (92,013) - 5,183,677 - - (157,137) - 56,675 - - 683,693 - 427,795 34,217 (228,922) 40,790 5,182,382 17,766 1,037,241 Increase (decrease) in cash and cash equivalents (674,085) 1,223,907 (2,124,629) Cash and cash equivalents at beginning of year 3,176,084 1,952,177 4,076,806 Cash and cash equivalents at end of year $ 2,501,999 3,176,084 1,952,177 Supplemental Cash Flow Information: Interest paid in cash during the year $ 33,738 40,979 47,726 See accompanying notes to consolidated financial statements. 27 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. 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 (included in other assets) March 31, 2009 March 31, 2008 Amortized Cost Gain (Loss) Amortized Cost Gain (Loss) $ 2,055,176 137,418 1,099,073 3,291,667 57,038 $ 3,348,705 2,755 (3,454) - (699) - (699) 1,656,515 1,912,779 3,020,514 6,589,808 (3,193) (9,050) - (12,243) 54,916 6,644,724 - (12,243) 28 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 2009 $ - 3,291,667 57,038 $ 3,348,705 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, 2009 and 2008, no allowance for uncollectible accounts receivable was deemed necessary. Accounts receivable are deemed to be past due when they have not been paid by their contractual due date. (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, 2009 and 2008. (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 3 to 5 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, 2009, 2008 and 2007 was $491,206, $382,162 and $337,470, 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, 2009, 2008 and 2007 was $55,637, $55,637 and $76,852, 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. ( j) Product Warranties Our warranty policy generally provides three months to three years of coverage depending on the product. We record a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty 29 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued coverage is based on our actual historical experience with our current products or similar products. For new products, the required reserve is based on historical experience of similar products until sufficient historical data has been collected on the new product. Adjustments are made as new information becomes available. (k) 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. (l) 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. (m) Research and Development Costs of researching and developing new technology, or significantly altering existing technology, are expensed as incurred. (n) Loss per Common 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, 2009, 2008 and 2007, respectively, issued but not yet earned common shares of 225,870, 283,480, and 136,035 were being held in safekeeping by the Company. For the fiscal years 2009, 2008, and 2007, shares in the amount of zero, 7,887, and 9,767 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, 2009, 2008 and 2007, options to purchase 2,995,214, 2,679,740 and 2,771,914 shares of common stock, respectively, and warrants to purchase zero, 85,267 and 157,267 shares of common stock, respectively, were outstanding. For the 30 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued fiscal years ended March 31, 2009, 2008 and 2007, respectively, options and warrants for 2,957,734, 1,400,051 and 1,582,262 shares were not included in the computation of diluted loss per share because the option or warrant exercise 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 3,554 shares, 335,477 shares and 381,096 shares of common stock for the fiscal years ended March 31, 2009, 2008 and 2007, respectively, were potentially includable in the calculation of diluted loss per share but were not included, because to do so would be antidilutive. (o) 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. (p) Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. (q) New Accounting Pronouncements In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 which delayed the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities. We adopted the provisions of SFAS No. 157 related to financial instruments on April 1, 2008, and the provisions related to nonfinancial assets and liabilities on April 1, 2009 (except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis). The provisions of this standard adopted by us on April 1, 2008 did not have a material effect on our financial statements and the adoption of the provisions effective April 1, 2009 will not have a material effect 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 goals are to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for our fiscal year beginning April 1, 2009. We intend to adopt these standards for future acquisitions after the effective date. In April 2008, the FASB issued FASB Staff Position (FSP) 142-3, Determination of the Useful Life of Intangible Assets (”FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this standard will not have a material effect on our financial statements. In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The adoption of this standard will not have a material effect on our 31 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued financial statements. In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements (“EITF 08-3”). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. The adoption of this EITF will not have a material effect on our financial statements. In October 2008, the FASB issued FASB Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did not have a material effect on our financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 is effective for us beginning in the first quarter of fiscal year 2010. The adoption of FSP 157-4 will not have a material impact on our consolidated financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 115-2 and Statement of Financial Accounting Standards (FAS) No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairment (“FSP 115- 2/FAS No. 124-2”). FSP 115-2/FAS No. 124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing “intent and ability” indicator. Additionally, FSP 115-2/FAS No. 124-2 changes the presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. FSP 115-2/FAS No. 124-2 is effective for us beginning in the first quarter of fiscal year 2010. The adoption of this standard will not have a material effect on our financial statements. In April 2009, the FASB issued FASB Staff Position (FSP) 107-1 and Accounting Principals Board (APB) Opinion 28-1, Interim Disclosure about Fair Value of Financial Instruments (“FSP 107-1/APB 28-1”). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, Disclosures about the Fair Value of Financial Instruments. Additionally, FSP 107-1/APB 28- 1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments and is effective for us beginning in the first quarter of fiscal year 2010. The adoption of this standard will not have a material effect on our financial statements. (2) Stock Based Compensation Stock Option Plans As of March 31, 2009 we had 805,966 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 32 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. 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, 2009, we had 204,304 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, 2009 we had 67,969 shares of common stock available for issuance under the Stock Purchase Plan. During the years ended March 31, 2009, 2008 and 2007, respectively, 22,268, 14,664 and 7,095 shares of common stock were issued under the Stock Purchase Plan. Cash received by us upon the issuance of shares under the Stock Purchase Plan for the years ended March 31, 2009, 2008 and 2007, was $34, 217, $40,790 and $17,766, respectively. Stock Bonus Plan We have a Stock Bonus Plan (“Stock Plan”) administered by the Board of Directors. As of March 31, 2009 there were 6,794 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 191,348 and 204,558 shares granted under the Stock Plan during the years ended March 31, 2009, and March 31, 2008, respectively. 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 NYSE Amex) on the date of grant. We use the Black-Scholes-Merton option pricing model for estimating the fair value of stock option awards. Total share-based compensation expense and the classification of these expenses for the last three fiscal years were as follows: Cost of contract services Cost of product sales Research and development Production engineering Selling, general and administrative Year Ended March 31, 2009 $ 110,329 84,875 37,903 128,553 711,383 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 $ 1,073,043 1,174,935 957,756 33 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Share-based compensation capitalized in inventories was insignificant as of March 31, 2009 and 2008. 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 is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments during the years ended March 31, 2009, 2008 and 2007 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, 2009, 2008 and 2007, and changes during the years ended March 31, 2009, 2008 and 2007 are presented below: Year Ended March 31, 2009 Shares Under Option 337,888 - (10,000) (2,000) 325,888 381,615 (72,588) (1,500) 633,415 - (346,294) - 287,121 - (3,667) - 283,454 Weighted- Average Grant Date Fair Value $ 1.85 $ - $ 2.10 $ 1.61 $ 1.84 $ 1.08 $ 1.69 $ 1.61 $ 1.40 $ - $ 1.39 $ - $ 1.41 $ - $ 1.78 $ - $ 1.40 Year Ended March 31, 2008 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 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 Year Ended March 31, 2007 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 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 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, 2009, there was $266,896 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 22 months. The total fair value of stock options that vested during the years ended March 31, 2009, 2008 and 2007 was $633,106, $519,978 and $635,894, respectively. 