UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549 **_____________________ **FORM 10-K**_____________________
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES      EXCHANGE ACT OF 1934  
For the fiscal year ended March 31, 2010
OR 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES      EXCHANGE ACT OF 1934  
For the transition period      from                       to                 
Commission file number 1-10869   
               UQM      TECHNOLOGIES,      INC.                
(Exact name of registrant as specified in its charter) **______________________  
Colorado 
84-0579156   
(State or other jurisdiction 
(I.R.S. Employer   
of incorporation or organization) 
Identification No.)   
7501 Miller Drive, Frederick, Colorado 
80504   
(Address of principal executive offices) 
(Zip Code)  
Registrant's telephone number, including area code:      (303) 682-4900 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE      ACT:    
Name of each exchange on which registered   
Title of each class 
NYSE Amex   
Common Stock 
Pacific Stock Exchange     
Chicago Stock Exchange     
Frankfurt Stock Exchange     
Berlin Stock Exchange     
Stuttgart Stock Exchange  
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE      ACT:
None. 
Indicate by check mark if the registrant is a      well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  [  ]   No  [X]   
Indicate by check mark if the registrant is not      required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes  [  ]   No  [X]   
Indicate by check mark whether the registrant: (1) has      filed all reports required to be filed by Section 13 or 15(d) of the      Securities Exchange Act of 1934 during the preceding 12 months (or for      such shorter period that the registrant was required to file such      reports), 
and (2) has been subject to such filing requirements      for the past 90 days.
Yes [X]   No  [  ]   
Indicate by check mark whether the registrant has      submitted electronically and posted on its corporate website, if any,      every interactive data file required to be submitted and posted pursuant      to Rule 405 of Regulation S-T during the preceding 12 months (or for such      shorter
period that the registrant was required to submit and      post such files).
Yes  [  ]   No  [  ]   
Indicate by check mark if disclosure of delinquent      filers pursuant to Item 405 of Regulation S-K is not contained herein, and      will not be contained, to the best of registrant's knowledge, in      definitive proxy or information statements incorporated by reference in      Part III of this Form 10-K or any amendment to this Form      10-K.  [ X ] 
Indicate by check mark whether the registrant is a      large accelerated filer, an accelerated filer, a non-accelerated filer, or      a smaller reporting company. See the definitions of "large      accelerated filer," "accelerated filer" and "smaller      reporting company" in Rule 12b-2 of the Exchange Act. 
 [  ]  Large accelerated filer
[X]  Accelerated filer
[  ]  Non-accelerated filer
[  ]  Smaller reporting company 
Indicate by check mark whether the registrant is a      shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  [  ]   No  [X] 
The aggregate market value of the registrant's common      stock ("Common Stock") held by non-affiliates as of September      30, 2009, based on the closing price of the Common Stock as reported by      the NYSE Amex on such date was approximately $153,140,555. As of May 20,      2010, there were 36,046,667 shares of the registrant's Common Stock      outstanding. 
DOCUMENTS INCORPORATED BY REFERENCE 
Document 
Parts Into Which Incorporated 
Portions of the Proxy Statement for the Annual Meeting      of Shareholders to be held August 4, 2010. 
Part III
 

**Table of Contents

 **  PART I.   
Item 1.
Business    
Item 1A.
Risk Factors    
Item 1B.
Unresolved Staff Comments    
Item 2.
Properties    
Item 3.
Legal Proceedings    
Item 4.
Submission of Matters to a Vote of Security Holders   **  PART II.   
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters      and Issuer Purchases of   
Equity Securities     
Item 6.
Selected Consolidated Financial Data     
Item 7.
Management's Discussion and Analysis of Financial Condition and      Results of Operations     
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk     
Item 8.
Financial Statements and Supplementary Data       
Reports of Independent Registered Public Accounting Firm        
Consolidated Balance Sheets as of March 31, 2010 and March 31, 2009        
Consolidated Statements of Operations for the Fiscal Years ended March      31, 2010, 2009 and 2008        
Consolidated Statements of Stockholders' Equity for the Fiscal Years     
ended March 31, 2010, 2009 and 2008         
Consolidated Statements of Cash Flows for the Fiscal Years ended March      31, 2010, 2009 and 2008        
Notes to Consolidated Financial Statements      
Item 9.
Change In and Disagreements with Accountants on Accounting and      Financial Disclosure      
Item 9A.
Controls and Procedures   
Item 9B.
Other Information  **  PART III.   
Item 10.
Directors, Executive Officers and Corporate Governance     
Item 11.
Executive Compensation     
Item 12.
Security Ownership of Certain Beneficial Owners and Management and      Related Stockholder   
Matters    
Item 13.
Certain Relationships and Related Transactions, and Director      Independence    
Item 14.
Principal Accountant Fees and Services  **  PART IV.    
Item 15.
Exhibits and Financial Statement Schedules and Reports on Form 8-K     **
 
**PART I**ITEM 1.**BUSINESS****
TOC
*This Report contains statements that constitute"forward-looking statements" within the meaning of Section 27A of theSecurities Act and Section 21E of the Securities Exchange Act. These statementsappear in a number of places in this Report and include statements regarding ourplans, beliefs or current expectations; including those plans, beliefs andexpectations of our officers and directors with respect to, among other things,orders to be received under our supply agreement with CODA, our ability tosuccessfully expand our manufacturing facilities, the ability to sell ourexisting facility on terms satisfactory to us and the continued growth of theelectric-powered vehicle industry. Important Risk Factors that could causeactual results to differ from those contained in the forward-looking statementsare listed below in Part I, Item 1A. Risk Factors.***General**
UQM Technologies, Inc., ("UQM") is a developer andmanufacturer of power dense, high efficiency electric motors, generators andpower electronic controllers for the automotive, aerospace, military andindustrial markets. A major emphasis of the Company is developing products forthe alternative energy technologies sector including propulsion systems forelectric, hybrid electric, plug-in hybrid electric and fuel cell electricvehicles, under-the-hood power accessories and other vehicle auxiliaries. TheCompany's headquarters, engineering and product development center, and motormanufacturing operation are located in Frederick, Colorado. Our primary focus isincorporating our advanced technology into products aimed at emerging marketsfor electrically propelled vehicles that are expected to experience rapidgrowth.

In June 2009 we entered into a ten year Supply Agreement withCODA Automotive to supply UQM® PowerPhase® electric propulsion systems to CODA Automotive's production partner, HarbinHaFei Automobile Industry Group Co. Ltd. ("HaFei"), Harbin, China.HaFei is the third largest automobile manufacturer in China. Initial shipmentsof production systems under the agreement are expected to begin later thiscalendar year and ramp up prior to scheduled deliveries of CODA's all-electricfour-door sedan in the California market in the fall of 2010. CODA hopes to sell14,000 vehicles in calendar year 2011 reaching an annual run rate of 20,000vehicles, which, if achieved, would result in annual revenue to us well inexcess of $50 million.

In August 2009 we were selected to receive a $45.1 millionaward from the U.S. Department of Energy ("DOE") under the AmericanRecovery and Reinvestment Act to accelerate the manufacturing and deployment ofelectric vehicles, batteries and components in the United States. The award wasfinalized in January 2010. The award provides for a 50 percent cost-share by theCompany raising the total value of the project to $90.2 million. Capitalexpenditures for facilities, tooling and manufacturing equipment and thequalification and testing of products associated with the launch of volumeproduction for CODA Automotive, as well as other customers, are expected toqualify for reimbursement under the DOE program. The contract also provides forthe reimbursement of qualifying pre-award expenditures incurred after August 5,2009. Expected reimbursements under this provision for production engineeringexpenditures incurred through March 31, 2010 totaled approximately $1.6 millionand are expected to be recorded during the first quarter of fiscal 2011 as areduction of production engineering expense. Reimbursements received from theDOE through March 31, 2010 for capital assets acquired totaled $3.6 million,which were recorded as a reduction in the cost basis of the assets acquired.

In October 2009 we completed a public offering of 8.625million shares of our common stock. Net cash proceeds to the Company from theoffering were approximately $32 million. Proceeds from the offering are beingused as matching funds under the DOE ARRA grant and the remaining portion isexpected to be used for working capital and general corporate purposes.

In December 2009 we completed the purchase of a 129,304square foot facility on a 30 acre site in Longmont, Colorado to support ourexpected growth in manufacturing operations. The facility, which includesapproximately 30,000 square feet of office space, will house the Company'sengineering, vehicle integration and headquarters staff in addition to theCompany's high volume motor and electronic manufacturing operations.Approximately 15 acres of the site are available for future facility expansion.The purchase price of the facility was $7,624,729, of which $3,438,365 wasfunded under the DOE ARRA grant. We expect to sell our existing 28,000 squarefoot facility once we complete the relocation of our operations to the newfacility this summer. The new facility was acquired to accommodate our plannedexpansion of high volume manufacturing operations for CODA Automotive'sall-electric passenger vehicle program and future growth arising from theexpected launch of additional production programs.

We also have entered into a marketing collaboration withBorgWarner (NYSE:BWA) on electric powertrain products for all-electric andhybrid electric passenger automobiles. We expect that BorgWarner's globalpresence will bring a higher level of visibility to our electric propulsionsystem products and result in additional business opportunities with automobilecustomers worldwide.

We operate our business in two segments: 1) technology -which encompasses advanced research, development and application of ourproprietary motors, generators, power electronics and software; and 2) powerproducts - which encompasses the volume manufacturing of motors, generators,power electronic controllers and related products. We were incorporated in thestate of Colorado in 1967.

The Company's revenue is derived from two principalsources: 1) funded contract research and development services performed forstrategic partners, customers and the U.S. government directed toward either theadvancement of our proprietary technology portfolio or the application of ourproprietary technology to customers' products; and 2) the manufacture and saleof products engineered by us.

We have three principal operating companies: 1) UQMTechnologies, Inc. which includes the Corporate Headquarters and Engineering andProduct Development Center; and 2) wholly-owned subsidiary UQM Power Products,Inc. ("UQM Power") which is an ISO quality certified manufacturer ofour products and UQM Properties, Inc. which owns our recently acquired facilityin Longmont, Colorado. Each of these operating companies is located inFrederick, Colorado.
**Technology**
Our technology base includes a number of proprietarytechnologies and patents related to brushless permanent magnet motors,generators and power electronic controllers, together with software code tointelligently manage the operation of our systems.

The typical architecture of a UQM®electric machine (motor/generator) consists of a stator winding employing a highpole count configuration, which allows for high copper utilization (minimizingenergy loss and cost), and a rotor that contains powerful rare earth permanentmagnets. The stator is affixed to a housing that includes a mounting cylinderand bearings, which allow the rotor to be suspended within the stator.Commutation of the machine is accomplished electronically by sensing theposition of the rotor in relation to the stator and intelligently pulsingelectrical energy into the stator such that the electric field generated by thestator interacts with the magnetic field of the rotor, producing rotationalmotion (motor operation). Conversely, the application of rotational motion by anexternal force results in the generation of electrical power (generatoroperation). UQM® machines can be operated in eithera forward or reverse direction of rotation and either in motor or generator modeand can dynamically change from one mode of operation to another in millisecondresponse time. The design features inherent to the electric machine contributeto lower usage of copper, iron and other materials generally (due to smallerpackage dimensions), reducing manufacturing costs compared to conventionalmachines of similar power. In addition, the utilization of the rare earth magnetchemistry, neodymium-iron-boron (NdFeB), in a wide-range of consumer devicessuch as cell phones, disk drives and medical devices, has dramatically improvedthe availability, performance and price of this material. This has allowed us toprice our advanced motors and controls competitively with lesser performingconventional motors and controls, which we believe will accelerate the rate ofcommercialization of our technology.

Attributes of our permanent magnet motor/generator technologyinclude brushless electronic commutation, a relatively large air-gap dimension(useful for hybrid electric applications where the motor is integrated with anengine or transmission), good heat rejection, minimized NdFeB magnet, iron andcopper content, and low mechanical losses. As a result, UQM®machines have high operating efficiencies, high power density (high power outputto weight ratio) and generally have smaller external dimensions and weight for agiven power output, improving packaging. The electromagnetic design of ourmachines incorporates parameters that are compatible with software controlalgorithms described in a later section. These parameters are essential toachieve optimized output and efficiency; i.e., the machine design and softwarework together to create performance advantages that are not possible without thecombination.

Attributes of our microprocessor-based digital powerelectronic controllers include high power operation (up to 600 amps at 400volts), four-quadrant control (forward/reverse and motoring/generating), reducedswitching losses relative to conventional technology, adaptive switch timingcontrol and controller area network ("CAN") capability. As a result,UQM® controllers have high operating efficiencies, high powerdensity (high power output to weight ratio) and generally have smaller externaldimensions and weight for a given power output, improving packaging.

The UQM® embedded digital signalprocessor (DSP) software is the intelligence that coordinates the interactionbetween the motor/generator and controller, as well as interfacing with avehicle controller. Software control algorithms are an important part of theCompany's intellectual property portfolio. One aspect of the software is apatented method of control referred to as Phase Timing Advancement that enablesUQM® motors to deliver both high output torque atlow operating speeds and high power at increasing operating speeds. We haveextended the capability of Phase Advance Control by using Adaptive Controltechniques. These proprietary software algorithms alter the switching strategyas a function of DC voltage, operating speed, output power and temperature tooptimize system performance under dynamically changing conditions. The result ismaximized output and efficiency that decreases fuel consumption in hybridelectric vehicles and increases the range of battery electric vehicles. TheCompany's software also optimizes the output per unit of voltage and current,maximizing the utilization of the onboard stored energy and other electricaldevices by extracting power from substantially the entire electrical cycle ofthe motor/generator. The development and application of these proprietarycontrol algorithms have allowed us to continue increasing the peak andcontinuous power output and the efficiency of our systems. In addition, ourcontrollers now have user configurable functionality and increased datatransmission speeds and response times, improving vehicle capability. Includedin this functionality is the ability to switch between torque, speed, andvoltage control dynamically, which is especially useful for parallel hybrids andgenerator applications of our technology. For vehicle developers, our GraphicalUser Interface provides the means to tailor UQM®systems to create the desired driving experience.

Conventional permanent magnet motor designs are limited tooperating at high torque and low speeds, sacrificing highway power, or lowtorque and high speeds, sacrificing acceleration and hill climbing ability.Desired propulsion attributes consist of high torque to launch the vehicle froma standing-stop, with a subsequent transition to high power as the vehicle isaccelerated to highway speeds. In the majority of conventional internalcombustion engine powered vehicles, the transition from high torque to highpower is accomplished through the multiple gear changes performed by amechanical transmission. UQMeg; systems, incorporatingproprietary DSP software technology as described above, are suited as propulsiondrives in electric, hybrid electric, plug-in hybrid electric and fuel cellelectric vehicles due to their ability to power a vehicle from a standing-stopto highway speeds without mechanical gear changes, thereby eliminating the size,weight, complexity and cost of mechanical transmissions.

The ability to provide both high torque and high top speedcreates additional advantages in military vehicles. High torque at low speedtranslates into obstacle and grade climbing capability that is more challengingin an off-road environment, while high speed enables pursuit, dash and evasivemaneuvers as well as convoy transport. Conventional propulsion systems meet thehigh torque and high road speed requirements by using a transmission andadditional gearing beyond that used for commercial vehicles. UQM's performancehas proven to address the requirements of military and off-road vehicles withsimplified transmissions, providing opportunities in these markets.

We have also developed auxiliary electronic products thatsupport systems unrelated to propulsion. We currently manufacture proprietaryDC-to-DC converters that convert energy from 250 volt to 450 volt vehiclebattery packs to 12 volts to power lower voltage devices onboard these vehicles.We have also recently developed a high voltage DC-to-AC inverter with outputefficiencies of up to 93 percent for use within electrified vehicles. Ourinverters convert DC power stored in vehicle battery packs with nominaloperating voltages of 340 volts DC to high quality 110 volt AC power.

During fiscal year 2010, we were granted a new US patent thatrelates to the Company's motor/generator technology. U.S. Patent No. 7,598,645is titled Stress Distributing Permanent Magnet Rotor Geometry for ElectricMachines. This technology covers machine geometry that incorporates two methodsof torque production in a way that optimizes the electromagnetic and mechanicalperformance of the machine. These two methods are referred to as magnet andreluctance torque. Centrifugal forces internal to the rotor are distributed tothe strongest sections of the rotor steel, allowing the weaker sections to beelectromagnetically optimized for greater reluctance torque contribution. Theresult is higher output torque and higher top speed, which fits UQM's ongoingeffort to address the performance of both commercial and military vehicleapplications.

We have three U.S. patent applications pending related to newtechnology: two that relate to electric machines and the other related toinverters. We are also performing internally funded research and development tocontinually improve the functionality of the microprocessor software we use tointelligently control our motor/controller system. These enhancements includethe following: additional user-selectable and adaptive algorithms that optimizesystem operation as a function of vehicle-level variables, refined generatorvoltage regulation to facilitate improved voltage and battery pack management,and further improvements in system efficiency and power output through advancesin motor control algorithms. For electric machines, the U.S. Navy has awarded usa contract to apply and extend our recently patented motor technology withinshipboard auxiliary applications, beginning with valve actuators. Forcontrollers, UQM is working to obtain funding to continue work that is directedtoward the development of high temperature power switching devices using siliconcarbide.

The majority of our research and development activities arethe result of projects contracted with and funded by customers, for which wetypically retain intellectual property rights in the resulting technologydeveloped. Customer funded development activities are recorded in our financialstatements as contract services revenue and the associated development costs areshown as costs of contract services. Internally-funded research and developmentexpenditures are charged to research and development expense when incurred.

In recent years, we have focused our research and developmentactivities on the development of commercial products and production engineeringactivities to lower the cost of manufacture, as well as enhance the performanceand capability of our systems, as opposed to basic research in the field. Webelieve our future growth is dependent, in part, on the continued advancement ofour technology portfolio and our ability to commercialize our technology inadditional product applications and markets. Accordingly, we expect to continueto pursue additional customer funded programs and to selectively invest ininternally funded development projects to accomplish these objectives.
**CODA Automotive Program**
In June 2009 we entered into a ten year Supply Agreement withCODA Automotive to supply UQM® PowerPhase®electric propulsion systems to CODA Automotive's production partner, HaFei.Initial shipments of production systems under the agreement are expected tobegin later this calendar year and ramp up prior to scheduled deliveries of CODA'sfull performance all-electric four-door sedan in the California market in thefall of 2010. CODA hopes to sell 14,000 vehicles in calendar year 2011 reachingan annual run rate of 20,000 vehicles, which, if achieved, would result inannual revenue to us well in excess of $50 million.

The CODA all-electric sedan was developed by CODA'sinternal team of engineers working with multiple external engineering partners,including Porsche Engineering. The vehicle is propelled by a 100 kW UQM®PowerPhase® electric propulsion system and is expected to carry a5-star crash worthiness rating and sell in the mid $30,000s after a $7,500Federal tax credit. Powered by a 33.8 kWh lithium-ion battery, the vehicle isexpected to have a range between charges of 90 to 120 miles depending onindividual driving habits. The onboard charger plugs into a 110V or a 220Voutlet and can charge for a 40-mile commute in approximately two hours (fullcharge in less than six hours) at 220V.

The CODA electric sedan chassis will be assembled and tested,incorporating the UQM® power-train on an existinglarge-scale assembly line operated by HaFei. Hafei is one of the premierproduction and R&D companies in China and is China's third largestautomobile manufacturer. Hafei has over 575,000 square meters of productionfacilities and 11,000 employees.

CODA announced that the battery system is being supplied by ajoint venture between CODA Automotive and Tianjin Lishen Battery Co.("Lishen"). Lishen is one of the world's largest manufacturers oflithium-ion cells and a key supplier to Apple, Motorola, Samsung and Vodafone,among others. In March 2010, the CODA-Lishen joint venture announced that it hadsecured$100 million in committedequity capital and received a commitment for a $294 million line of credit fromthe Bank of Tianjin Joint-Stock Co., Ltd. CODA is working to establish U.S.based manufacturing of their joint venture batteries.
We understand that CODA is also working to establish finalvehicle assembly in Southern California where at a minimum the battery systemwould be installed in the chassis produced by Hafei. It is likely, that overtime, the UQM propulsion system and other US- sourced components would beassembled into the vehicle in Southern California, rather than China.

CODA advertises that the CODA sedan is backed by athree-year/36,000 mile warranty and an eight-year/100,000 mile battery warranty.

CODA Automotive states its strategy is to design, brand,market and distribute electric vehicles utilizing manufacturing partnershipswhich allow it to develop vehicles rapidly in a flexible manner -avoiding the traditionally capital-intensive nature of the automobile business.CODA expects to employ a direct distribution model, with initial sales of theall-electric sedan commencing in the late fall of 2010 in California. CODA plansto have vehicle maintenance and service performed through an outsourced networkcomprised of brand name car service partners. CODA Automotive has announced thatto date it has raised $125 million in capital to facilitate the execution of itsbusiness plan.
Other announced suppliers to the CODA program include:Continental (electronic stability control); Delphi (DC to DC converter andelectric power steering); BorgWarner (transaxle); Hella (electric vacuum pump);Energy CS (battery management system); Lear (battery charger); OMITEC (maincontroller); and Mitsubishi (electric AC compressor).
**U.S. Department of Energy Stimulus Grant**
On January 13, 2010 (the "Grant Date"), we executedan Assistance Agreement (the "Agreement") for a $45,145,534 grant (the"Grant") with the U.S. Department of Energy ("DOE") underthe American Recovery and Reinvestment Act (the "Stimulus Act"). TheGrant provides funds to facilitate the manufacture and deployment of electricdrive vehicles, batteries and electric drive vehicle components in the UnitedStates. We were one of seven component manufacturers selected for an award andthe only small business under the component category. Pursuant to the terms ofthe Agreement, the DOE will reimburse us for 50 percent of qualifying costsincurred on or after August 5, 2009 for the purchase of facilities, tooling andmanufacturing equipment, and for engineering related to product qualificationand testing of our electric propulsion systems and other products. The period ofthe Grant is through January 12, 2013.

The $45.1 million size of the Grant is based on the estimatedcost of a project to implement high volume manufacturing operations provided inour application to the DOE under the Electric Drive Vehicle Battery andComponent Manufacturing Initiative. Funding for qualifying project costsincurred during the period commencing August 5, 2009 through June 26, 2010 isinitially limited to $8.1 million until the following conditions are satisfied:1) review and approval of our accounting system by the DCAA; and 2) mutualagreement by the parties on an updated total estimated cost of the project. Inthe event either condition is not satisfied by June 26, 2010, the Grant may beterminated. In addition, we are required, no later than January 12, 2011, toprovide the DOE with an additional updated total estimated cost of the projectalong with evidence of firm commitments for our 50 percent share of the totalestimated cost of the project. If all such funds have not been secured, we mustsubmit, by such date, a funding plan to obtain the remainder of such funds,which is acceptable to the DOE.

The Grant is also subject to our compliance with certainreporting requirements. As specified in the Act, we are required to use theGrant funds in a manner that maximizes job creation and economic benefits. TheStimulus Act and the Agreement impose minimum construction wages and laborstandards for projects funded by the Grant and some sourcing restrictions.

If we dispose of assets acquired using Grant funding, we maybe required to reimburse the DOE upon such sale date if the fair value of theasset on the date of disposition exceeds $5,000. The amount of any suchreimbursement shall be equal to 50 percent of the fair value of the asset on thedate of disposition.

While UQM has exclusive patent ownership rights for anytechnology developed with Grant funds, we are required to grant the DOE anon-exclusive, non-transferable, paid-up license to use such technology.

The Grant has numerous benefits to the Company and itsshareholders including: 1) substantially reducing the Company's cost ofcapital; 2) substantially mitigating the financial risk of facilitizing tomanufacture products for an emerging market; 3) substantially reducing productqualification and testing costs; and 4) improving product margins on productsmanufactured on equipment subsidized by the Grant.

At March 31, 2010 we had received reimbursements from the DOEunder the Grant for facilities and equipment totaling $3.6 million and hadapproximately $1.6 million of contingently reimbursable engineering costsrelated to product qualification and testing which we expect to receive in thefirst quarter of fiscal 2011. Further, we expect to record in the quarter thatthe contingency is removed, a reduction of expense of a corresponding amount.
**Manufacturing**
It is our primary objective to become a major manufacturer ofelectric motor, generator and other power electronic products that incorporateour proprietary technology and to supply these products to electric, hybridelectric and fuel cell electric vehicle manufacturers and/or their Tier 1suppliers. To this end, in December 2009 we acquired a 129,304 square footfacility on a 30 acre site in Longmont, Colorado to support our expected growthin manufacturing operations. We are in the process of establishingsemi-automated production cells at this facility with the capacity to produce20,000 units per shift of our automotive qualified 100 kW PowerPhase®electric motor and motor controller for the CODA program. We expect to havethese cells in operation in August 2010 to support the launch of the CODAprogram later this year. We expect to add additional production capacity in thisfacility coincident with future demand.

We currently manufacture a truck qualified DC-to-DC converterfor Eaton Corporation as part of their hybrid electric power system for theheavy truck market, as well as for other electric and hybrid electric vehiclemanufacturers. We have a dedicated manufacturing cell for these electronic boxesthat includes the robotic application of sealant, sixteen hours of burn-incycling between hot and cold temperature extremes, pressure testing for coolingleaks and complete functional testing.

We also have a production cell for the assembly of our largerframe size, higher power lower volume prototype motors. The annual capacity ofthis cell is approximately 5,000 systems per shift per year.

The foregoing products are currently manufactured at our28,000 square foot ISO 9001:2000 quality certified facility in Frederick,Colorado. We expect to relocate all of our manufacturing operations to our newfacility over the next three months. After completion of the relocation, weexpect to sell our existing manufacturing facility.

Over the last several years we have established a productionengineering group with decades of manufacturing design and productionexperience, much of which is specific to the automotive industry. Today, thisteam consists of nearly twenty professionals. In the last two years we have madesignificant improvements in manufacturing systems, facilities and spaceutilization and we have adopted the Advanced Product Quality Planning ("APQP")automotive procedures.

In order to ensure our cost competitiveness, we have adopteda manufacturing strategy for the near term of designing all product componentsand then sourcing these parts with quality suppliers. Final assembly, testing,pack-out and shipping of the product is performed at our Colorado facility. Wehave established relationships with many high-quality, low-cost suppliers,including a number of international companies. Future plans are to continue thedevelopment and introduction of more advanced and automated manufacturingsystems which we believe will ensure our competitiveness in new and emergingmarkets.

We are primarily focused on launching high volume productionof electric propulsions systems for CODA and potentially other electric andhybrid electric vehicle customers. We believe that the Company is wellpositioned to leverage its technology and pursue and win additional high volumeproduction programs with major automotive, truck, bus and military vehicle OEMsand/or their Tier 1 suppliers.
***Emerging Markets***
Potentially large markets are developing as a result of theelectrification of a wide-range of vehicle platforms. The electrification ofvehicles is being pursued for a variety of application specific reasonsincluding: 1) improved fuel economy, 2) lower vehicle emissions, 3) greaterreliability and lower maintenance, 4) the need for higher levels of availableonboard electric power to run electrical devices, and 5) improved performanceand vehicle control. Of these reasons, improved fuel economy has emerged as asignificant factor in the development and potential rate of growth of theemerging vehicle electrification markets as crude oil prices are expected toresume their rise, and consumers and businesses alike have to contend withhigher gasoline and diesel prices. This trend toward higher fuel prices isexpected to continue for the foreseeable future, driven by tight supply levels,geopolitical turmoil in key oil producing countries and expected futureincreases in world demand, driven principally by escalating consumption offossil fuels by developing countries such as China and India. In addition,government regulations mandating reductions in pollutants from diesel enginesare expected to further accelerate the trend toward electrification asincreasingly stringent regulations continue. Further, CorporateAverage Fuel Economy (CAFE) standards recently received their first overhaul inmore than 30 years.

The Energy Independence and Security Act of 2007 requires, inpart, that automakers boost fleetwide gas mileage to 35 mpg by the year 2020.This requirement applies to all passenger automobiles, including "lighttrucks." Other recent government legislation, including the AdvancedTechnology Vehicles Manufacturing Incentive Program and the American Recoveryand Reinvestment Act of 2009, encourage the development and introduction ofenvironmentally friendly vehicles. A partial listing of some of the more notableprovisions of this legislation includes:
-  Tax credits for the purchase          of environmentally friendly vehiclesLow cost loans to        manufacturers and component suppliers to purchase infrastructure and        develop manufacturing capacity for clean vehicles and components used in        these vehiclesFunding for government        agencies to acquire environmentally friendly vehiclesGrants for the development of        clean vehicles and clean vehicle component technologyGrants for the development of        a "smart" electric grid
The electrification of conventional vehicles, ranging frompassenger vehicles and over-the-road trucks, to off-road vehicles such asagricultural tractors, construction equipment and military vehicles, canpotentially offer improvements in fuel economy and emissions. Today, nearly allconventional vehicles are powered by a gasoline or diesel fueled internalcombustion engine that converts the energy stored in the fuel to rotating powerout of the engine. The power out of the engine's rotating shaft is used topropel the vehicle and operate all of the vehicles auxiliaries either directlywith belts, pulleys and gears or indirectly through electricity generated from abelted alternator.

Internal combustion engines are relatively inefficient,typically converting only 25 to 35 percent of the input energy in the fuel tothe output shaft to do useful work. The remaining 65 to 75 percent of the inputenergy is wasted by the engine as heat loss. Electric motors on the other hand,are much more efficient in converting input electric energy to the rotatingshaft to do useful work. UQM® electric propulsion systems have someof the highest efficiencies (input energy to output work) in the industryranging from 80 to 95 percent.

The electrification of vehicles can range from simplyreplacing inefficient belt and gear driven under-the-hood auxiliaries (waterpump, power steering, HVAC, cooling fans etc.) with efficient electric poweredones, to eliminating the internal combustion engine entirely and replacing itwith full electric propulsion such as in a battery or fuel cell powered vehicle.Generally, as the vehicle power plant content becomes increasingly moreelectric, the fuel efficiency improves and the cost and complexity increases.With rising fuel prices, vehicle makers are finding it much more feasible tojustify this added complexity and cost.

 

We believe that the trend toward increasing electrificationof vehicles will continue at an accelerated pace. Accordingly, we have developedand continue to develop, with considerable funding from our customers, electricpropulsion systems and other motor and electronic products that will enable ourcustomers to introduce alternative powered vehicles in the markets they serve,should they elect to do so. An expanded description of the different degrees ofvehicle electrification follows:
**-  Electrification 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 engine belts, pulleys and gears.        These devices perform their functions very inefficiently and represent a        significant load on the engine. Because they are directly connected to        the engine, there is no way to independently vary their speed or        modulate their power. The electrification of these components provides        numerous advantages including: 1) variable speed and power operation        which improves efficiency and fuel economy, 2) the ability to locate        them strategically anywhere in the vehicle because an electric component        does not require proximity to an engine driven belt or gear, 3) improved        controllability and reliability and 4) flexible architectures and        improved access for service and maintenance. Existing conventional        alternators do not provide enough power to electrify the engine driven        auxiliaries and must be replaced with a higher power generator. The        typical UQM® generator is nearly twice as efficient and        provides five times the power of a conventional alternator. In addition,        these higher power generators can provide export power to power other        on-board or off-board equipment. This electrification strategy is easily        adopted because required changes to vehicle design and operation are the        least disruptive and can improve vehicle fuel economy by 7 to 15        percent.**Parallel hybrids - Parallel      hybrid vehicles incorporate an electric motor to join the internal      combustion engine in propelling the vehicle. In a low power configuration,      often referred to as a "mild hybrid", a starter/motor/generator      that is typically integrated into the flywheel of an engine is used to      combine three separate functions in one electric machine. The machine      starts the engine, eliminating the need for a conventional starter,      performs power generation, eliminating a conventional belt driven      alternator, and can be run in motoring mode, supplying supplemental power      to the driveline to improve acceleration and vehicle performance. Higher      power parallel hybrids incorporate additional system features such as      regenerative braking and automatic engine shutdown and all-electric      propulsion during certain operating conditions. In a typical parallel      hybrid vehicle, acceleration from a standing-stop is 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. The stored energy is then consumed by the electric      motor in the next acceleration cycle. If the batteries need additional      charging, the engine drives the electric machine in generator mode,      sending electricity to charge the battery pack. These vehicles have      sufficient battery charging capacity to be self-sustaining thereby      eliminating the need to plug the vehicle into the electric power grid.      Depending on the vehicle's level of electric motive 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 electrification 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 hybrids contain a larger amount of batteries to      store electrical energy and the engine's principal function is to turn a      separate generator to produce the electrical energy necessary to maintain      the state of charge of the onboard battery pack. These onboard engine      generators are often referred to as auxiliary power units (APUS) or range      extenders. As in a parallel hybrid, during braking 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. The stored      energy is then consumed by the electric motor in the next acceleration      cycle. Also, as in the parallel hybrid, a series hybrid vehicle has      sufficient battery charging capacity to be self-sustaining, thereby      eliminating the need to plug the vehicle into the electric power grid.      Because the engine serves as an under-the-hood power plant, series hybrids      typically have large amounts of available onboard power to perform      additional functions while the vehicle is operating or when it reaches its      final destination. Depending on vehicle configuration and duty cycle,      series hybrids can achieve fuel economy improvements of 35 to 50 percent.**Plug-in hybrids - A plug-in      hybrid vehicle can be configured as either a parallel or a series hybrid.      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 in and      recharged from the electric grid. Because a portion of the energy consumed      by a plug-in hybrid vehicle is acquired at a relatively low cost from the      electrical grid in addition to the efficiencies obtained from its hybrid      configuration, this category of vehicle can achieve fuel economy      improvements of 60 to 75 percent.**All-electric battery and fuel      cell vehicles - All-electric battery and fuel cell vehicles are      powered entirely from electric energy stored on board in batteries or      generated on board by a fuel cell. In this category of vehicle, 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 engine through belts or      gears, such as power steering and air conditioning, must be performed      using electric motors. As with hybrid electric vehicles, all-electric      battery-powered vehicles can switch the electric propulsion motor during      braking 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. The stored energy is then consumed by the electric      motor in the next acceleration cycle. The 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 resulting from combining      hydrogen and oxygen. The by-product of this reaction is water, therefore      allowing for the total elimination of vehicle exhaust emissions in this      category of vehicle. Because there is no battery energy storage in a fuel      cell powered vehicle, there is no opportunity for regenerative braking      energy recapture. Fuel economy improvements for all-electric battery and      fuel cell vehicles are generally 75 percent or greater.*** 

Existing Markets***
Today there are numerous well-established markets forproducts that incorporate electric motors, generators and power electroniccontrollers that are targets for replacement by our advantaged systems. Examplesof existing electric vehicle markets that we believe may present opportunitiesfor the commercialization of our proprietary technology include electricwheelchairs, golf carts, forklift trucks and other warehouse vehicles, aircrafttugs and other support equipment, commercial floor cleaning equipment and othersimilar markets where the product application generally requires high torque andvariable speed operation. In addition, there are a multitude of electricauxiliary motors used on conventional vehicles that provide a furtheropportunity for replacement by our systems.