34 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, 2009 and 2008 and changes during the years ended March 31, 2009, 2008 and 2007 is presented below: Year Ended March 31, 2009 Shares Under Contract 283,480 - - - 283,480 191,348 (184,692) - 290,136 - (64,266) - 225,870 - - - 225,870 Weighted- Average Grant Date Fair Value $ 3.34 $ - $ - $ - $ 3.34 $ 2.18 $ 2.43 $ - $ 3.15 $ - $ 3.40 $ - $ 3.08 $ - $ - $ - $ 3.08 Year Ended March 31, 2008 Shares Under Contract 136,035 - - - 136,035 - (45,349) - 90,686 204,558 (11,764) - 283,480 - - - 283,480 Weighted- Average Grant Date Fair Value $ 3.20 $ - $ - $ - $ 3.20 $ - $ 3.20 $ - $ 3.20 $ 3.40 $ 3.40 $ - $ 3.34 $ - $ - $ - $ 3.34 Year Ended March 31, 2007 Shares Under Contract - - - - - 149,735 (12,500) (1,200) 136,035 - - - 136,035 - - - 136,035 Weighted- Average Grant Date Fair Value $ - $ - $ - $ - $ - $ 3.20 $ 3.20 $ 3.20 $ 3.20 $ - $ - $ - $ 3.20 $ - $ - $ - $ 3.20 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, 2009 there was $184,997 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 23 months. The total fair value of common stock granted under the Stock Bonus Plan that vested during the years ended March 31, 2009, 2008 and 2007 was $667,384, $185,114 and $40,000, respectively. During the years ended March 31, 2009, 2008 and 2007 options to acquire 550,358, 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, 2009, 2008 and 2007, 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, 2007 2008 2009 $ 2.19 Per option 3.4 years 3.20 % 60.56 % 0.0 % 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 % Expected volatility is based on historical volatility. The expected life of options granted prior to January 1, 2008 was based on the simplified calculation of expected life described in the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin 107 (“SAB 107”). In addition, options granted to members of the board of directors and executives on July 23, 2008 with option terms of less than ten years utilize the simplified calculation 35 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued of expected life described by SAB 107 because we do not have sufficient historical experience for option grants with option terms of less than ten years. The expected life of all other options granted subsequent to December 31, 2007 are based on historical experience. Additional information with respect to stock option activity during the year ended March 31, 2009 under our incentive and non-qualified stock option plans is as follows: Outstanding at March 31, 2008 Granted Exercised Forfeited Outstanding at June 30, 2008 Granted Exercised Forfeited Outstanding at September 30, 2008 Granted Exercised Forfeited Outstanding at December 31, 2008 Granted Exercised Forfeited Shares Under Option Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 2,543,306 - - (2,000) $ 3.94 $ - $ - $ 3.57 2,541,306 381,615 - (1,500) $ 3.94 $ 2.18 $ - $ 3.57 2,921,421 - - - $ 3.71 $ - $ - $ - 2,921,421 - - (180,606) $ 3.71 $ - $ - $ 4.38 5.2 years $ - $ - 5.0 years $ 3,060 $ - 4.9 years $ 584,914 $ - 4.6 years $ - $ - Outstanding at March 31, 2009 2,740,815 $ 3.66 4.7 years $ - Exercisable at March 31, 2009 2,457,361 $ 3.78 4.5 years $ - Vested and expected to vest at March 31, 2009 2,726,859 $ 3.67 4.6 years $ - 36 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 Shares Under Option Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 2,692,400 - (1,599) (3,579) $ 4.33 $ - $ 2.41 $ 2.68 2,687,222 106,159 (4,245) (2,000) $ 4.33 $ 3.57 $ 2.41 $ 3.57 2,787,136 - - (2,000) $ 4.30 $ - $ - $ 3.57 2,785,136 6,000 - (247,830) $ 4.30 $ 1.69 $ - $ 8.00 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 $ - 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 $ - 37 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 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, 2009 under our non- employee director stock option plan is as follows: Outstanding at March 31, 2008 Granted Exercised Forfeited Outstanding at June 30, 2008 Granted Exercised Forfeited Outstanding at September 30, 2008 Granted Exercised Forfeited Outstanding at December 31, 2008 Granted Exercised Forfeited Outstanding at March 31, 2009 Shares Under Option Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 131,644 - - - $ 3.33 $ - $ - $ - 131,644 109,302 - (18,027) $ 3.33 $ 2.18 $ - $ 3.22 222,919 59,441 - (59,441) $ 2.77 $ 3.39 $ - $ 3.39 2.7 years $ - $ - 2.4 years $ 1,736 $ - 3.2 years $ 71,345 $ - 222,919 - - - 222,919 $ 2.77 $ - $ - $ - $ 2.77 3.0 years $ - $ - 2.7 years $ - Exercisable at March 31, 2009 222,919 $ 2.77 2.7 years $ - Vested and expected to vest at March 31, 2009 222,919 $ 2.77 2.7 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, 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 Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 70,520 - - - $ 2.91 $ - $ - $ - 70,520 24,039 (18,518) (9,259) $ 2.91 $ 