We have developed and commercialized several products forexisting markets. These products include a fan blower motor and a compressordrive motor that are used in aircraft air conditioning systems manufactured byKeith Products, Inc., a vehicle auxiliary actuator motor for a productmanufactured by Lippert Components, Inc. and an electric brake actuation motorthat is used in selected golf carts manufactured by Club Car, Inc.

We expect to continue to commercialize both technologicallyadvanced and low cost products that we develop to customer specifications inselected large, established markets.
**Markets We Serve**
We have historically focused our resources on the developmentof highly efficient electric propulsion systems for each category of vehicledescribed above with power levels of 0.5 kW to 150 kW, which are suitable forvehicles ranging from wheelchairs to passenger automobiles to large trucks,buses, tractors, construction equipment and military vehicles. In addition, wehave developed electric motors, generators and electronic controls to powerunder-the-hood auxiliaries such as water, oil and fuel pumps, power steering,cooling fans and air conditioning compressors. We have also developed DC-to-DCconverters that step down high voltage electrical systems to 12 volts andDC-to-AC inverters that convert DC power to consumer friendly 110-voltalternating current power. We are pursuing the commercialization of ourtechnology and products designed by us in numerous large emerging and existingmarkets where we intend to introduce technologically advanced products or lowercost systems or a combination of both.

We believe that our technology and products are well-suitedfor application in a wide-range of vehicles as the trend toward electrificationcontinues to gain momentum. In this regard, we have focused our attention onseveral markets where we believe we can most effectively compete and which weexpect will have higher than average rates of growth and expansion. A briefdescription 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 theUnited States each year, although these production levels have declineddramatically over the last year to a current annual rate of approximately 11million units. Over the last several years a market has developed forautomobiles that are powered by hybrid electric powertrains. These vehicles havegood performance and provide above average fuel economy compared to conventionalautomobiles. Several automakers have introduced vehicle models incorporatinghybrid electric powertrains including Toyota, Lexus, Nissan, Honda, Ford,Saturn, and General Motors**.**These automakers to date are using hybrid electric powertrains that they havedeveloped themselves or have acquired from other automakers or existing Tier 1automotive suppliers. Many of these automobile companies are also developingfuel cell or battery-powered vehicles that they hope to introduce at a futuredate. Several automakers have also announced plans to introduce all-electricpassenger vehicles in the coming years, the most highly publicized of which isNissan's all-electric Leaf passenger vehicle. We have recently shippedelectric and hybrid electric propulsion systems and /or generators to eightinternational automobile companies for use in vehicle development programs. Ofthis group, one customer Citroen, has publicly announced that it is testing aCitroen C4 Hybrid Rally Car powered by a UQM® PowerPhase®125 electric propulsion system and UQM® PowerPhase® 75generator.
In addition to established automakers, there are a variety ofsmall entrepreneurial companies that are developing and hope to commercializeelectric, hybrid electric and/or plug-in hybrid electric cars. Although many ofthese companies lack substantial financial resources and/or significantautomobile industry experience, they are pursuing a variety of strategies tointroduce these types of automobiles into either niche markets, such as forfleet users or high-end luxury sports car buyers, or the consumer vehicle marketgenerally. Should any of these companies be successful in commercializing theirproduct offerings, it could cause the growth rate of this market to acceleratesignificantly. These companies are generally using electric or hybrid electricpowertrains that they have developed themselves or have been developed by otherentrepreneurial companies. We have recently shipped electric and hybrid electricpropulsion systems and/or generators to eight of these companies, including CODAAutomotive which is launching an all-electric four -door sedan powered by a UQM®PowerPhase® electric propulsion system. See also the "CODAAutomotive Program" above.
**Trucks, Buses and Recreational Vehicles -****The U.S.Department of Energy estimated that in 2007, trucks consumed 6.3 million barrelsof crude oil per day and they project that by 2030, trucks will consumeapproximately 55 percent of all crude oil used in transportation, or 10 millionbarrels of crude oil per day.

In recent years, approximately 6 million trucks, buses andother medium and heavy-duty on-road vehicles were sold in the United States eachyear, although these quantities have declined substantially over the last year.The market for these vehicles is characterized by a large number of suppliers, awide-range of vehicle designs and configurations, diverse power and performancelevels and relatively low production volumes for each model. As a result, thetypical truck, bus and other medium and heavy-duty vehicle manufacturer isunlikely to have the technical expertise or financial resources to internallydevelop components that can compete in emerging markets for increasinglyelectrified vehicles. Accordingly, we expect these manufacturers to purchaseproducts from suppliers who have developed technologically advanced electricmotors; generators and power electronic energy management controls that can beapplied to their vehicles.

We are currently supplying an automotive qualified DC-to-DCconverter to Eaton Corporation which is used onboard medium and heavy-dutyhybrid trucks. We have also developed a DC-to-AC inverter that we expect to sellinto the truck market to meet the growing onboard and export power requirementsof hybrid trucks. Some medium and heavy-duty hybrid electric trucks manufacturedby customers of Eaton currently have our DC-to-DC converter on board. We expectthe medium and heavy-duty hybrid electric truck market to grow at anaccelerating rate as potential customers for these vehicles gain a greaterunderstanding of their operational, environmental and economic advantages. Inaddition to our supplier relationship with Eaton, we have been and expect tocontinue to be in discussion with truck OEMs regarding potential niche vehicleprograms. We have supplied electric and hybrid electric propulsion systems to anumber of truck manufacturers including ZeroTruckTM and Electric VehicleInternational for all-electric medium-duty delivery trucks. The ZeroTruck7trade; isavailable on the GSA schedule for purchase by government agencies.

Also, several truck manufacturers are considering otherelectrically-based products that either enhance the utility of their vehicles,such as the ability to generate large amounts of exportable electric power, orthat may be necessary to meet regulatory mandates, such as diesel engineemission standards and restrictions on emissions arising from diesel engineidling. These products include electric propulsion systems, higher power enginegenerators, electric auxiliaries and DC-to-DC converters and DC-to-AC inverters.We intend to continue to aggressively pursue the commercialization of ourproducts for these and other applications in the market for electric and hybridtrucks as it emerges over the next several years.

We are also involved in a number of bus programs. Over thelast several years we have supplied generators and motor controllers to theDenver Regional Transportation District (RTD) for its fleet of thirty-sixMallRide hybrid electric shuttle buses, the first large-scale deployment ofhybrid electric buses for use in the United States. The 45-foot MallRide hybridelectric shuttles operate on the 16th Street Mall in downtown Denver,providing a free ride for passengers across the 1.3 mile long 16thStreet Mall.

We also are the propulsion system supplier for electric busesbeing developed and produced by Proterra LLC, Golden, Colorado. The 37-footcomposite body bus is being developed in both an all-electric battery andplug-in hybrid configuration. Proterra recently announced their plans to build a200,000 square foot bus manufacturing facility in South Carolina.

There are a variety of specialty on-road manufacturers ofconventional vehicles who represent an opportunity for us to further expand thedeployment of our products, and we intend to continue to pursue thecommercialization of our products for these applications.
**Off-road vehicles -****There are a wide-range ofoff-road vehicles sold in the United States each year. These vehicles range fromsmall - wheelchairs, golf carts, fork trucks, riding lawn mowers, snowmobiles,all-terrain vehicles, etc., - to large construction, agricultural and miningequipment. The markets for small vehicles are typically characterized byrelatively high volumes, low power levels and commodity pricing. We expect tocontinue to compete selectively in small off-road vehicle markets where thecustomer requires advanced technology or superior performance and whereacceptable gross profit margins are obtainable.

The market for large equipment - tractors, construction,mining and other specialty equipment - possesses many of the samecharacteristics as the over-the-road truck market described above. In recentyears, it is estimated that approximately 500,000 of these vehicles were sold inthe United States annually. Accordingly, we expect these vehicle manufacturersto purchase products with similar specifications as those required in theover-the-road truck and bus markets from suppliers who have developedtechnologically advanced electric motors and power electronic energy managementcontrols that can be applied to their vehicles. Although these vehicles areproduced in relatively lower volumes, they nevertheless represent a substantialopportunity due to higher power levels, substantial technical complexity andtherefore substantially higher product content and dollar value per vehicle. Wehave provided systems to several large off-road vehicle developers for bothelectric propulsion and under-the-hood auxiliary applications.

We have also developed electric power products for theaircraft and aerospace market and the boat and marine market. In the aerospacemarket, we have developed electric auxiliary motors and controllers used inaircraft air conditioning systems. We have also developed auxiliary power unitsfor the generation of onboard power and propulsion systems for various boatapplications. We believe that some of the fuel efficiency benefits of vehicleelectrification can be realized in the boat and marine market. Although ourfocus is primarily on land applications, we will continue to leverage ourtechnology and products in these potentially large niche markets asopportunities present themselves.
**Military vehicles -****The U.S. military purchases awide-range of ground vehicles each year including combat vehicles such as tanks,self-propelled artillery and armored personnel carriers, as well as a variety oflight, medium and heavy-duty trucks for convoy and supply operations and for thetransport of fuel used on the battlefield. The military is particularlyinterested in the electrification of vehicles because the attributes that thesevehicles possess offer exceptional potential for the military to achieve itslong-term objectives of developing a highly mobile, lethal fighting force. Fueleconomy improvements in military vehicles transfer into substantial savings insupport infrastructure and transportation costs associated with transportingfuel to the battlefield, which is typically thousands of miles from the UnitedStates. For example, if fuel economy improvements of 25 percent are achieved inthe average truck, a corresponding amount of fuel does not have to betransported and therefore a corresponding number of airplanes or tankers are notrequired in the transportation process. Also, the availability of onboardelectrical power on military vehicles opens up new opportunities for thedevelopment of sophisticated surveillance, detection and battlefield monitoringequipment and for laser, microwave and electrical pulse weapon systems. It isestimated that the military purchases approximately 8,000 trucks per year andgreater numbers during periods of armed conflict. As is the case with largeoff-road equipment, these vehicles are produced in relatively lower volumes,operate at higher power levels, have substantial technical complexity andtherefore substantially higher product content and dollar value per vehicle. Wehave, over the last several years, been working with a number of militarycontractors and vehicle makers including DRS Technologies, AM General, BAESystems, Boeing, General Dynamics and others, on prototype hybrid electricvehicles, high export power generators, electric auxiliaries, DC-to-DCconverters and DC-to-AC inverters. Although this market has not yet emerged, webelieve that it may begin to soon, driven by the availability of hybrid electriccomponents in the commercial truck market that operate at similar power levelsas those required by many military vehicles.
**Vehicle to Grid Systems - There is also a developingindustry initiative termed "vehicle-to-grid", or "V-to-G",to potentially make available for use on the electric utility grid, the largeamount of energy in battery electric, hybrid electric, plug-in hybrid electricand fuel cell electric vehicles. Under this initiative, protocols, guidelinesand electronic and software technologies are being developed to allow for theintelligent transfer of electric power from these vehicles to the electric powergrid. There are different versions of the vehicle-to-grid concept: 1) A hybridor fuel cell vehicle, which generates power from storable fuel, uses itsgenerator to produce power for a utility at peak electricity usage times. Herethe vehicles serve as a distributed power generation system; and 2) Abattery-powered or hybrid vehicle which uses its excess rechargeable batterycapacity to provide power to the electric grid during peak load times. Thesevehicles can then be recharged during off-peak hours at cheaper rates whilehelping to absorb excess nighttime generation. Here the vehicles serve as adistributed battery storage system to buffer power.

The V-to-G concept allows such vehicles to provide power tohelp load balance (valley fill and peak shave) localized grid segments duringpeak load periods when the selling price of electricity can be very high, and tobuffer electricity, including in power outages.

We are currently developing inverter technology that weexpect will be capable of functioning in this dynamic energy transferenvironment when, and if, it develops into a commercial opportunity.
**Marketing**
We market our products in a variety of different waysdepending on the end market and the complexity of the product. The majority ofour opportunities come from customers who contact us directly as a result of ourreputation, advertising, trade show attendance, web site or customer/partnerword of mouth recommendations.

In the emerging markets for clean vehicles we market throughthe following channels:
-  Direct SalesVehicle Integrators - This        marketing channel is characterized by the development of a relationship        with companies that perform contract services for vehicle makers        worldwide. Many of these companies have substantial autonomy to source        vehicle components at the earliest stages of a vehicle development        program. Through our multi-year relationships of supplying many of these        companies with our products, we have been able to develop and foster        within their organizations a confidence in the performance        characteristics, ease of application and durability of our products that        have led to additional early stage placements of our products in        automakers vehicle development programs.Cooperative Marketing        Arrangements - These arrangements typically are characterized by        nonexclusive marketing cooperation with other vehicle component        developers and manufacturers where marketing partners introduce UQM®        products to prospective customers who are considering a component being        sold by our marketing partner and vice versa. For example, we currently        have an active cooperative marketing arrangement with BorgWarner, who        has developed a transaxle for all-electric and hybrid vehicles that is        matched to our PowerPhase® 100 kW propulsion motor.
In existing markets, we identify potential opportunitiesprimarily through the efforts of our National Sales Manager who seeks toidentify motor and electronic product applications where our technology canreduce the size, enhance the performance or improve the efficiency or acombination of the foregoing at price points the same as or better than theprospective customers current supplier.

Funded development projects are typically secured through atechnical selling process that encompasses the submission of an engineeringproposal by our engineering staff in response to a request for proposal or fromother methods designed to find and identify customer funded developmentopportunities within our area of expertise.
**Our Opportunity**
We have developed a range of products including electricpropulsion motors, generators, power electronic controllers and other powerelectronic products that we believe are ideally suited to the emerging marketsfor electric, hybrid electric and fuel cell electric vehicles.

Hybrid electric passenger vehicle sales have grownsubstantially since their introduction in the North American market in 2000,with over one million units being sold. As a result, the fuel economy andemission benefits of hybrid electric technology are broadly understood byconsumers worldwide. This, in concert with $25 billion of potential governmentgrants and loans for the manufacture of clean vehicles under the AdvancedTechnology Vehicles Manufacturing Incentive Program, $2.4 billion of grantsunder the ARRA's Electric Drive Vehicle Battery and Component ManufacturingInitiative (under which we received a $45.1 million award), higher oil prices,tax credits for hybrid electric vehicle purchasers, stricter government emissionregulations and growing environmental consciousness, has generated market demandfor this class of vehicle.

Until recently, passenger vehicle makers have elected todevelop their own electric and hybrid electric systems and components, eitherindividually or in cooperation with Tier 1 automotive suppliers; however, wehave supplied our propulsion systems to numerous international automotivemanufacturers as part of their electric and hybrid electric vehicle developmentactivities over the last eighteen months. Should any of these automakers electto utilize our products in future model launches, it would have a materialimpact on our future rate of growth.

We believe that the launch of high volume manufacturing ofour PowerPhase® 100 kW electric propulsion system for CODAAutomotive later this calendar year will give us a substantial "firstmover" advantage as a Tier 1 supplier to the clean vehicle market.Specifically, the introduction of our products that have been fully automotivequalified in commercial quantities will provide substantial economies of scale,permitting us to achieve production costs and pricing that will be difficult forothers who have not launched similar high volume production to compete with. Weexpect that this pricing and product availability advantage will allow us tofurther expand the roster of automobile makers who select our propulsion systemsfor there future vehicle programs.

In addition to the passenger automobile market, vehiclemakers of all types have been evaluating the potential of applying electric andhybrid electric technology to their vehicle platforms. Of these manufacturers,medium and heavy-duty truck and bus builders and military manufacturers havebeen the most active, driven by the performance and fuel economy advantagesavailable from this technology, the availability of large amounts of onboard andexportable power and stricter diesel emission mandates.

International Truck and Engine Corporation, a NavistarCompany, currently offers for sale a diesel electric medium-duty truck, theInternational® DuraStarTMHybrid. Similarly, Peterbilt Motors Company, a division of PACCAR Inc., offersfor sale its Model 330 and Model 335 medium-duty hybrid electric trucks, andFreightliner Trucks, a division of Daimler Trucks North America LLC hasintroduced its Business Class® M2e hybrid electricTruck. All of these truck manufacturers use the Eaton Corporation hybridelectric system. Our automotive certified DC-to-DC converter which wemanufacture for Eaton Corporation is installed on many of these hybrid trucks.We believe that these industry developments signal the beginning of apotentially large-scale deployment of electric propulsion and related electronicproducts into markets other than mass-market passenger automobiles. Should theseproducts receive broad customer acceptance, as we expect they will, additionalopportunities will likely develop over time for our company.

The operating characteristics of electric motors for vehiclepropulsion are different from those of more conventional industrial motors.Propulsion motors ideally deliver high levels of torque efficiently at slowrotational speeds and possess the ability to transition from high torque to highspeed over a relatively constant power curve allowing, in many cases, theelimination of conventional transmissions. Our proprietary propulsion systemshave been specifically developed for these applications and deliver exceptionaltorque and high rotational speeds in a compact, energy efficient machine. Webelieve that our portfolio of propulsion motors, generators, power electroniccontrollers and related electronic products has well positioned our company tocompete effectively in these emerging markets. Electric and hybrid electricvehicle makers to-date have generally adopted a 340-volt electrical system todeliver the energy from the battery pack to the electric components and viceversa. Conventional gasoline vehicles generally have a 12-volt electrical systemthat operates dashboard instruments, lights, horns, etc. The higher electricalsystem voltages of electric and hybrid vehicles are creating opportunities forcompanies such as ours to enter the automotive market with a wide-range ofunder-the-hood auxiliaries including generators and motors to drive water, oiland power steering pumps, air conditioning compressors, and cooling fans, thatoperate at the new higher voltage.

We are currently investing substantial amounts of humanresource and capital on establishing the manufacturing infrastructure to meetCODA Automotive's requirements as well as the potential productionrequirements of our other existing and future customers. As the markets for ourcustomers' clean vehicles expand, we expect to make additional investments insupport of our strategy to aggressively introduce automotive certified productsto satisfy our customers' requirements.

We also expect to experience potentially rapid growth in ourrevenue coincident with the introduction of electric products by our customers.In parallel to these activities in emerging markets, we expect to continue topursue additional production opportunities for our proprietary technology inexisting markets where the performance of our products can provide our customerswith a competitive advantage in the markets they serve.
**Business Segments**
At March 31, 2010, we had two reportable segments. Thesereportable segments are strategic business units that offer different productsand services and are managed separately because of their different businessstrategies.
***Technology Segment

Our technology segment encompasses the operations of ourEngineering and Product Development Group. The Engineering and ProductDevelopment Group is equipped with research and development laboratories,prototype build and test facilities for electric motors, generators, powerelectronic controllers, software, and vehicle integration activities. Inaddition, we currently lease 6,000 square feet in a nearby facility where weperform vehicle integration activities. The technology segment conducts customerfunded and internally-funded research and engineering activities directedtoward: 1) the development of new motors, generators, and power electroniccontrollers to meet the requirements of customers' specific productapplications; 2) integration of our motors, generators and power electroniccontrollers into customers' products; and 3) support of our power productssegment and the low volume manufacture of motors, generators and powerelectronic controllers.
***Power Products Segment***
Our power products segment encompasses the operations of ourwholly-owned subsidiary, UQM Power. UQM Power is the manufacturer of ourproprietary products in higher volumes. UQM Power is an ISO 9001:2000 qualitycertified manufacturer of motors and electronic products designed by thecompany.
**Competition**
All of the markets in which we operate are highlycompetitive. The markets served by the technology segment are additionallycharacterized by rapid changes due to technological advances that can renderexisting technologies and products obsolete.

The technology segment has developed advanced electricpropulsion systems and components which we hope to market to vehicle OEMs andtheir Tier 1 suppliers throughout the world for use in electric, hybridelectric, plug-in hybrid electric and fuel cell electric vehicles. In recentyears, the market for hybrid electric automobiles has begun to emerge, led bythe introduction and market success of hybrid electric vehicles manufactured byToyota, Lexus, Honda, Ford and General Motors. In the larger vehicle markets,International Truck and Engine Corporation, Freightliner Trucks and PeterbiltMotors Company offer hybrid electric medium-duty trucks and Caterpillar, Inc.produces a belt-less engine/electric tracked bulldozer. As a result, additionalvehicle makers in both on-road and off-road markets are expected to develop andintroduce a variety of hybrid electric and all-electric vehicles as the marketacceptance of these vehicles continues to grow. We cannot assure that we will beable to compete successfully in this market or any other market that now existsor may develop in the future. There are numerous companies developing productsthat do or soon will compete with our systems. Some of these companies possesssignificantly greater financial, personnel and other resources than we do,including established supply arrangements and volume manufacturing operations.We believe our principal competitors include Toyota, Honda, General Motors,Hitachi, Toshiba, Siemens, Delphi, Danaher, Enova, Continental, Magna, Remy,Bosh and Azure Dynamics.

The power products segment competes primarily in theautomotive, heavy equipment, military, aerospace and medical productsindustries. Each of these industries is extremely competitive. We facesubstantial competition on a continuing basis from numerous companies, many ofwhom possess longer operating histories, significantly greater financialresources and marketing, distribution and manufacturing capability. We believeour principal competitors include Advanced DC Motors, General Electric, RockwellInternational, Hitachi, Hyundai, Toshiba, Siemens, Delphi, Danaher,  L-3Communications, Enova, Continental, Magna, Remy, Bosh and Azure Dynamics.
**Patents**
We hold several groups or families of patents.

U.S. Patent Nos. 5,311,092 and 5,319,844 disclose and claim alightweight high-power electromagnetic transducer and method of making the same.Corresponding applications have been filed and issued in several foreigncountries.

U.S. Patent No. 5,592,731 and U.S. Patent No. 5,382,859relate to a stator for high-power density electric motors and generators, and amethod of constructing the same. Corresponding applications have been filed andissued in several foreign countries.

U.S. Patent No. 5,677,605 discloses and claims a brushlessmotor and drive system using phase timing advancement. Correspondingapplications have been filed and issued in several foreign countries.

U.S. Patent No. 5,982,063 discloses and claims an electricmotor having an internal brake. Corresponding applications have been filed andissued in several foreign countries.

U.S. Patent No. 6,522,130 discloses and claims a method forcontrolling a brushless electric motor having a rotor, and relates to anaccurate method for sensing rotor position and detecting rotational speed over abroad range of speeds. U.S. Patent No. 6,693,422 is a related U.S. patententitled "Accurate Rotor Position Sensor and Method Using Magnet andSensors Mounted Adjacent to the Magnet and Motor". Correspondingapplications have been filed and issued in several foreign countries.

In 2007, we filed patent applications for a stator design inthe United States, Canada, and Europe. These applications are currently pending.

In 2007, we filed patent applications for a permanent magnetrotor geometry for permanent magnet electric motors in the United States,Canada, and Europe. The United States application issued as U.S. Patent No.7,598,645. The Canadian and European applications are currently pending.

In January 2009, we filed a U.S. patent application for adistributed generation power system having an integrated electric utility meterand inverter system, including the physical design, placement andinterconnection of the integrated electric utility and inverter system.

In November 2009, we filed a US patent application for arotor for a permanent magnet electric machine. This application is pending. Wemay file corresponding applications for this invention in one or more foreigncountries.

In 1994, we executed an agreement with Alcan AluminiumLimited ("Alcan") in which Alcan assigned to us all of its rights,title and interests in certain motor technology developed under a program fundedby Alcan.  This agreement further provides that we shall pay to Alcanroyalties of one-half of one percent on revenue derived from the manufacture andsale of products or processes embodying the related technology. Royalty paymentsunder this agreement for the fiscal years ended March 31, 2010, 2009 and 2008were $25,349, $39,850 and $32,988, respectively.

We also intend to rely on the unpatented proprietary know-howwe have developed and now utilize in our products. We cannot provide assurancethat others will not independently develop, acquire or obtain access to ourtechnology. Although we protect our unpatented proprietary rights by executingconfidentiality agreements with our management, employees and others with accessto our technology, these measures may not be adequate to protect us fromdisclosure or misappropriation of our proprietary information.
**Trademarks**
We have registered the letters "UQM" in the U.S.Patent and Trademark Office. Counterpart applications have been filed innumerous countries throughout the world, most of which have grantedregistrations or indicated them to be allowable. We own three U.S. TrademarkRegistrations for "UQM" (International Class 7 for power transducers,Class 12 for utility land vehicles, and Class 16 for publications). The foreigntrademark registrations and applications include major markets where we aredoing business or establishing business contacts.

We have also registered the trademark "POWERPHASE"which we use in conjunction with certain of our propulsion systems. Thetrademark is registered in the European Community and several other foreigncountries.
**Backlog**
Our technology segment had unperformed service contracts fromcustomers, which will provide future revenue upon completion totalingapproximately $1.1 million, and an order backlog for prototype motors andcontrollers of approximately $1.9 million at April 30, 2010, compared to $0.7million and $2.0 million, respectively at April 30, 2009. All such servicecontracts are subject to amendment, modification or cancellation. We expect tocomplete all unperformed service contracts over the next fourteen months andship motor and controller backlog products over the next twelve months.

Our power products segment had an order backlog ofapproximately $3.1 million at April 30, 2010 compared to $3.0 million at April30, 2009. Many orders are issued to us as blanket purchase orders subject to theissuance of subsequent release orders which direct the number and timing ofactual deliveries. Substantially all of the backlog amounts at April 30, 2010and 2009 are subject to amendment, modification or cancellation. We expect toship all backlog products within the next twelve months.
**Customers and Suppliers**
We have historically derived significant revenue from a fewkey customers. Revenue from Lippert Components, Inc., which is also a customerof our power products segment, was $821,509, $635,144, and $1,271,502 for thefiscal years ended March 31, 2010, 2009 and 2008, respectively, representing 9.5percent, 7.3 percent and 16.9 percent of consolidated total revenue,respectively. This customer also represented 17.4 percent and nil ofconsolidated total accounts receivable at March 31, 2010 and 2009, respectively.Inventories consisting of raw materials, work-in-process and finished goods forLippert Components, Inc. were 6.8 percent and 26.7 percent of consolidated totalinventories at March 31, 2010 and 2009, respectively. Revenue from the DenverRegional Transportation District, which is a customer of our Power Productssegment, was $82,976, $3,337, and $864,540 for the fiscal years ended March 31,2010, 2009 and 2008, respectively; representing 1.0 percent, nil, and 11.5percent of consolidated total revenue, respectively. This customer alsorepresented 0.9 percent and nil of total accounts receivable at March 31, 2010and 2009, respectively. We did not have any raw materials, work-in-process orfinished goods inventory for the Denver Regional Transportation District atMarch 31, 2010 and 2009. Revenue from Quantum Fuel Systems TechnologiesWorldwide Inc., which is also a customer of our power products segment, was$13,115, $1,360,909, and $256,393 for the fiscal years ended March 31, 2010,2009 and 2008, respectively, representing 0.2 percent, 15.6 percent, and 3.4percent of consolidated total revenue, respectively. This customer alsorepresented 2.6 percent and 15.8 percent of total accounts receivable at March31, 2010 and 2009, respectively. We did not have any raw materials,work-in-process or finished goods inventory for Quantum Fuel SystemsTechnologies Worldwide Inc. at March 31, 2010 and 2009.

When we begin delivery of electric propulsion systems to CODAunder our ten year supply agreement, currently projected for late 2010, CODA isexpected to become a significant customer.

Principal raw materials and components purchased by usinclude iron, steel, electronic components, magnets and copper wire. Most ofthese items are available from several suppliers. Certain components used by usare custom designs and if our current supplier no longer made them available tous, we could experience production delays.
**U.S. Government Contracts**
Revenue derived from contracts with agencies of the U.S.Government and from subcontracts with U.S. Government prime contractors was$2,488,321, or approximately 28.6 percent of our consolidated total revenue, forthe year ended March 31, 2010, $1,989,872 or approximately 22.8 percent of ourconsolidated total revenue, for the year ended March 31, 2009 and $2,329,248, orapproximately 31.0 percent of consolidated total revenue, for the year endedMarch 31, 2008. Accounts receivable from government-funded contracts represented7.6 percent and 5.6 percent of total accounts receivable as of March 31, 2010and 2009, respectively. Of these amounts, revenue derived from subcontracts withAM General LLC totaled $1,807,063, $434,181 and $565,663 which represented 20.8percent, 5.0 percent and 7.5 percent of our consolidated total revenue for thefiscal years ended March 31, 2010, 2009 and 2008, respectively. This customeralso represented 7.6 percent and nil of consolidated total accounts receivableat March 31, 2010 and 2009, respectively. Inventories consisting of rawmaterials, work-in-process and finished goods for AM General LLC were 12.8percent and 2.7 percent of consolidated total inventories at March 31, 2010 and2009, respectively.

Some of our business with the U.S. Government was performedon a cost plus fixed fee basis. These contracts provide for reimbursement ofcosts, to the extent allocable and allowable under applicable regulations, andpayment of a fee. Certain other contracts with the U.S. Government provide forthe reimbursement of costs on a 50 percent cost-sharing basis based onnot-to-exceed billing rates negotiated between the U.S. Government and us. OtherU.S. Government business is performed under firm fixed price contracts. On"cost-share" and "firm fixed price" contracts, we can incuran actual loss in the performance thereof if incurred costs exceed the contractamount. All of our U.S. Government contracts are subject to modification orcancellation at the convenience of the Government.

On January 13, 2010 (the "Grant Date"), we executedan Assistance Agreement (the "Agreement") for a $45,145,534 grant (the"Grant") with the U.S. Department of Energy ("DOE") underthe American Recovery and Reinvestment Act (the "Stimulus Act"). TheGrant provides funds to facilitate the manufacture and deployment of electricdrive vehicles, batteries and electric drive vehicle components in the UnitedStates. Pursuant to the terms of the Agreement, the DOE will reimburse us for 50percent of qualifying costs incurred on or after August 5, 2009 for the purchaseof facilities, tooling and manufacturing equipment, and for engineering relatedto product qualification and testing of our electric propulsion systems andother products. The period of the Grant is through January 12, 2013.

Funding for qualifying project costs incurred during theperiod commencing August 5, 2009 through June 26, 2010 is initially limited to$8.1 million until the following conditions are satisfied: 1) review andapproval of our accounting system by the DCAA; and 2) mutual agreement by theparties on an updated total estimated cost of the project. In the event eithercondition is not satisfied by June 26, 2010, the Grant may be terminated. Inaddition, we are required, no later than January 12, 2011, to provide DOE withan additional updated total estimated cost of the project along with evidence offirm commitments for our 50 percent share of the total estimated cost of theproject. If all such funds have not been secured, we must submit, by such date,a funding plan to obtain the remainder of such funds, which is acceptable to theDOE.

If we dispose of assets acquired using Grant funding, we maybe required to reimburse the DOE upon such sale date if the fair value of theasset on the date of disposition exceeds $5,000. The amount of any suchreimbursement shall be equal to 50 percent of the fair value of the asset on thedate of disposition.

At March 31, 2010 we had received reimbursements from the DOEunder the Stimulus Grant for facilities and equipment totaling $3.6 million andhad approximately $1.6 million of contingently reimbursable engineering costsrelated to product qualification and testing which we expect to receive in thefirst quarter of fiscal 2011. Further, we expect to record in the quarter thecontingency is removed a reduction in expenses for a corresponding amount.
**Employee and Labor Relations**
As of April 30, 2010, we had 69 total employees, of whom 68are full-time employees. We have entered into employment contracts with four ofour executive officers. All of these contracts expire on August 22, 2012. Noneof our employees are covered by a collective bargaining agreement. We believeour relationship with employees has been generally satisfactory.

In addition to our full-time staff, we from time to timeengage the services of outside consultants and contract employees to meet peakworkload or specialized program requirements. We do not anticipate anydifficulty in locating additional qualified engineers, technicians andproduction workers, if so required, to meet expanded research and development ormanufacturing operations.
**Available Information**
We file annual, quarterly and current reports, proxystatements and other information with the Securities and Exchange Commission("SEC"). Anyone seeking information about our business can receivecopies of our 2010 Annual Report on Form 10-K, Annual Report to Shareholders,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments tothose reports and other documents, filed with the SEC at the public referencesection of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Thesedocuments also may be obtained, free of charge, by: contacting our InvestorRelations office by e-mail at investor@uqm.com; by phoneat (303) 682-4900; writing to UQM Technologies, Inc., Investor Relations, PO Box439, Frederick, CO 80530-0439; or accessing our website at www.uqm.com.We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K and amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available onour website as soon as reasonably practicable after we file or furnish thematerials electronically with the SEC. To obtain any of this information, go to www.uqm.com,select "Investor Relations" and "SEC Filings." Our websitealso includes our Audit Committee Charter and Code of Business Conduct andEthics as well as the procedures for reporting a violation of business ethics.**ITEM      1A.****RISK FACTORS
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Our business is subject to a number of risks and uncertainties, many of whichare outside of our control.
**We have incurred significant losses and may continue to doso.**
We have incurred significant net losses as shown in the following tables:
   
                           Fiscal      Year Ended March      31,                          
      2010      
      2009     
     2008          
Net loss
$   4,140,872 
$   4,402,019 
$   4,586,105 
As of March 31, 2010 we had accumulated deficit of$73,566,111.