3.57 $ 2.30 $ 2.30 66,782 57,918 - - $ 3.40 $ 3.40 $ - $ - 1.4 years $ 87,911 $ - 1.2 years $ 92,083 $ 21,111 2.0 years $ 21,111 $ - 124,700 6,944 - - 131,644 $ 3.40 $ 1.95 $ - $ - $ 3.33 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 $ - 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, 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 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 Shares Under Option 59,281 - - - 59,281 23,739 - - 83,020 - - - 83,020 - - (12,500) 70,520 Exercisable at March 31, 2007 70,520 $ 2.91 1.4 years $ 87,911 Vested and expected to vest at March 31, 2007 70,520 $ 2.91 1.4 years $ 87,911 Cash received by us upon the exercise of stock options for the years ended March 31, 2009, 2008 and 2007 was zero, $56,675 and $683,693, respectively. The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares. 41 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (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, 2009, the estimated period to complete contracts in process ranged from one to six months, and we expect to collect substantially all related accounts receivable arising therefrom within sixty days of billing. 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, 2009 March 31, 2008 $ 4,414,886 194,861 4,609,747 (4,038,016) $ 571,731 3,018,470 377,822 3,396,292 (3,454,470) (58,178) $ 643,098 649,670 (71,367) $ 571,731 (707,848) (58,178) March 31, 2009 March 31, 2008 $ 794,663 419,270 93,238 $ 1,307,171 721,291 179,385 60,813 961,489 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. For the fiscal year ended March 31, 2009 we impaired obsolete inventory with a carrying value of $41,613. (5) Impairment of Long-Lived Assets During the fiscal years ended March 31, 2009, 2008 and 2007, we recorded total impairment charges of zero, $11,155 and $889, 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. 42 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Patents and Trademarks Intangible assets, which consist entirely of patents and trademarks owned by the Company, had a gross carrying amount of $1,171,778 and $1,155,722, accumulated amortization of $733,594 and $677,957, and a net carrying amount of $438,184 and $477,765, at March 31, 2009 and 2008, respectively. Amortization expense for the years ended March 31, 2009, 2008 and 2007, was $55,637, $55,637 and $76,852, respectively. Patents and trademarks are amortized on a straight-line basis over a period of 17 years and 40 years, respectively. Estimated future amortization of these intangible assets is as follows: 2010 2011 2012 2013 2014 Thereafter $ 54,906 47,207 39,493 38,363 34,221 223,994 $ 438,184 (7) 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 March 31, 2009 March 31, 2008 $ 165,221 82,396 84,445 520 149,355 73,773 44,962 $ 600,672 125,677 58,184 117,645 5,209 20,690 33,923 10,957 372,285 43 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (8) Long-Term Debt Long-term debt consists of: Note payable to bank, payable in monthly installments with interest at 7.0%; matures November 2009; secured by land and building March 31, 2009 March 31, 2008 $ 416,923 522,925 (9) Income Taxes Income tax benefit attributable to loss from operations differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following: 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 for prior period corrections Increase (decrease) in valuation allowance for net deferred tax assets Other, net Year Ended Year Ended Year Ended March 31, 2009 March 31, 2008 March 31, 2007 $(1,497,208) (1,554,700) (1,156,872) 1,450,222 1,124,302 825,774 - (104,562) 865,148 (67,423) 114,409 588,902 (53,942) (525,326) (8,724) Income tax benefit $ - - - 44 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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, 2009 March 31, 2008 $ 113,471 20,050,531 397,835 333,382 6,180 383,514 126,658 21,411,571 130,798 20,259,647 369,790 343,429 - 363,974 26,197 21,493,835 - - 14,841 14,841 21,411,571 21,478,994 Less valuation allowance (21,411,571) (21,478,994) Net deferred tax assets, net of valuation allowance $ - - As of March 31, 2009 we had net operating loss carry-forwards (NOL) of approximately $59 million for U.S. income tax purposes that expire in varying amounts through 2029. 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, 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 $21.4 million and $21.5 million at March 31, 2009 and March 31, 2008, 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. (10) 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 zero and 85,267 shares of our common stock were outstanding at March 31, 2009 and 2008, respectively. 