In the future, we plan to make additional investments inproduct development, facilities and equipment and other costs related to thecommercialization of our products. As a result, we expect to continue to incurnet losses at least through March 31, 2011 and potentially beyond.
**Our operating losses, anticipated capital expenditures andworking capital requirements in the longer term may exceed our current cashbalances.**
Our net loss for the fiscal year ended March 31, 2010 was$4,140,872 versus a net loss for the fiscal years ended March 31, 2009 and 2008of $4,402,019 and $4,586,105, respectively.At March 31, 2010, our cash and short-term investments totaled $30,148,783. Weexpect our losses to continue through at least March 31, 2011 andpotentially beyond. Our existing cash resources, together with funding expectedfrom our ARRA grant should be sufficient to complete our business plan for atleast the next eighteen months. Should those resources be insufficient, we mayneed to secure additional debt or equity funding, which may not be available onterms acceptable to us, if at all.**If we do not satisfy the terms of our U.S. Department ofEnergy grant, we may not receive all or any portion of the $45.1 milliongrant we were awarded and may be required to return amounts already paid to usunder the grant.**
On January 13, 2010, we finalized a $45.1 million awardunder the American Recovery and Reinvestment Act's Electric Drive VehicleBattery and Component Manufacturing Initiative with the U.S. Department ofEnergy. This Award is subject to terms and conditions specified in the agreementbetween us and the DOE. We are required to make a cash investment on adollar-for-dollar matching basis to receive funds under this Award. If we areunable to match the total amount of the $45.1 million award with fundingfrom non-Federal sources, we will be unable to take advantage of the entireAward, and could become ineligible for continued participation in the program.The payment of the incurred costs under the award has been limited to $8.1million through June 26, 2010 until various conditions are satisfied. Theseconditions include 1) DOE's review and approval of our accounting system; and2) mutual agreement of an updated total estimated cost of the project. In theevent either condition is not satisfied by June 26, 2010 the grant may beterminated. In addition, we are required within one year after the effectivedate of the award to provide DOE with an additional updated total estimated costof the project along with firm commitments for our 50 percent share of the totalestimated cost of the project. We have already obtained $32 million as proceedsfrom our October 2009 stock offering that may be used for the project. If allsuch funds have not been secured, we must submit by such a date, a funding planto obtain the remainder of such funds that is acceptable to the DOE. In theevent we do not satisfy the foregoing contingencies, the award may beterminated. In addition, the award may be terminated at any time at theconvenience of the government. Although we expect to satisfy the contingenciescontained in the award, we can not assure that the contingencies will besatisfied and the contract will not be terminated prior to receiving all of theproceeds.
**CODA's manufacturing partner may not purchase from us all orany portion of the 20,000 systems provided for under its supply agreement.**
We have executed a supply agreement with CODA that provides aframework for CODA's manufacturing partner to purchase from us 20,000 electricpropulsion systems for use in automobiles to be manufactured by CODA during theinitial two-year term of the agreement. Under the terms of this agreement,CODA's manufacturing partner, HaFei, will issue blanket purchase orders coveringtheir annual purchase requirements and specifying the timing of delivery forsuch units, with the nearest 60-day delivery schedule considered to be"firm" and noncancellable. HaFei has not yet issued any purchaseorders under the CODA supply agreement. If HaFei does not purchase at least15,000 units under the CODA supply agreement, CODA may be required to makespecific payments to us. For example, if CODA is unsuccessful in the developmentof its electric automobile, HaFei would not be obligated to purchase electricpropulsion systems from us, but CODA would then be obligated to make thepayments specified in the contract to us. While these specific payments wouldcover much of our costs in preparing to supply electric propulsion systems toCODA, the payments are substantially less than the amount we would receive forsales of systems under the supply agreement. In addition, CODA may not haveadequate funds to make any such payments to us or may otherwise contest itsobligation to pay, and as a result it is possible that we may never receive anysuch funds. CODA may also terminate the supply agreement for any number ofreasons.
**We may experience challenges in launching production ofelectric propulsion systems on the scale envisioned under the CODA supplyagreement.**
We have not to date produced electric propulsion systems onthe scale we intend to manufacture to fulfill our obligations under the CODAsupply agreement, although we have several years of experience manufacturingmotors and electronics that are smaller and operate at lower power levels. Wewill also need to hire additional personnel, as well as acquire new equipmentand tooling to launch production for CODA, which will require significant timeand expense. We may not sell a sufficient number of systems to CODA or othercustomers to cover these expenses.
**Our revenue is highly concentrated among a small number ofcustomers.**
A large percentage of our revenue is typically derived from asmall number of customers, and we expect this trend to continue and intensify aswe begin production under the CODA supply agreement. CODA may become the sourceof a substantial portion of our revenue in at least the near-term. The magnitudeof this revenue is dependent on CODA's ability to introduce and sell itspassenger vehicle in commercial volumes.

Our customer arrangements generally are non-exclusive, haveno long-term volume commitments and are often done on a purchase order basis. Wecannot be certain that customers that have accounted for significant revenue inpast periods will continue to purchase our products. Accordingly, our revenueand results of operations may vary substantially from period to period. We arealso subject to credit risk associated with the concentration of our accountsreceivable from our customers. If one or more of our significant customers wereto cease doing business with us, significantly reduce or delay its purchasesfrom us or fail to pay us on a timely basis, our business, financial conditionand results of operations could be materially adversely affected.
**Our business relies on third parties, whose success we cannotpredict.******
As a manufacturer of motors, generators, and other componentparts, our business model depends on the ability of third parties in ourindustry to develop, produce and market products that include or are compatiblewith our technology and then to sell these products into the marketplace. Ourability to generate revenue depends significantly on the commercial success ofour customers and partners. Failure of these third parties to achievesignificant sales of products incorporating our products and fluctuations in thetiming and volume of such sales could have a material adverse effect on ourbusiness, financial condition and results of operations.
**Our electric propulsion systems use rare earth minerals andunavailability or limited supply of these minerals could prevent us frommanufacturing our products in production quantities or increase our costs.**
Neodymium, a rare earth mineral, is a key ingredient used inthe production of magnets that are a component of our electric propulsionsystems. Neodymium is currently sourced primarily from China, and China recentlyindicated its intent to retain more of this mineral for the use of Chinesecompanies, rather than exporting it. To the extent that we buy magnets as afinished product from a Chinese supplier, these potential limitations onneodymium ore may not impact us. Although neodymium iron boron magnets areavailable from other sources, these alternative sources are currently morecostly. Reduced availability of neodymium from China could adversely affect ourability to obtain magnets in sufficient quantities, or in a timely manner, tomeet our production plans. In the event that China's actions cause us to seekalternate sources of supply for magnets, it could cause an increase in ourproduction costs thereby reducing our profit margin on electric propulsionsystems if we are unable to pass the increase in our production costs on to ourcustomers.
**A prolonged downturn in global economic conditions maymaterially adversely affect our business.**
Our business and results of operations are affected byinternational, national and regional economic conditions. Financial markets inthe United States, Europe and Asia have experienced extreme disruption over thelast year, including, among other things, extreme volatility in security prices,severely diminished liquidity and credit availability, ratings downgrades ofcertain investments and declining values of others. The global economy hasentered a recession. We are unable to predict the likely duration and severityof the current disruptions in financial markets, credit availability, andadverse economic conditions throughout the world. These economic developmentsaffect businesses such as ours and those of our customers and suppliers in anumber of ways that could result in unfavorable consequences to us. Currenteconomic conditions or declining economic conditions in the United States andelsewhere, including in the automobile industry, may cause our current orpotential customers to delay or reduce purchases which could, in turn, result inreductions in sales of our products, materially and adversely affecting ourresults of operations and cash flows. Volatility and disruption of globalfinancial markets could limit our customers' ability to obtain adequatefinancing to maintain operations and proceed with planned or new capitalspending initiatives, leading to a reduction in sales volume that couldmaterially and adversely affect our results of operations and cash flow. Inaddition, a decline in our customers' ability to pay as a result of the economicdownturn may lead to increased difficulties in the collection of our accountsreceivable, higher levels of reserves for doubtful accounts and write-offs ofaccounts receivable, and higher operating costs as a percentage of revenues.
**Some of our contracts can be cancelled with little or nonotice and could restrict our ability to commercialize our technology.**
Our contracts with government agencies are subject to therisk of termination at the convenience of the contracting agency and in somecases grant "march-in" rights to the government. March-in rights arethe right of the United States government or the applicable government agency,under limited circumstances, to exercise a non-exclusive, royalty-free,irrevocable worldwide license to any technology developed under contracts fundedby the government to facilitate commercialization of technology developed withgovernment funding. March-in rights can be exercised if we fail to commercializethe developed technology. The exercise of march-in rights by the government oran agency of the government could restrict our ability to commercialize ourtechnology.

Some of our orders for the future delivery of products areplaced under blanket purchase orders which may be cancelled by our customers atany time. The amount payable to us, if any, upon cancellation by the customervaries by customer. Accordingly, we may not recognize as revenue all or anyportion of the amount of outstanding order backlog we have reported.
**We face intense competition and may be unable to competesuccessfully.**
In developing electric motors for use in vehicles and otherapplications, we face competition from very large domestic and internationalcompanies, including the world's largest automobile manufacturers. Many of ourcompetitors have far greater resources to apply to research and developmentefforts than we have, and they may independently develop motors that aretechnologically more advanced than ours. These competitors also have muchgreater experience in and resources for marketing their products. For thesereasons, potential customers may choose to purchase electric motors from ourcompetitors rather than from us. In addition, the U.S. government hasawarded substantial financial grants under the stimulus bill to several largecompanies who compete with us. To the extent that some of these competitorsreceived awards under the stimulus bill in amounts greater than we have, couldadversely impact our ability to compete.
**Our business depends, in part, on the expansion of the marketfor hybrid electric vehicles and the future introduction and growth of a marketfor all-electric vehicles.**
Although our electric propulsion systems may be used in awide variety of products, the market for electric and hybrid vehicles is fairlynew. At the present time, batteries used to power electric motors have limitedlife and require several hours to charge, and charging stations for electricmotors are not widely available. Electric and hybrid vehicles also tend to bepriced higher than comparable gasoline-powered vehicles. As a result, consumersmay experience concerns about driving range limitations, battery charging timeand higher purchase costs of electric or hybrid automobiles. If consumerpreferences shift to vehicles powered by other alternative methods, or ifconcerns about the availability of charging stations cannot be overcome, themarket for all-electric cars, and therefore our electric propulsion systems, maybe limited. In addition, our electric propulsion systems are incorporated inbuses used for mass transit in several U.S. cities. If passenger traffic inthese mass transit systems declines, demand for our products may also decrease.

The popularity of alternative fuel based vehicles and"green energy" initiatives are highly dependent on macro-economicconditions, including oil prices and the overall health of the economy. When oilprices fall, interest in and resources allocated to the development of advancedtechnology vehicles and propulsion systems may diminish. The recent downturn inthe world economy also has severely impacted the automotive industry, slowingthe demand for vehicles generally and reducing consumers' willingness to paymore for environmentally friendly technology.
**If our products do not achieve market acceptance, ourbusiness may not grow.**
Although we believe our proprietary systems are suited for awide-range of vehicle electrification applications, our business and financialplan relies heavily on the introduction of new products that have limitedtesting in the marketplace. We are currently making substantial investments inhuman resources, manufacturing facilities and equipment, production andapplication engineering, among other things, to ramp up our production capacityin order to capitalize on the anticipated expansion in demand for electricpropulsion systems and generators in the automobile and light truck markets. Oursales of electric propulsion systems and generators in the automobile and lighttruck markets to date have consisted of limited quantities of evaluation andfield test units. We are not certain that our existing products will achievebroad market acceptance, or that we will be able to develop new products orproduct enhancements that will achieve broad market acceptance.
**Changes in environmental policies could hurt the market forour products.**
The market for electric and other alternative fuel vehiclesand equipment and the demand for our products are influenced, to a degree, byfederal, state and local regulations relating to air quality, greenhouse gasesand pollutants. These laws and regulations may change, which could result intransportation or equipment manufacturers abandoning or delaying their interestin electric or hybrid electric vehicles or equipment. In addition, a failure byauthorities to enforce current laws and regulations or to adopt additionalenvironmental laws or regulations could limit the demand for our products.

Although many governments have identified as a significantpriority the development of alternative energy sources, governments may changetheir priorities, and any change they make could materially affect our revenueor the development of our products.
**If we are unable to protect our patents and other proprietarytechnology, we will be unable to prevent third parties from using ourtechnology, which would impair our competitiveness and ability to commercializeour products. In addition, the cost of enforcing our proprietary rights may beexpensive and result in increased losses.**
Our ability to compete effectively against other companies inour industry will depend, in part, on our ability to protect our proprietarytechnology. Although we have attempted to safeguard and maintain our proprietaryrights, we do not know whether we have been or will be successful in doing so.We have historically pursued patent protection in the United States and alimited number of foreign countries where we believe significant markets for ourproducts exist or where potentially significant competitors have operations. Itis possible that a substantial market could develop in a country where we havenot received patent protection and under such circumstances our proprietaryproducts would not be afforded legal protection in these markets. Further, ourcompetitors may independently develop or patent technologies that aresubstantially equivalent or superior to ours. We cannot assure that additionalpatents will be issued to us or, if they are issued, as to the scope of theirprotection. Patents granted may not provide meaningful protection fromcompetitors. Even if a competitor's products were to infringe patents owned byus, it would be costly for us to pursue our rights in an enforcement action, itwould divert funds and resources which otherwise could be used in our operationsand we may not be successful in enforcing our intellectual property rights. Inaddition, effective patent, trademark, service mark, copyright and trade secretprotection may not be available in every country where we may operate or sellour products in the future. If third parties assert technology infringementclaims against us, the defense of the claims could involve significant legalcosts and require our management to divert time and attention from our businessoperations. If we are unsuccessful in defending any claims of infringement, wemay be forced to obtain licenses or to pay royalties to continue to use ourtechnology. We may not be able to obtain any necessary licenses on commerciallyreasonable terms or at all. If we fail to obtain necessary licenses or otherrights, or if these licenses are costly, our results of operations may suffereither from reductions in revenues through our inability to serve customers orfrom increases in costs to license third-party technologies.
**Use of our motors in vehicles could subject us to productliability claims or product recalls, and product liability insurance claimscould cause an increase in our insurance rates or could exceed our insurancelimits, which could impair our financial condition, results of operations andliquidity.**
The automotive industry experiences significant productliability claims. As a supplier of electric propulsion systems or other productsto vehicle OEMs, we face an inherent business risk of exposure to productliability claims in the event that our products, or the equipment into which ourproducts are incorporated, malfunction and result in personal injury or death.We may be named in product liability claims even if there is no evidence thatour systems or components caused an accident. Product liability claims couldresult in significant losses as a result of expenses incurred in defendingclaims or the award of damages. The sale of systems and components for thetransportation industry entails a high risk of these claims, which may increaseas our production and sales increase. In addition, we may be required toparticipate in recalls involving these systems if any of our systems prove to bedefective, or we may voluntarily initiate a recall or make payments related tosuch claims as a result of various industry or business practices or the need tomaintain good customer relationships.

We carry product liability insurance of $10 millioncovering most of our products. If we were to experience a large insured loss, itmight exceed our coverage limits, or our insurance carriers could decline tofurther cover us or raise our insurance rates to unacceptable levels, any ofwhich could impair our financial position and results of operations. Any productliability claim brought against us also could have a material adverse effect onour reputation.
**We may be subject to warranty claims, and our provision forwarranty costs may not be sufficient.**
We may be subject to warranty claims for defects or allegeddefects in our products, and the risk of such claims arising will increase asour production and sales increase. In addition, in response to consumer demand,vehicle manufacturers have been providing, and may continue to provide,increasingly longer warranty periods for their products. As a consequence, thesemanufacturers may require their suppliers, such as us, to providecorrespondingly longer product warranties. As a result, we could incursubstantially greater warranty claims in the future.
**ITEM      1B.****UNRESOLVED STAFF COMMENTS
 TOC

None.
 
****ITEM 2.**
**PROPERTIES**
 TOC

We own or lease our offices and manufacturing      facilities and believe these facilities to be well maintained, adequately      insured and suitable for their present and intended uses. Information      concerning our facilities as of March 31, 2010 is set forth in the table      below:   
Ownership or 
                 Location                   
Square Feet
Expiration Date of Lease
                          Use                            
Longmont, Colorado
129,304
Own
Manufacturing, laboratories and offices
Frederick, Colorado
28,000
Own
Manufacturing, laboratories and offices
Frederick, Colorado
6,000
Month-to-Month
Vehicle integration  ** 
**ITEM 3.**LEGAL PROCEEDINGS
 TOC
**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. On May 17, 2010 we      received a distribution from the U.S. Bankruptcy Court of $265,140. We      expect this payment to be our final recovery in this matter.

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. 
 
**ITEM 4.**SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of security    holders of the Company during the quarter ended March 31, 2010.
 
**PART II 
 TOC**ITEM 5.**MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 TOC
Our common stock trades on the NYSE Amex, Chicago,      Pacific Stock, Frankfurt and Berlin Stock Exchanges. The high and low      trade prices, by fiscal quarter, as reported by the NYSE Amex Stock      Exchange for the last two fiscal years are as follows:

2010
 High
 Low
Fourth Quarter
$7.13
$3.46
Third Quarter
$7.45
$4.27
Second Quarter
$6.55
$2.30
First Quarter
$2.64
$1.42   
2009
 High
 Low
Fourth Quarter
$2.49
$1.25
Third Quarter
$2.85
$1.20
Second Quarter
$2.90
$1.50
First Quarter
$2.82
$1.23   
 

On May 20, 2010 the closing price of our common stock,      as reported on the NYSE Amex, was $3.53 per share and there were 668      holders of record of our common stock. 
We have not paid any cash dividends on our common stock      since inception and we intend for the foreseeable future to retain any      earnings to finance the growth of our business. Future dividend policy      will be determined by the Board of Directors based upon consideration of      our earnings, capital needs and other factors then relevant.** 

PERFORMANCE GRAPH2
The following graph represents the yearly percentage changein the cumulative total return on the common stock of UQM Technologies, Inc.,the group of companies comprising the S&P Electrical Equipment Index, andthose companies comprising the S&P 500 Index for the five year period from2004 through 2009:
** **
2 The stock price performance graph depicted is not"soliciting material," is not deemed "filed" with the SEC,and is not to be incorporated by reference into any filing of the Company underthe Securities Act of 1933, as amended, or the Exchange Act, whether made beforeor after the date hereof and irrespective of any general incorporation containedin such filing.

 
**ITEM 6.****SELECTED CONSOLIDATED FINANCIAL DATA
 TOC
The selected consolidated financial data presented below should be read      in conjunction with our consolidated financial statements and related      notes included elsewhere in this document.