45 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (11) Significant Customers We have historically derived significant revenue from a few key customers. Revenue from Quantum Fuel Systems Technologies Worldwide Inc. totaled $1,360,909, $256,393 and zero for the years ended March 31, 2009, 2008 and 2007, respectively, which was 16 percent, 3 percent and nil of total consolidated revenue, respectively. Revenue from Invacare Corporation totaled $292,414, $508,903 and $830,637 for the years ended March 31, 2009, 2008 and 2007, respectively, which was 3 percent, 7 percent and 12 percent of total revenue, respectively. Revenue from Lippert Components, Inc. totaled $635,144, $1,271,502 and $1,059,930 for the years ended March 31, 2009, 2008 and 2007, respectively, which was 7 percent, 17 percent and 16 percent of total revenue, respectively. Revenue from the Denver Regional Transportation District totaled $3,337, $864,540 and $417,750 for the years ended March 31, 2009, 2008 and 2007, respectively, which was nil, 12 percent and 6 percent of total revenue, respectively. Trade accounts receivable from Quantum Fuel Systems Technologies Worldwide Inc. were 16 percent and 8 percent of total accounts receivable as of March 31, 2009 and 2008, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled zero as of March 31, 2009 and 2008. Trade accounts receivable from Invacare Corporation were 2 percent and 16 percent of total accounts receivable as of March 31, 2009 and 2008, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled zero and $45,615 as of March 31, 2009 and 2008, respectively. Trade accounts receivable from Lippert Components, Inc. were nil and 8 percent of total accounts receivable as of March 31, 2009 and 2008, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $349,066 and $211,571 as of March 31, 2009 and 2008, respectively. Trade accounts receivable from the Denver Regional Transportation District were nil and 20 percent of total accounts receivable as of March 31, 2009 and 2008, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled zero as of March 31, 2009 and 2008. Contract services revenue derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors totaled $1,989,872, $2,329,248 and $2,313,856 for the years ended March 31, 2009, 2008 and 2007, respectively, which was 23 percent, 31 percent and 35 percent of total consolidated revenue, respectively. Accounts receivable from government-funded contracts represented 6 percent and 12 percent of total accounts receivable as of March 31, 2009 and 2008, respectively. (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. 46 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (13) Fair Value Measurements Liabilities measured at fair value on a recurring basis as of March 31, 2009 are summarized below: Fair Value Measurements at Reporting Date Using Significant Other Significant Quoted Prices In Active Markets For Identical Liabilities (Level 1) Total Observable Inputs (Level 2) Unobservable Inputs (Level 3) Deferred Compensation under executive employment agreements (1) $ 1,073,549 - - 1,073,549 Note(1) $397,834 included in current liabilities and $675,715 included in long term liabilities on our consolidated balance sheet as of March 31, 2009. Liabilities measured at fair value on a recurring basis as of March 31, 2008 are summarized below: Fair Value Measurements at Reporting Date Using Significant Other Significant Quoted Prices In Active Markets For Identical Liabilities (Level 1) Total Observable Inputs (Level 2) Unobservable Inputs (Level 3) Deferred Compensation under executive employment agreements (1) $ 997,873 - - 997,873 Note(1) $364,000 included in current liabilities and $633,873 included in long term liabilities on our consolidated balance sheet as of March 31, 2008. 47 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Deferred compensation under executive employment agreements represents the future compensation potentially payable under the retirement and voluntary termination provisions of executive employment agreements. The value of the Level 3 liability in the foregoing table was determined under the income approach, using inputs that are both unobservable and significant to the value of the obligation including changes in the company’s credit worthiness and changes in interest rates. A summary of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) for the Fiscal Year Ended March 31, 2009 March 31, 2008 Deferred Deferred Compensation Compensation On Executive On Executive Employment Employment Agreements Agreements $ 997,873 545,539 75,676 - - - $ 1,073,549 452,334 - - - 997,873 Balance at beginning of fiscal year Total gains or losses (realized and unrealized): Included in earnings Included in other comprehensive income Purchases, sales, issuances, and settlements, net Transfers in (out) of Level 3 Balance at the end of fiscal year Loss for the period included in earnings attributable to the Level 3 liability still held at the end of the period $ 75,676 452,334 (14) 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 $82,355, $75,028 and $65,658, for the years ended March 31, 2009, 2008, and 2007, respectively. (15) Segments At March 31, 2009, 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 development and job shop production of prototype components. The power products segment encompasses the manufacture and sale of permanent magnet motors and electronic controllers. Salaries of the executive officers and corporate general and administrative expense are allocated to our segments annually based on factors established at the beginning of each fiscal year. The percentage allocated to the technology segment and power products segment for the fiscal year ended March 31, 2009 was 76 percent and 24 percent, respectively. The percentage allocated to the technology segment and power products segment for the fiscal years ended March 31, 2008, and 2007 were 75 48 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued percent and 25 percent, and 61 percent and 39 percent, in each year, respectively. Intersegment sales or transfers, which were eliminated upon consolidation, were $970,277, $710,416 and $143,880 for the years ended March 31, 2009, 2008, and 2007, 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 $174,000, $169,562 and $184,164 for the years ended March 31, 2009, 2008, and 2007, respectively, and were eliminated upon consolidation. The following table summarizes significant financial statement information after deducting intersegment eliminations of each of the reportable segments as of and for the year ended March 31, 2009: Revenue Interest income Interest expense Depreciation and amortization Impairment of long-lived assets Impairment of inventories Impairment of investment Segment loss Total assets Expenditures for long-lived segment assets Technology $ 5,455,934 $ 194,384 $ - $ (312,154) $ - $ (28,546) $ (89,369) $ (4,123,174) $ 8,840,077 $ (579,932) Power Products 3,272,377 4,563 (33,387) (234,689) - (13,067) - (278,845) 3,582,755 (7,110) Total 8,728,311 198,947 (33,387) (546,843) - (41,613) (89,369) (4,402,019) 12,422,832 (587,042) The following table summarizes significant financial statement information after deducting intersegment eliminations 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 Impairment of inventories Impairment of investment Segment loss Total assets Expenditures for long-lived segment assets Technology $ 4,391,213 $ 454,466 $ - $ (223,815) $ ( 820) $ - $ - $ (3,874,639) $ 12,511,384 $ (610,303) 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) - - (4,586,105) 16,402,546 (854,220) 49 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The following table summarizes significant financial statement information after deducting intersegment eliminations of each of the reportable segments as of and for the year ended March 31, 2007: Technology $ 4,026,255 $ 439,460 $ - $ (244,401) $ - $ - $ - $ (2,870,307) $ 10,168,939 $ (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) - - (3,431,357) 14,012,607 (403,781) Revenue Interest income Interest expense Depreciation and amortization Impairment of long-lived assets Impairment of inventories Impairment of investment Segment loss Total assets Expenditures for long-lived segment assets (16) Commitments and Contingencies Employment Agreements 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 $327,000, $217,000, $195,000 and $177,000, 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. 50 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. The aggregate future base salary payable to these four executive officers under the Employment Agreements over their remaining forty-one month term is $3,129,667. In addition, the Company has recorded a liability of $1,073,549 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, 2009 there were no operating leases with initial non-cancelable terms in excess of one year. Rental expense, after deducting sublease payments of zero, zero and $185,500 for the years ended March 31, 2009, 2008 and 2007, respectively, was $59,648, $59,400 and $66,644. Litigation In November 2007, we filed an arbitration claim with the American Arbitration Association ("AAA") against Phoenix MC, Inc., as successor by merger to Phoenix Motorcars, Inc. ("Phoenix") seeking damages for Phoenix's breach of the Purchase and Supply Agreement between Phoenix and UQM Technologies, Inc. dated January 12, 2007. The matter was heard by an AAA arbitration panel (the "Panel") in December 2008. On February 24, 2009, the AAA notified us of the Panel's findings that Phoenix had materially breached the Agreement and awarded monetary damages to us in the amount of $5,309,649. In addition, the Panel awarded us post-award interest at the rate of 10 percent per annum on the unpaid amount of the award subsequent to February 6, 2009. On April 27, 2009, Phoenix filed a Chapter 11 Bankruptcy petition with the U.S. Bankruptcy Court. As a result of the bankruptcy filing, efforts to collect on the arbitration award are stayed. At this time, whether, to what extent, and when, we will be able to recover any of the amounts that Phoenix owes is