 

UQM Technologies, Inc. 
Selected Consolidated Financial Data  
                                                  Years        Ended March        31,                                              
        2010     
        2009     
       2008     
     2007     
     2006     
Contract services revenue
$   1,384,599 
2,717,246 
2,591,939 
2,907,536 
   2,502,098 
Product sales
$   7,307,354 
6,011,065 
4,916,383 
3,745,658 
   1,820,468 
Loss before other income
(expense)
$ (4,201,091)
(4,479,743)
 (4,995,242)
 (3,800,722)
 (3,039,659)
Net loss
$ (4,140,872)
(4,402,019)
(4,586,105)
(3,431,357)
 (2,784,970)      
Net loss per common share -      
basic and diluted
$     (0.13)     
 (0.17)     
(0.18)     
(0.14)     
(0.11)     
       
       
        
    
    
Total assets
$ 42,682,573 
12,422,832 
16,402,546 
14,012,607 
 14,796,088       
Long-term obligations (1)
$   1,155,416 
1,490,472 
1,520,798 
1,167,224 
      924,559       
Cash dividend declared per      
common share
$        -0-       
-0-       
-0-       
-0-       
-0-             
(1) Includes current portion of long-term obligations.
 
**ITEM 7.**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATIONS* TOC

This Report contains statements that constitute"forward-looking statements" within the meaning of Section 27A of theSecurities Act and Section 21E of the Securities Exchange Act. These statementsappear in a number of places in this Report and include statements regarding ourplans, beliefs or current expectations; including those plans, beliefs andexpectations of our officers and directors with respect to, among other things,orders to be received under our supply agreement with CODA, our ability tosuccessfully expand our manufacturing facilities, the ability to sell thecompany's existing facility on terms satisfactory to the company and thecontinued growth of the electric-powered vehicle industry. Important RiskFactors that could cause actual results to differ from those contained in theforward-looking statements are listed above in Part I, Item 1A. Risk Factors.***Introduction**
We generate revenue from two principal activities: 1)research, development and application engineering services that are paid for byour customers; and 2) the sale of motors, generators and electronic controls.The sources of engineering revenue typically vary from year to year andindividual projects may vary substantially in their periods of performance andaggregate dollar value. Our product sales consist of both prototype low volumesales, which are generally sold to a broad range of customers, and annuallyrecurring higher volume production. During the fiscal year ended March 31, 2010our product sales increased 21.6 percent to $7,307,354, driven primarily by anincrease in demand for propulsion systems.

During fiscal 2010 a number of critical events occurred thatwe believe have positioned the company for substantial participation in theemerging market for all-electric and hybrid electric vehicles.

In June 2009 we entered into a ten year Supply Agreement withCODA Automotive to supply UQM® PowerPhase®electric propulsion systems to CODA Automotive's production partner, HaFei.Initial shipments of production systems under the agreement are expected tobegin later this calendar year and ramp up prior to scheduled deliveries of CODA'sall-electric four-door sedan in the California market in the fall of 2010. CODAhopes to sell 14,000 vehicles in calendar year 2011 reaching an annual run rateof 20,000 vehicles, which, if achieved, would result in annual revenue to uswell in excess of $50 million.

The CODA all-electric sedan was developed by CODA'sinternal team of engineers working with multiple external engineering partners,including Porsche Engineering. The vehicle is propelled by a 100 kW UQM®PowerPhase® electric propulsion system and is expected to carry a5-star crash worthiness rating and sell in the mid $30,000s after a $7,500Federal tax credit. Powered by a 33.8 kWh lithium-ion battery, the vehicle isexpected to have a range between charges of 90 to 120 miles depending onindividual driving habits. The onboard charger plugs into a 110V or a 220Voutlet and can charge for a 40-mile commute in approximately two hours (fullcharge in less than six hours) at 220V.

The CODA electric sedan chassis will be assembled and tested,incorporating the UQM® power-train on an existinglarge-scale assembly line operated by CODA's manufacturing and assemblypartner, HaFei. Hafei is one of the premier production and R&D companies inChina and is China's third largest automobile manufacturer. Hafei has over575,000 square meters of production facilities and 11,000 employees.

CODA announced that the battery system is being supplied by ajoint venture between CODA Automotive and Tianjin Lishen Battery Co.("Lishen"). Lishen is one of the world's largest manufacturers oflithium-ion cells and a key supplier to Apple, Motorola, Samsung and Vodafone,among others. In March 2010, the CODA-Lishen joint venture announced that it hadsecured$100 million in committedequity capital and received a commitment for a $294 million line of credit fromthe Bank of Tianjin Joint-Stock Co., Ltd. CODA is working to establish U.S.based manufacturing of their joint venture batteries.
We understand that CODA is also working to establish finalvehicle assembly in southern California where at a minimum the battery systemwould be installed in the chassis produced by Hafei. It is likely, that overtime, the UQM propulsion system and other US- sourced components would beassembled into the vehicle in Southern California, rather than China.

CODA advertises that the CODA sedan is backed by athree-year/36,000 mile warranty and an eight-year/100,000 mile battery warranty.

Other suppliers to the CODA program include: Continental(electronic stability control); Delphi (DC to DC converter and electric powersteering); BorgWarner (transaxle); Hella (electric vacuum pump); Energy CS(battery management system); Lear (battery charger); OMITEC (main controller);and Mitsubishi (electric AC compressor).

In August 2009 we were awarded a $45.1 million Grant from theU.S. DOE under the American Recovery and Reinvestment Act ("ARRA") toaccelerate the manufacturing and deployment of electric vehicles, batteries andcomponents in the United States. The Grant, which was finalized in January 2010,provides for a 50 percent cost-share by the Company raising the total value ofthe project to $90.2 million. Capital expenditures for facilities, tooling andmanufacturing equipment and the qualification and testing of products associatedwith the launch of volume production for CODA Automotive are expected to qualifyfor reimbursement under the DOE program. The Grant also provides for thereimbursement of qualifying pre-award expenditures incurred after August 5,2009. Expected reimbursements under this provision for production engineeringexpenditures incurred through March 31, 2010 totaled approximately $1.6 millionand are expected to be recorded during the first quarter of fiscal 2011 as areduction of production engineering expense. Reimbursements received from theDOE through March 31, 2010 for capital assets acquired totaled $3.6 million,which were recorded as a reduction in the cost basis of the assets acquired.

In September 2009 we entered into a marketing collaborationwith BorgWarner on electric powertrain products for all-electric and hybridelectric passenger automobiles. We expect BorgWarner's global presence willbring a higher level of visibility to our electric propulsion system productsand result in additional business opportunities with automobile customersworldwide.

In October 2009 we completed a public offering of 8.625million shares of its common stock. Net cash proceeds to the Company from theoffering were approximately $32 million. Proceeds from the offering will be usedfor matching contributions under the DOE ARRA grant, working capital and generalcorporate purposes.

In December 2009 we completed the purchase of a 129,304square foot facility on a 30 acre site in Longmont, Colorado to support ourexpected growth in manufacturing operations. The facility, which includesapproximately 30,000 square feet of office space, will house the company'sengineering, vehicle integration and headquarters staff in addition to thecompany's high volume motor and electronic manufacturing operations.Approximately 15 acres of the site are available for future facility expansion.The purchase price of the facility was $7,624,729, of which $3,438,365 wasfunded under the DOE ARRA grant. We expect to sell our existing 28,000 squarefoot facility once we complete the relocation of our operations to the newfacility this summer. The new facility was acquired to accommodate our plannedexpansion of high volume manufacturing operations for CODA Automotive'sall-electric passenger vehicle program and future growth arising from theexpected launch of additional production programs.

We expect to invest over the next several quarters anadditional $7.2 million for facility upgrades, tooling, and manufacturingequipment to launch a high volume production cell for the electric propulsionsystem being supplied under the CODA Supply Agreement. We expect to use amountsunder the DOE ARRA grant for up to 50% of these investments. Similarly,following the launch of deliveries under the CODA Supply Agreement, we expect todevote substantial financial resources to meet the working capital requirementsassociated with these production activities, potentially as much as $20 million.

Throughout the fiscal year we experienced broad demand forour electric propulsion systems and related products from a wide-range ofcustomers worldwide. We believe that the increased demand is due, in part, to anexpansion in the number of all-electric and hybrid electric vehicle platformsbeing developed for potential introduction in the passenger automobile marketand the amount of government grants and loans available to encourage thedevelopment and introduction of clean vehicles. In the truck market, we arecontinuing to supply DC-to-DC converters to Eaton Corporation as part of theirhybrid electric propulsion system which powers medium duty hybrid trucksmanufactured by International Truck and Engine Corporation, Peterbilt MotorsCompany and Freightliner Trucks. We expect to see further improvements indeliveries to these markets as the global economy continues to improve. Inaddition, we expect that demand for our electric propulsion system and generatorproducts will remain strong for the foreseeable future as vehicle makerscontinue to focus on the development and introduction of electric and hybridelectric vehicles as part of the restructuring of the global automotive industryto provide a broader selection of highly fuel efficient vehicles to consumers.

During fiscal 2010 we were granted United States patentnumber 7,598,645 entitled "Stress distributing permanent magnet rotorgeometry for electric machines". The patent covers a novel rotor geometrythat minimizes magnet content and maximizes the speed capability of the motor.The reduction in the amount of magnet material enabled under this patent isexpected to result in lower production costs for electric propulsion systems forpassenger automobiles.

Product sales revenue for the fiscal year ended March 31,2010 was $7,307,354 versus $6,011,065 last fiscal year. The increase is due tostronger demand for electric propulsion systems and generators.

Revenue from funded engineering activities for the fiscalyear ended March 31, 2010 declined 49 percent to $1,384,599 versus $2,717,246last fiscal year. The decrease is primarily due to the allocation of otherwisebillable engineering resources to support production launch activities for theCODA program.

Gross profit margins on product sales for the fiscal yearimproved to 30.5 percent versus 22.1 percent last fiscal year. Grosscontribution dollars for the fiscal year ended March 31, 2010 increased to$2,717,133 versus $1,765,644 last fiscal year. The improvement is attributableto improved overhead absorption and reduced production costs associated withhigher volumes and improvements in supply chain management.

Net loss for the fiscal year ended March 31, 2010 decreasedto $4,140,872, or $0.13 per common share on total revenue of $8,691,953, versusa net loss of $4,402,019, or $0.17 per common share on total revenue of$8,728,311 for the previous fiscal year. The decrease in net loss is primarilyattributable to improved contract services and product sales margins.

Our liquidity throughout the fiscal year was sufficient tomeet our operating requirements. At March 31, 2010 we had cash and short-terminvestments totaling $30,148,783. Net cash used in operating activities andcapital expenditures for property and equipment for the fiscal year were$2,428,007 and $5,636,172 versus $3,065,281 and $570,986 last fiscal year.

As the markets for electrified vehicles continue to emergeand expand into additional vehicle platforms over the next several years, weexpect to experience potentially rapid growth in our revenue coincident with theintroduction of electric products for our customers. Should these expectationsbe realized, our existing cash and short-term investments may not be adequate tofund our anticipated growth and, as a result, we may need to raise additionalcapital to fund the higher than currently anticipated growth in our business.
**Financial Condition**
Cash and cash equivalents and short-term investments at March31, 2010 were $30,148,783 and working capital (the excess of current assets overcurrent liabilities) was $31,001,650 compared with $5,793,666 and $6,640,877,respectively, at March 31, 2009. The increase in cash and short-term investmentsand working capital is primarily attributable to the proceeds of a publicoffering of our stock and higher levels of accounts payable which were partiallyoffset by operating losses and investments in property and equipment and therepayment of debt.

Accounts receivable increased $778,539 to $1,695,638 at March31, 2010 from $917,099 at March 31, 2009. The increase is primarily attributableto higher levels of billings arising principally from billings under our DOEARRA stimulus grant as of March 31, 2010. Substantially all of our customers arelarge well-established companies of high credit quality. Although we have notestablished an allowance for bad debts at March 31, 2010 and no allowance forbad debts was deemed necessary at March 31, 2009, in light of current economicconditions we may need to establish an allowance for bad debts in the future.

Costs and estimated earnings on uncompleted contractsincreased $37,648 to $680,746 at March 31, 2010 versus $643,098 at March 31,2009. The increase is due to less favorable billing terms on certain contractsin process at March 31, 2010 versus March 31, 2009. Estimated earnings oncontracts in process increased to $544,417 or 11.8 percent of contracts inprocess of $4,607,545 at March 31, 2010 compared to estimated earnings oncontracts in process of $194,861 or 4.2 percent of contracts in process of$4,609,747 at March 31, 2009. The increase in estimated margins on contracts inprocess is attributable to improved pricing on certain contracts in process atMarch 31, 2010.

Inventories decreased $15,845 to $1,291,326 at March 31, 2010as compared to $1,307,171 at March 31, 2009 principally due to decreased levelsof raw materials and finished goods inventories which were partially offset byincreased work-in-process inventories. Raw materials and finished goodsinventory decreased, $282,091 and $59,009, respectively; reflecting lower levelsof inventory on hand for vehicle auxiliary actuator motors. Work-in-processinventory increased $325,255 reflecting higher levels of low volume productbuilds in process at March 31, 2010.

Prepaid expenses and other current assets increased to$140,285 at March 31, 2010 from $117,768 at March 31, 2009 primarily due tohigher levels of a range of prepaid items at the end of the current fiscal yearversus the prior fiscal year end.

We invested $5,636,172 for the acquisition of property andequipment during the fiscal year compared to $570,986 last fiscal year. Theincrease in capital expenditures is primarily due to the purchase of a newfacility, renovation costs for the new facility and purchases of manufacturingequipment during fiscal 2010.

Patent and trademark costs decreased $17,743 to $420,441 atMarch 31, 2010 as compared to $438,184 at March 31, 2009 due to systematicamortization of patent issuance costs, which was partially offset by the costsassociated with the filing of a new patent application.

Other assets increased $567,541 to $643,984 at March 31, 2010from $76,443 at March 31, 2009 due to higher levels of prepayments on capitalequipment purchases at the end of the current fiscal year versus the priorfiscal year end.

Accounts payable increased $770,650 to $1,421,779 at March31, 2010 from $651,129 at March 31, 2009, primarily due to renovation costs onour new facility.

Other current liabilities increased $448,571 to $1,049,243 atMarch 31, 2010 from $600,672 at March 31, 2009. The increase is primarilyattributable to higher levels of accrued property taxes and higher levels ofunearned revenue associated with customer prepayments.

Current portion of long-term debt was zero at March 31, 2010as compared to $416,923 at March 31, 2009, reflecting the payoff of the mortgagedebt for our Frederick, Colorado facility.

Short-term deferred compensation under executive employmentagreements increased to $432,554 at March 31, 2010 as compared to $397,834 atMarch 31, 2009 reflecting periodic accruals of future severance obligationsunder executive employment agreements.

Billings in excess of costs and estimated earnings onuncompleted contracts decreased $19,815 to $51,552 at March 31, 2010 from$71,367 at March 31, 2009 reflecting decreased levels of billings on certainengineering contracts in process at the end of the fiscal year ended March 31,2010 in advance of the performance of the associated work versus the priorfiscal year.

Long-term deferred compensation under executive employmentagreements increased $47,147 to $722,862 at March 31, 2010 from $675,715 atMarch 31, 2009 reflecting periodic accruals of future severance obligationsunder executive employment agreements.

Common stock and additional paid-in capital increased to$359,467 and $112,211,227, respectively, at March 31, 2010 compared to $267,277and $78,767,154 at March 31, 2009. The increase in common stock and additionalpaid-in capital was primarily attributable to a follow-on public offering andshare issuances under our employee stock purchase plan, equity incentive planand upon the exercise of warrants.
**Results of Operations**
Operations for the fiscal year ended March 31, 2010, resultedin a net loss of $4,140,872, or $0.13 per common share, compared to a net lossof $4,402,019, or $0.17 per common share, and $4,586,105, or $0.18 per commonshare, for the fiscal years ended March 31, 2009 and 2008, respectively. Thereduction in the current year net loss is primarily attributable to higherlevels of product sales revenue, improved gross profit margins on product sales,and lower selling, general and administrative expenses.

Revenue from contract services decreased $1,332,647, or 49.0percent, to $1,384,599 for the fiscal year ended March 31, 2010 versus$2,717,246 for the fiscal year ended March 31, 2009. The decrease is primarilyattributable to the application of engineering resources from the contractservices group to support production engineering, low volume production andinternally funded research and development activities. Revenue from contractservices increased 4.8 percent to $2,717,246 for the fiscal year ended March 31,2009 compared to $2,591,939 for the fiscal year ended March 31, 2008. Theincrease in the fiscal year ended March 31, 2009 is primarily attributable tohigher levels of material purchases for billable programs versus fiscal year2008.

Product sales this fiscal year increased 21.6 percent to$7,307,354 compared to $6,011,065 for the fiscal year ended March 31, 2009.Product sales for the fiscal year ended March 31, 2009 increased 22.3 percent to$6,011,065 compared to $4,916,383 for the fiscal year ended March 31, 2008.Power products segment revenue for the current fiscal year decreased to$2,455,776 versus $3,272,377 for fiscal year ended March 31, 2009 due to reducedshipments of DC-to-DC converters and higher volume electric propulsion systems.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 yearended March 31, 2008 due to increased shipments of DC-to-DC converters and theshipment of higher volume electric propulsion systems. Technology segmentproduct revenue for this fiscal year increased $2,112,890, or 77.1 percent, to$4,851,578 compared to $2,738,688 for fiscal year ended March 31, 2009 due toincreased shipments of low volume propulsion systems. Technology segment productrevenue for the fiscal year ended March 31, 2009 increased $939,414 or 52.2percent to $2,738,688 compared to $1,799,274 for fiscal year ended March 31,2008 due to increased shipments of low volume electric propulsion systems.