uncertain. We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although adverse developments in these matters could have a material impact on a future reporting period. (17) Interim Financial Data (Unaudited) Fiscal year 2009 Sales Gross profit Net loss Quarters Ended June 30 September 30 December 31 March 31 $ 1,793,355 $ 194,260 $ (999,715) 2,277,331 415,114 (1,538,111) 2,873,595 863,560 (764,101) 1,784,030 292,710 (1,100,092) Net loss per common share basic and diluted: $(0.04) (0.06) (0.03) (0.04) 51 UQM TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Fiscal year 2008 Sales Gross profit Net loss Quarters Ended June 30 September 30 December 31 March 31 $ 1,454,452 $ 28,903 $ (1,128,751) 1,990,591 363,902 (1,139,894) 1,714,858 273,570 (1,306,996) 2,348,421 410,488 (1,010,464) Net loss per common share basic and diluted: $(0.05) (0.04) (0.05) (0.04) Fiscal year 2007 Sales Gross profit Net loss Quarters Ended June 30 June 30 June 30 June 30 $ 1,301,332 $ 122,131 $ (762,796) 1,614,218 121,840 (879,570) 1,726,526 153,186 (824,019) 2,011,118 266,144 (964,972) Net loss per common share basic and diluted: $(0.03) (0.04) (0.03) (0.04) (18) Valuation and Qualifying Accounts Additions Charged to Charged to Other Costs and Expenses Accounts Balance at Beginning of Year Deductions Balance at End of Year Year ended March 31, 2009 Not deducted from asset accounts: Accrued warranty cost Year ended March 31, 2008 Not deducted from asset accounts: Accrued warranty cost Year ended March 31, 2007 Not deducted from asset accounts: Accrued warranty cost $ 117,645 121,776 - 154,976 (A) 84,445 $ 74,850 98,434 - 55,639 (A) 117,645 $ 39,480 85,955 - 50,585 (A) 74,850 Note (A) Represents actual warranty payments for units returned under warranty. 52  Sales $ 8,728) 7,508)Gross Profi t 1,766) 1,077) Research and Development 593) 462) Net Loss ( 4,402)(4,586)Net Loss Per Common Share(.17)(.18)UQM Technologies, Inc. is a developer and manufacturer of power dense, high effi ciency 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. Th e 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.Cash and Short-Term Investments $ 5,794 9,766) Working Capital 6,641 10,510) Total Term Debt 417 523) Th is 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. Th ese 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 offi cers 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 diff er from those con-tained in the forward-looking statements are contained in our Form 10-K fi led on May 21, 2009 which is available through our website at www.uqm.com or at www.sec.gov.March 31, 2009 March 31, 2008Executive Offi cers Business UnitsBoard of Directors Corporate InformationWilliam G. RankinChairman of the BoardPresident and Chief Executive Offi cerDonald A. FrenchTreasurer, Secretary and Chief Financial Offi cerLieutenant General Jerome Granrud (ret.)ConsultantStephen J. RoyPrincipalSTL Capital Partners, LLCJoseph P. SellingerRetired Vice President and Group Executiveof Anheuser Busch CompaniesDonald W. VanlandinghamConsultant, Cadwest LLCRetired ChairmanBall Aerospace and Technology CorporationWilliam G. RankinChairman of the BoardPresident and Chief Executive Offi cerDonald A. FrenchTreasurer, Secretary and Chief Financial Offi cerRonald M. BurtonSenior Vice President of OperationsJon F. LutzVice President of TechnologyProduct Engineering Center and Corporate HeadquartersUQM Technologies, Inc.7501 Miller DriveFrederick, CO 80530Tel: 303-278-2002Fax: 303-278-7007www.uqm.comManufacturingUQM Power Products, Inc.7501 Miller DriveFrederick, CO 80530Tel: 303-278-2002Fax: 303-278-7007AuditorsGrant Th ornton LLPDenver, COLegal CounselHolme Roberts & Owen, LLPDenver, COInvestor RelationsFor 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: 303-278-7007or visit our web site at www.uqm.comTransfer AgentComputershare Trust Company, Inc.P.O. Box 43070Providence, RI 02940-3020Tel: 800-962-4284 303-262-0600Fax: 303-262-0700www.computershare.comAnnual MeetingTuesday, August 11, 200910 a.m. Mountain Daylight TimeTh e Golden Hotel800 Eleventh StreetGolden, Colorado 80401(303) 279-0100Stock ListingsUQM Technologies, Inc. common stock is listed on the NYSE Amex, Pacifi c, Chicago, Berlin and Frank-furt Stock Exchanges, under the ticker symbol UQM.To improve the capability, performance and energy effi ciency of our custom-ers’ products by providing them with technologically advanced electric power systems and components – motors, generators and power electronic control-lers – that are cost eff ective, reliable and of superior quality, creating a com-petitive advantage for them and a cleaner environment for life on our plan-et. Year Ended March 31, 2009 2008 Our Mission CompanyFinancial Profi le (Dollars in thousands, except per share amounts)UQM Technologies, Inc.Annual Report 2009UQM Technologies7501 Miller Drive, PO Box 439Frederick, CO 80530303-278-2002 Fax 303-278-7007www.uqm.com

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