Gross profit margins for the current fiscal year increased to31.3 percent compared to 20.2 percent for the fiscal year ended March 31, 2009.Gross profit margins for the fiscal year ended March 31, 2009 increased to 20.2percent compared to 14.3 percent for the fiscal year ended March 31, 2008. Grossprofit margins on contract services increased to 35.5 percent this fiscal yearcompared to 16.1 percent for the fiscal year ended March 31, 2009 due toimproved pricing on certain engineering contracts in process during the currentfiscal year. Gross profit margins on contract services decreased to 16.1 percentfor the fiscal year ended March 31, 2009 compared to 21.3 percent for the fiscalyear ended March 31, 2008 due to higher incurred costs than planned on certainengineering contracts in process during the fiscal year ended March 31, 2009.Gross profit margins on product sales this fiscal year increased to 30.5 percentcompared to 22.1 percent for fiscal 2009. The improvement is primarily due tolower material costs and improved overhead absorption arising from higherproduction levels during the fiscal year. Gross profit margins on product salesfor the fiscal year ended March 31, 2009 increased to 22.1 percent compared to10.7 percent for the fiscal year ended March 31, 2008. The improvement isprimarily due to lower material costs and improved overhead absorption arisingfrom higher production levels during the fiscal year ended March 31, 2009.

Research and development expenditures for the fiscal yearended March 31, 2010 were $576,341 compared to $593,209 and $461,791 for thefiscal years ended March 31, 2009 and 2008, respectively. The decrease inresearch and development expenditures for the fiscal year ended March 31, 2010compared to the prior fiscal year was primarily due to reduced levels ofinternally funded programs. The increase in research and developmentexpenditures for fiscal 2009 versus fiscal 2008 was primarily due to increasedlevels of internally funded software development programs.

Production engineering costs were $2,908,334 for the fiscalyear ended March 31, 2010 versus $1,869,848 and $1,706,978 for the prior twofiscal years. The increase for the current fiscal year versus fiscal year 2009is primarily attributable to higher sample costs and the utilization ofengineering resources from our contract services group on production engineeringactivities and expansion of the group and its activities in preparation for thelaunch of higher volume manufacturing operations for the CODA program. Theincrease for the fiscal year ended March 31, 2009 versus fiscal 2008 isprimarily attributable to engineering activities associated with the design andinstallation of a new production cell for our larger propulsion motors andproduction design activities on our motor and controller products.

Selling, general and administrative expense this fiscal yearwas $3,433,549 compared to $3,782,840 and $3,905,495 for the fiscal years endedMarch 31, 2009 and 2008, respectively. The decrease for this fiscal year isprimarily attributable to lower levels of legal expenses. The decrease forfiscal 2009 versus fiscal 2008 is primarily attributable to lower levels ofequity based compensation and lower deferred compensation expense recordedpartially offset by increased legal fees for litigation.

Interest income declined to $64,916 for the current fiscalyear compared to $198,947 and $463,248 for the fiscal years ended March 31, 2009and 2008, respectively. The decrease for fiscal 2010 versus fiscal 2009 isattributable to lower yields on invested balances. The decrease for fiscal 2009versus fiscal 2008 is attributable to lower invested balances and lower yieldsduring the fiscal year ended March 31, 2009.

Interest expense decreased to $15,697 for the year endedMarch 31, 2010 compared to $33,387 and $40,652 for the fiscal years ended March31, 2009 and 2008, respectively. The decrease is due to lower average mortgageborrowings outstanding throughout the fiscal year as compared to the priorfiscal year.
**Liquidity and Capital Resources**
Our cash balances and liquidity throughout the fiscal yearended March 31, 2010 were adequate to meet operating needs. At March 31, 2010,we had working capital (the excess of current assets over current liabilities)of $31,001,650 compared to $6,640,877 at March 31, 2009.

For the year ended March 31, 2010, net cash used in operatingactivities was $2,428,007 compared to net cash used in operating activities of$3,065,281 and $2,511,723 for the years ended March 31, 2009 and 2008,respectively. The decrease in cash used for the year ended March 31, 2010 isprimarily attributable to lower operating losses, higher levels of accountspayable, partially offset by increased levels of accounts receivable. Theincrease in cash used in operating activities in fiscal 2009 is primarilyattributable to higher levels of inventories, increased levels of billings inexcess of costs on uncompleted contracts partially offset by lower operatinglosses, increased depreciation and amortization and impairment expense.

Net cash used in investing activities for the fiscal yearended March 31, 2010 was $14,793,339 compared to cash provided by investingactivities of $2,620,118 for the previous fiscal year and cash used in investingactivities of $1,446,752 for fiscal 2008, respectively. The increase in net cashused in investing activities for fiscal 2010 was primarily due to increasedlevels of short term investments and higher levels of capital expendituresassociated with the establishment of high volume manufacturing capability andcapacity for the CODA vehicle launch later this calendar year. The change infiscal year 2009 versus 2008 fiscal year was primarily due to higher levels ofmaturities of short-term investments offset by lower expenditures for buildingimprovements and manufacturing equipment.

Net cash provided by financing activities was $32,458,947 forthe fiscal year ended March 31, 2010 versus cash used in financing activities of$228,922 and cash provided by financing activities of $5,182,382 for the fiscalyears ended March 31, 2009 and 2008, respectively. The change in fiscal 2010versus 2009 is attributable to the completion of a follow-on public offering inthe third quarter of fiscal 2010, which resulted in cash proceeds of$31,664,373. The change for fiscal year 2009 versus fiscal year 2008 isattributable to the purchase of treasury stock in fiscal year 2009, and to thecompletion of a private placement in the first quarter of fiscal 2008, whichresulted in cash proceeds of $5,183,677.

We expect to fund our operations over the next year fromexisting cash and short-term investment balances and from available bankfinancing, if any. We may need to invest substantially greater financialresources during fiscal 2011 on the commercialization of our products inemerging markets, including a significant increase in human resources, andincreased expenditures for equipment, tooling and facilities. These capitalrequirements may be substantially reduced by the funding of 50 percent ofqualified capital expenditures from the Company's grant from the U.S. DOEunder the ARRA. Although we expect to manage our operations and working capitalrequirements to minimize the future level of operating losses and workingcapital usage consistent with the execution of our business plan, our plannedworking capital requirements may consume a substantial portion of our cashreserves at March 31, 2010. If customer demand accelerates substantially, ourlosses over the short-term may increase together with our working capitalrequirements. If our existing financial resources are not sufficient to executeour business plan, we may issue equity or debt securities in the future,although we cannot assure that we will be able to secure additional capitalshould it be required to implement our current business plan. In the eventfinancing or equity capital to fund future growth is not available on termsacceptable to us, or at all, we will modify our strategy to align our operationwith then available financial resources.
**Contractual Obligations**
The following table presents information about ourcontractual obligations and commitments as of March 31, 2010:
  **                              Payments      due by      Period                            ** 

              

       Total  ** 

 Less Than

    1 Year  
 
** 

2 - 3 Years
 

 
**4 - 5 Years**More than 

  5 Years   
Purchase obligations
2,523,855  
2,523,855   
-         
-         
-         
Executive employment agreements (1)
1,155,416  
   432,554   
680,160   
      -         
42,702   
Total
3,679,271  
2,956,409   
680,160   
      -         
42,702   
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.
** 

Off-Balance Sheet Arrangements**
None.
**Critical Accounting Policies**
The preparation of financial statements and relateddisclosures in conformity with accounting principles generally accepted in theUnited States of America requires management to make judgments, assumptions andestimates that affect the dollar values reported in the consolidated financialstatements and accompanying notes. Note 1 to the consolidated financialstatements describes the significant accounting policies and methods used inpreparation of the consolidated financial statements. Estimates are used for,but not limited to, allowance for doubtful accounts receivables, costs tocomplete contracts, the recoverability of inventories and the fair value offinancial and long-lived assets. Actual results could differ materially fromthese estimates. The following critical accounting policies are impactedsignificantly by judgments, assumptions and estimates used in preparation of theconsolidated financial statements.
***Accounts Receivable***
Our trade accounts receivable are subject to credit risksassociated with the financial condition of our customers and their liquidity. Weevaluate all customers periodically to assess their financial condition andliquidity and set appropriate credit limits based on this analysis. As a result,the collectibility of accounts receivable may change due to changing generaleconomic conditions and factors associated with each customer's particularbusiness. Because substantially all of our customers are large well-establishedcompanies with excellent credit worthiness, we have not established a reserve atMarch 31, 2010 and 2009 for potentially uncollectible trade accounts receivable.In light of current economic conditions we may need to establish an allowancefor bad debts in the future. It is also reasonably possible, that future eventsor changes in circumstances could cause the realizable value of our tradeaccounts receivable to decline materially, resulting in material losses.
***Inventories***
We maintain raw material inventories of electroniccomponents, motor parts and other materials to meet our expected manufacturingneeds for proprietary products and for products manufactured to the designspecifications of our customers. Some of these components may become obsolete orimpaired due to bulk purchases in excess of customer requirements. Accordingly,we periodically assesses our raw material inventory for potential impairment ofvalue based on then available information, expectations and estimates andestablish impairment reserves for estimated declines in the realizable value ofour inventories. The actual realizable value of our inventories may differmaterially from these estimates based on future occurrences. It is reasonablypossible that future events or changes in circumstances could cause therealizable value of our inventories to decline materially, resulting inadditional material impairment losses. During the fiscal years ended March 31,2010, 2009 and 2008, we recorded inventory impairments of $26,714, $41,613 andzero, respectively.
***Percentage of Completion Revenue Recognition on Long-termContracts: Costs and Estimated Earnings in Excess of Billings on***UncompletedContracts***
We recognize revenue on development projects funded by ourcustomers using the percentage-of-completion method. Under this method, contractservices revenue is based on the percentage that costs incurred to date bear tomanagement's best estimate of the total costs to be incurred to complete theproject. Many of these contracts involve the application of our technology tocustomers' products and other applications with demanding specifications.Management's best estimates have sometimes been adversely impacted byunexpected technical challenges requiring additional analysis and redesign,failure of electronic components to operate in accordance with manufacturerspublished performance specifications, unexpected prototype failures requiringthe purchase of additional parts and a variety of other factors that may causeunforeseen delays and additional costs. It is reasonably possible that totalcosts to be incurred on any of the projects in process at March 31, 2010 couldbe materially different from management's estimates, and any modification ofmanagement's estimate of total project costs to be incurred could result inmaterial changes in the profitability of affected projects or result in materiallosses on any affected projects.
***Fair Value Measurements and Asset Impairment***
Some of our assets and liabilities may be subject to analysisas to whether the asset or liability should be marked to fair value and someassets may be evaluated for potential impairment in value. Fair value estimatesand judgments may be required by management for those assets that do not havequoted prices in active markets. These estimates and judgments may include fairvalue determinations based upon the extrapolation of quoted prices for similarassets and liabilities in active or inactive markets, for observable items otherthan the asset or liability itself, for observable items by correlation or otherstatistical analysis, or from our assumptions about the assumptions marketparticipants would use in valuing an asset or liability when no observablemarket data is available. Similarly, management evaluates both tangible andintangible assets for potential impairments in value. In conducting thisevaluation, management may rely on a number of factors to value anticipatedfuture cash flows including operating results, business plans and present valuetechniques. Rates used to value and discount cash flows may include assumptionsabout interest rates and the cost of capital at a point in time. There areinherent uncertainties related to these factors and management's judgment inapplying them to the analysis of asset impairment. Changes in any of theforegoing estimates and assumptions or a change in market conditions couldresult in a material change in the value of an asset or liability resulting in amaterial adverse change in our operating results.
**New Accounting Pronouncements**
In October 2009, the FASB issued newstandards for revenue recognition with multiple deliverables. These newstandards impact the determination of when the individual deliverables includedin a multiple-element arrangement may be treated as separate units ofaccounting. Additionally, these new standards modify the manner in which thetransaction consideration is allocated across the separately identifieddeliverables by no longer permitting the residual method of allocatingarrangement consideration. These new standards are required to be adopted in thefirst quarter of FY 2012; however, early adoption is permitted. We do not expectthese new standards to significantly impact our consolidated financialstatements, results of operations, or cash flows.
In October 2009, the FASB issued new standards for theaccounting for certain revenue arrangements that include software elements.These new standards amend the scope of pre-existing software revenue guidance byremoving from the guidance non-software components of tangible products andcertain software components of tangible products. These new standards arerequired to be adopted in the first quarter of FY 2012; however, early adoptionis permitted. We do not expect these new standards to significantly impact ourconsolidated financial statements, results of operations, or cash flows.

In January 2010, the FASB issued amended standards thatrequire additional fair value disclosures. These amended standards requiredisclosures about inputs and valuation techniques used to measure fair value aswell as disclosures about significant transfers, beginning in the first quarterof 2010. Additionally, these amended standards require presentation ofdisaggregated activity within the reconciliation for fair value measurementsusing significant unobservable inputs (Level 3), beginning in the first quarterof FY 2012. We do not expect these new standards to significantly impact ourconsolidated financial statements, results of operations, or cash flows.

 
**ITEM 7A.**QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET    RISK
 TOC

Market risk is the potential loss arising from adversechanges in market rates and prices, such as foreign currency exchange andinterest rates. We do not use financial instruments to any degree to managethese risks and do not hold or issue financial instruments for trading purposes.All of our product sales, and related receivables are payable in U.S. dollars.We are not subject to interest rate risk on our debt obligations.
**ITEM 8.****FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
Report of Independent RegisteredPublic Accounting Firm

 TOC

Board of Directors and

Shareholders of UQM Technologies, Inc.

We have audited the accompanying consolidated balance sheetsof UQM Technologies, Inc. (a Colorado Corporation) and subsidiaries(collectively, "UQM") as of March 31, 2010 and 2009, and the relatedconsolidated statements of operations, stockholders' equity and cash flows foreach of the three years in the period ended March 31, 2010. These financialstatements are the responsibility of UQM's management. Our responsibility isto express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of UQM Technologies, Inc. and subsidiaries as of March 31, 2010and 2009, and the results of their operations and their cash flows for each ofthe three years in the period ended March 31, 2010 in conformity with accountingprinciples generally accepted in the United States of America.

We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States), UQM Technologies,Inc. and subsidiaries' internal control over financial reporting as of March31, 2010, based on criteria established in *Internal Control - IntegratedFramework* issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) and our report dated May 24, 2010, expressed an unqualifiedopinion.

 

/s/ GRANT THORNTON LLP

Denver, Colorado

May 24, 2010

Report of Independent RegisteredPublic Accounting Firm

Board of Directors and

Shareholders of UQM Technologies, Inc.

 

We have audited UQM Technologies, Inc. (a ColoradoCorporation) and subsidiaries' (collectively, "UQM") internalcontrol over financial reporting as of March 31, 2010, based on criteriaestablished in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). UQM'smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying *Management'sReport on Internal Control over Financial Reporting*appearing under Item 9A.Our responsibility is to express an opinion on UQM's internal control overfinancial reporting based on our audit.

We conducted our audit in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company'sinternal control over financial reporting includes those policies and proceduresthat (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets ofthe company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company's assets that could have a material effect on the financialstatements.

Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

In our opinion, UQM Technologies, Inc. and subsidiariesmaintained, in all material respects, effective internal control over financialreporting as of March 31, 2010, based on criteria established in *InternalControl-Integrated Framework* issued by COSO.

We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States), the consolidatedbalance sheets of UQM Technologies, Inc. and subsidiaries as of March 31, 2010and 2009, and the related consolidated statements of operations, stockholders'equity and cash flows for each of the three years in the period ended March 31,2010, and our report dated May 24, 2010, expressed an unqualified opinion.

 

/s/ GRANT THORNTON LLP

Denver, Colorado

May 24, 2010

 

 

**UQM TECHNOLOGIES, INC.**

**AND SUBSIDIARIES**

 TOC
**Consolidated Balance Sheets**** ** 
March 31, 2010 
March 31, 2009**Assets     
Current assets:   
Cash and cash equivalents
$   17,739,600 
2,501,999  
Short-term investments
12,409,183 
3,291,667  
Accounts receivable
1,695,638 
917,099  
Costs and estimated earnings in excess of billings on    
uncompleted contracts
680,746 
643,098  
Inventories
1,291,326 
1,307,171  
Prepaid expenses and other current assets
     140,285 
     117,768       
Total current assets 
33,956,778 
  8,778,802    
Property and equipment, at cost:   
Land
1,825,968 
181,580  
Building
5,402,176 
2,464,213  
Machinery and equipment
  4,524,188 
  4,040,406  
11,752,332 
6,686,199  
Less accumulated depreciation
(4,090,962)
(3,556,796)      
Net property and equipment
  7,661,370 
  3,129,403    
Patent and trademark costs, net of accumulated amortization   
of $789,325 and $733,594
420,441 
438,184    
Other assets
     643,984 
       76,443    
Total assets
$ 42,682,573 
12,422,832  
 
   
(Continued)
 

See accompanying notes to consolidated financial statements.
** 

Consolidated Balance Sheets, Continued** 
March 31, 2010 
March 31, 2009 **Liabilities and Stockholders' Equity     
Current liabilities:   
Accounts payable
$      1,421,779 
651,129  
Other current liabilities
1,049,243 
600,672  
Current portion of long-term debt
-       
416,923  
Short-term deferred compensation under executive employment    
agreements
432,554 
397,834  
Billings in excess of costs and estimated earnings on    
uncompleted contracts
         51,552 
       71,367       
Total current liabilities
    2,955,128 
  2,137,925       
Long-term deferred compensation under executive employment agreements
      722,862 
     675,715  
      722,862 
     675,715       
Total liabilities
   3,677,990 
  2,813,640    
Commitments and contingencies     
Stockholders' equity:   
Common stock, $0.01 par value, 50,000,000 shares  
authorized; 35,946,738 and 26,727,694 shares
issued and outstanding
359,467 
267,277 
Additional paid-in capital
112,211,227 
78,767,154  
Accumulated deficit
(73,566,111)
(69,425,239)   
Total stockholders' equity
  39,004,583 
  9,609,192       
Total liabilities and stockholders' equity
$    42,682,573 
12,422,832 
 

See accompanying notes to consolidated financial statements.

 
**Consolidated Statements of Operations
 TOC
 
Year Ended   
Year Ended   
Year Ended    
March 31, 2010
March 31, 2009
March 31, 2008
Revenue:    
Contract services
$   1,384,599   
2,717,246   
 2,591,939    
Product sales
  7,307,354   
  6,011,065   
  4,916,383    
  8,691,953   
  8,728,311   
  7,508,322   
Operating costs and expenses: 
Costs of contract services
892,649   
2,279,956   
2,039,017    
Costs of product sales
5,082,171   
4,682,711   
4,392,442    
Research and development
576,341   
593,209   
461,791    
Production engineering
2,908,334   
1,869,848   
1,706,978    
Selling, general and administrative
3,433,549   
3,782,840   
3,905,495    
Gain on disposal of assets
           -         
          (510)  
        (2,159)  
12,893,044   
13,208,054   
 12,503,564           
Loss before other income (expense)
(4,201,091)  
(4,479,743)  
(4,995,242)        
Other income (expense):    
Interest income
64,916   
198,947   
463,248    
Interest expense
(15,697)  
(33,387)  
(40,652)   
Impairment of investment
-         
(89,369)  
-          
Other
       11,000   
         1,533   
     (13,459)    
       60,219   
       77,724   
     409,137          
Net loss
$ (4,140,872)  
(4,402,019)  
  (4,586,105)    
 
    
Net loss per common share-basic and diluted:
$(0.13)       
(0.17)       
(0.18)         
  
    
Weighted average number of shares of common   
stock outstanding - basic and diluted
30,720,368   
26,651,130   
26,196,278   
See accompanying notes to consolidated financial statements.
** 

 

Consolidated Statements of Stockholders' Equity
 TOC
 
Number of     
common   
Additional  
Total        
shares    
Common 
paid-in   
Accumulated 
stockholders' 
    issued    
    stock    
    capital    
     deficit       
     equity      **Balances at April 1, 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
1,250,000 
12,500 
5,171,177 
-       
5,183,677 
Issuance of common stock under
employee stock purchase plan
14,664 
146 
40,644 
-       
40,790 
Issuance of common stock upon
exercise of employee options
24,362 
244 
56,431 
-       
56,675 
Issuance of common stock under
stock bonus plan
60,822 
608 
46,623 
-       
47,231 
Compensation expense from
employee and director stock
option and common stock grants
-       
-       
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
22,268 
223 
33,994 
-       
34,217 
Purchase of treasury stock
(70,269)
(703)
(156,434)
-       
(157,137)
Issuance of common stock under
stock bonus plan
248,958 
2,490 
(2,490)
-       
-       
Compensation expense from
employee and director stock
option and common stock grants
-       
-       
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 
Issuance of common stock in follow-on
offering, net of offering costs
8,625,000 
86,250 
31,578,123 
-       
31,664,373 
Issuance of common stock under
employee stock purchase plan
61,362 
613 
106,000 
-       
106,613 
Purchase of treasury stock
(38,750)
(388)
(159,787)
-       
(160,175)
Issuance of common stock upon exercise
of employee options
374,349 
3,743 
1,081,120 
-       
1,084,863 
Issuance of common stock upon exercise
of warrants
70,142 
701 
179,495 
-       
180,196 
Issuance of common stock under
stock bonus plan
126,941 
1,271 
(1,271)
-       
-       
Compensation expense from
employee and director stock
option and common stock grants
-       
-       
660,393 
-       
660,393 
Net loss
          -       
     -       
            -       
 (4,140,872)
 (4,140,872)**Balances at March 31, 2010
35,946,738 
$ 359,467
112,211,227 
(73,566,111)
39,004,583 
See accompanying notes to consolidated financial statements.

 
**Consolidated Statements of Cash Flows
 TOC
 
Year Ended   
Year Ended   
Year Ended     
March 31, 2010 
March 31, 2009 
March 31, 2008 
Cash flows from operating activities:    
Net loss
$(4,140,872)
(4,402,019)
(4,586,105) 
Adjustments to reconcile net loss to net cash used in     
operating activities:      
Depreciation and amortization
603,095 
546,843 
437,799 
Gain on disposal of assets
-       
(510)
(13,314)   
Impairment of long-lived assets
-       
-       
11,155    
Impairment of investment
-       
89,369 
-          
Impairment of inventories
26,714 
41,613 
-          
Non-cash equity based compensation
660,393 
1,073,043 
1,174,935    
Change in operating assets and liabilities:       
Accounts receivable and costs and estimated        
earnings in excess of billings on        
uncompleted contracts
(816,187)
393,612 
(255,113)    
Inventories
(10,869)
(387,295)
(61,604)    
Prepaid expenses and other current assets
(22,517)
1,879 
159,696     
Other assets
(9,037)
-       
2,101     
Accounts payable and other current liabilities
1,219,221 
138,989 
(228,918)    
Billings in excess of costs and estimated        
earnings on uncompleted contracts
(19,815)
       (636,481)
       395,311     
Deferred compensation under executive        
employment agreements
        81,867 
     75,676 
    452,334       
Net cash used in operating activities
  (2,428,007)
(3,065,281)
(2,511,723)    
Cash flows from investing activities:    
Maturities (purchases) of short-term investments
(9,117,516)
3,208,772 
       (607,980) 
Increase in other long-term assets
(1,664)
(2,122)
(2,217) 
Prepayments on property and equipment
       (662,072)
       (188,427)
       (186,633) 
Acquisition of property and equipment
(4,974,100)
(382,559)
(616,488) 
Increase in patent and trademark costs
(37,987)
(16,056)
(51,099) 
Proceeds from sale of assets
          -       
          510 
     17,665       
Net cash provided by (used in) investing activities
$ (14,793,339) 
2,620,118 
(1,446,752)                               ** 

Consolidated Statements of Cash Flows, Continued** 
Year Ended
Year Ended     
Year Ended 
March 31, 2010
March 31, 2009  
March 31, 2008
Cash flows from financing activities:    
Repayment of debt
$     (416,923)
(106,002)
(98,760) 
Issuance of common stock in follow-on offering,     
net of offering costs
31,664,373 
-       
5,183,677  
Issuance of common stock upon exercise of     
employee options
1,084,863 
-       
56,675  
Purchase of treasury stock
(160,175)
(157,137)
-        
Issuance of common stock upon exercise of warrants
180,196 
-       
-        
Issuance of common stock under employee stock   
purchase plan
     106,613 
     34,217 
     40,790 
Net cash provided by (used in) financing activities
32,458,947 
  (228,922)
5,182,382     
Increase (decrease) in cash and cash equivalents
15,237,601 
(674,085)
1,223,907     
Cash and cash equivalents at beginning of year
  2,501,999 
3,176,084 
1,952,177     
Cash and cash equivalents at end of year
$ 17,739,600 
2,501,999 
3,176,084     
Supplemental Cash Flow Information:
Interest paid in cash during the year
$        17,075 
     33,738 
     40,979 
 
See accompanying notes to consolidated financial statements.

 

**Notes to Consolidated Financial Statements**

 TOC
**(1)  Summary ofSignificant 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.

Although the amount of credit exposure to any one  institution may exceed federally insured amounts, we limit our cash and cash  equivalents and investments to high quality financial institutions in order to  minimize our credit risk.
**(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 as we have the positive intent and ability to  hold until maturity. These securities are recorded at amortized cost.

The amortized cost and unrealized gain or loss of our  investments were:

  
            March        31, 2010          
           March        31,        2009            
Amortized Cost
Gain (Loss) 
Amortized Cost
Gain (Loss) 
Short-term investments:    
U.S. government and government agency     
securities
$   4,994,624
576 
2,055,176
2,755 
Commercial paper, corporate and foreign bonds
1,656,875
(2,389)
137,418
(3,454)
Certificates of deposit
5,757,684
  -       
1,099,073
  -       
12,409,183
  (1,813)
3,291,667
  (699)
Long-term investment:
Certificates of deposit (included in other assets)
      58,701
   -       
     57,038
  -       
$ 12,467,884
(1,813)
3,348,705
  (699)**The time to maturity of held-to-maturity securities were:
****
  
                      March      31,               
    2010    
           2009     
Three to six months
$   1,349,290
         -       
Six months to one year
11,059,893
3,291,667 
Over one year
       58,701
     57,038
$ 12,467,884
3,348,705**(e)  Accounts Receivable

We extend unsecured credit to most of our customers followinga review of the customers' financial condition and credit history. Weestablish an allowance for doubtful accounts based upon a number of factorsincluding the length of time trade receivables are past due, the customer'sability to pay its obligation to us, the condition of the general economy,estimates of credit risk, historical trends and other information. We write offaccounts receivable when they become uncollectible against our allowance foruncollectible accounts receivable. At March 31, 2010 and 2009, no allowance foruncollectible accounts receivable was deemed necessary. Accounts receivable aredeemed to be past due when they have not been paid by their contractual duedates.
**(f)  Inventories**
Inventories are stated at the lower of cost or market. Cost  is determined by the first-in, first-out method. We charge directly to expense  slow moving or obsolete inventory items during the period we assess the value  of such inventory to be impaired. For the fiscal years ended March 31, 2010  and 2009 we impaired inventory of $26,714 and $41,613, respectively.
**(g)  Property and Equipment**
Property and equipment are stated at cost. Depreciation is  computed using the straight-line method over the estimated useful lives of the  assets, which range from three to five years, except for buildings, which are  depreciated over 27.5 years. Maintenance and repairs are charged to expense as  incurred. Depreciation expense for the fiscal years ended March 31, 2010, 2009  and 2008 was $547,365, $491,206 and $382,162, 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, 2010, 2009 and 2008  was $55,730, $55,637, and $55,637, 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 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.
**Government Grants**
The Company recognizes government grants when there isreasonable assurance that the Company will comply with the conditions attachedto the grant arrangement and the grant will be received. Government grants arerecognized in the consolidated statements of operations on a systematic basisover the periods in which the Company recognizes the related costs for which thegovernment grant is intended to compensate. Specifically, when government grantsare related to reimbursements for cost of revenues or operating expenses, thegovernment grants are recognized as a reduction of the related expense in theconsolidated statements of operations. For government grants related toreimbursements of capital expenditures, the government grants are recognized asa reduction of the basis of the asset and recognized in the consolidatedstatements of operations over the estimated useful life of the depreciable assetas reduced depreciation expense.

The Company records government grants receivable in theconsolidated balance sheets in accounts receivable.
**(m)  Income Taxes**
The Company accounts for income taxes under the asset and  liability method. 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.
**(n)  Research and Development**
Costs of researching and developing new technology, or  significantly altering existing technology, are expensed as incurred.
**(o)  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, 2010, 2009 and 2008,  respectively, issued but not yet earned common shares of 98,929, 225,870, and  283,480 were being held in safekeeping by the Company. For the fiscal years  2010, 2009, and 2008, shares in the amount of 26,260, zero, and 7,887,  respectively, 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, 2010, 2009 and 2008, options to purchase  2,637,875, 2,995,214, and 2,679,740 shares of common stock, respectively, and  warrants to purchase zero, zero, and 85,267 shares of common stock,  respectively, were outstanding. For the fiscal years ended March 31, 2010,  2009 and 2008, respectively, options and warrants for 678,815, 2,957,734, and  1,400,051 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 612,807 shares, 3,554  shares, and 335,477 shares of common stock for the fiscal years ended March  31, 2010, 2009 and 2008, respectively, were potentially includable in the  calculation of diluted loss per share but were not included, because to do so  would be antidilutive.
**(p)  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.
**(q)  Reclassifications**
Certain prior year amounts have been reclassified to conformto the current year presentation.
**New Accounting Pronouncements**
In October 2009, the FASB issued new standards for revenuerecognition with multiple deliverables. These new standards impact thedetermination of when the individual deliverables included in a multiple-elementarrangement may be treated as separate units of accounting. Additionally, thesenew standards modify the manner in which the transaction consideration isallocated across the separately identified deliverables by no longer permittingthe residual method of allocating arrangement consideration. These new standardsare required to be adopted in the first quarter of FY 2012; however, earlyadoption is permitted. We do not expect these new standards to significantlyimpact our consolidated financial statements.

In October 2009, the FASB issued new standards for theaccounting for certain revenue arrangements that include software elements.These new standards amend the scope of pre-existing software revenue guidance byremoving from the guidance non-software components of tangible products andcertain software components of tangible products. These new standards arerequired to be adopted in the first quarter of FY 2012; however, early adoptionis permitted. We do not expect these new standards to significantly impact ourconsolidated financial statements.

In January 2010, the FASB issued amended standards thatrequire additional fair value disclosures. These amended standards requiredisclosures about inputs and valuation techniques used to measure fair value aswell as disclosures about significant transfers, beginning in the first quarterof 2010. Additionally, these amended standards require presentation ofdisaggregated activity within the reconciliation for fair value measurementsusing significant unobservable inputs (Level 3), beginning in the first quarterof FY 2012. We do not expect these new standards to significantly impact ourconsolidated financial statements.
**(2)  Stock Based Compensation
*Stock Option Plans*
As of March 31, 2010 we had 619,202 shares of common stockavailable for future grant to employees, consultants and key suppliers under our2002 Equity Incentive Plan ("Plan"). Under the Plan, the exerciseprice of each option is set at the fair value of the common stock on the date ofgrant and the maximum term of the option is 10 years from the date of grant.Options granted to employees generally vest ratably over a three-year period.The maximum number of options that may be granted to an employee under the Planin any calendar year is 500,000 options. Forfeitures under the Plan areavailable 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 abideby certain Company policies, which restrict their ability to sell the underlyingcommon stock. Prior to the adoption of the Plan, we issued stock options underour 1992 Incentive and Non-Qualified Option Plan, which expired by its terms in2002. Forfeitures under the 1992 Incentive and Non-Qualified Option Plan may notbe re-issued.
*Non-Employee Director Stock Option Plan*
In February 1994 our Board of Directors ratified a StockOption Plan for Non-Employee Directors ("Directors Plan") pursuant towhich Directors may elect to receive stock options in lieu of cash compensationfor their services as directors. As of March 31, 2010, we had 150,768 shares ofcommon stock available for future grant under the Directors Plan. Option termsrange from 3 to 10 years from the date of grant. Option exercise prices areequal to the fair value of the common shares on the date of grant. Optionsgranted under the plan generally vest immediately. Forfeitures under theDirectors Plan are available for re-issuance at a future date.
*Stock Purchase Plan*
We have established a Stock Purchase Plan under whicheligible employees may contribute up to 10 percent of their compensation topurchase shares of our common stock at 85 percent of the fair market value atspecified dates. As of March 31, 2010 we had 506,607 shares of common stockavailable for issuance under the Stock Purchase Plan. During the years endedMarch 31, 2010, 2009 and 2008, respectively, 61,362, 22,268, and 14,664 sharesof common stock were issued under the Stock Purchase Plan. Cash received by usupon the issuance of shares under the Stock Purchase Plan for the years endedMarch 31, 2010, 2009 and 2008, was $106,613, $34,217, and $40,790, respectively.
*Stock Bonus Plan*
We have a Stock Bonus Plan ("Stock Plan")administered by the Board of Directors. As of March 31, 2010 there were 6,794shares of common stock available for future grant under the Stock Plan. Underthe Stock Plan, shares of common stock may be granted to employees, keyconsultants, and directors who are not employees as additional compensation forservices 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 zero,and 191,348 shares granted under the Stock Plan during the years ended March 31,2010, and March 31, 2009, respectively.

We use the straight-line attribution method to recognizeshare-based compensation costs over the requisite service period of the award.Options granted by us generally expire ten years from the grant date. Optionsgranted to existing and newly hired employees generally vest over a three-yearperiod from the date of the grant. The exercise price of options is equal to themarket price of our common stock (defined as the closing price reported by theNYSE Amex) on the date of grant.

We use the Black-Scholes-Merton option pricing model forestimating the fair value of stock option awards. Total share-based compensationexpense and the classification of these expenses for the last three fiscal yearswere as follows:

 
Year Ended     
Year Ended     
Year Ended      
March 31, 2010  
March 31, 2009  
March 31, 2008  
Cost of contract services
$    84,331      
$     110,329      
113,507      
Cost of product sales
76,809      
84,875      
60,933      
Research and development
29,606      
37,903      
25,652      
Production engineering
103,669      
128,553      
132,494      
Selling, general and administrative
365,978      
   711,383      
   842,349          
$  660,393      
$  1,073,043      
1,174,935      
 

Share-based compensation capitalized in inventories was  insignificant as of March 31, 2010 and 2009.

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,  2010, 2009 and 2008 was insignificant.

All options granted under the Non-Employee Director Stock  Option Plan are vested. A summary of the status of non-vested shares under the  Equity Incentive Plan as of March 31, 2010, 2009 and 2008, and changes during  the years ended March 31, 2010, 2009 and 2008 are presented below:

  
Year Ended
Year Ended
Year Ended 
March 31, 2010
March 31, 2009
March 31, 2008  
Weighted- 
Weighted- 
Weighted- 
Shares
Average
Shares
Average
Shares
Average 
Under
Grant Date
Under
Grant Date
Under
Grant Date 
 Option 
Fair Value
 Option 
Fair Value
 Option 
Fair Value
Non-vested at March 31
283,454   
    $ 1.40
337,888   
    $ 1.85
554,940   
    $ 1.71******************************************************************************************************************************