|  | 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
[      ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE    SECURITIES EXCHANGE ACT OF 1934
For the Fiscal    Year Ended March 31, 2004
Commission file    number 1-10869
               UQM    TECHNOLOGIES,    INC.               
(Exact name of    registrant as specified in its charter)
 

 

 
    7501    Miller Drive, Frederick, Colorado 80530     
(Address of    principal executive offices) (Zip Code)
Registrant's    telephone number, including area code: (303) 278-2002
Securities    registered pursuant to Section 12(b) of the Act:
Common stock,    $.01 par value
Name of each    exchange on which registered:
American Stock    Exchange
Pacific Stock    Exchange
Chicago Stock    Exchange
Frankfurt Stock    Exchange
Berlin Stock    Exchange
Securities    registered pursuant to Section 12(g) of the Act:
Common stock,    $.01 par value
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 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.     
Indicate by    check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the    Act). Yes___ No   X  .
The aggregate    market value of the voting stock held by non-affiliates of the registrant (19,212,619    shares) computed by reference to the closing price of such stock on the American Stock    Exchange, as of September 30, 2003:
$68,973,302
The number of    shares outstanding (including shares held by affiliates) of each of the registrant's    classes of common stock, as of May 24, 2004:
19,574,730    shares of the 

registrant's common stock,

$.01 par value.
DOCUMENTS    INCORPORATED BY REFERENCE
In Part III    certain information is incorporated by reference from the Company’s definitive Proxy    Statement for the August 11, 2004 Annual Meeting of Shareholders.**Table    of Contents**PART I.**Item    1.
BusinessItem    2.
PropertiesItem    3.
Legal ProceedingsItem    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 Financial DataItem    7.
Management’s Discussion and    Analysis of Financial Condition and Results of OperationsItem    7A.
Quantitative and    Qualitative Disclosures About Market RiskItem    8.
Financial Statements and Supplementary    Data
Consolidated balance sheets as of March 31, 2004 and    March 31, 2003
Consolidated statements of operations for    the fiscal years ended March 31, 2004, 2003 and 2002
Consolidated    statements of stockholders’ equity and comprehensive loss for the fiscal years 
ended    March 31, 2004, 2003 and 2002
Consolidated statements of cash flows for    the fiscal years ended March 31, 2004, 2003 and 2002
Notes to consolidated financial    statementsItem    9.
Change In and    Disagreements with Independent Accountants on Accounting and Financial DisclosureItem    9A.
Controls and Procedures**PART    III.**Item    10.
Directors and Executive    Officers of the RegistrantItem    11.
Executive CompensationItem    12.
Security    Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem    13.
Certain Relationships and Related    TransactionsItem    14.
Principal Accountant Fees and Services**PART IV.**Item    15.
Exhibits,    Financial Statement Schedules and Reports on Form 8-K**ITEM 1.****BUSINESS***This Report contains forward-looking statements that involve risks anduncertainties. These statements may differ materially from actual future events orresults. Readers are referred to the Risk Factors section at the end of this Item 1. **General**
UQM Technologies, Inc., ("UQM" or the "Company") isa developer and manufacturer of energy efficient, power dense, electric motors, generatorsand power electronic controllers. Our primary focus is incorporating our advancedtechnology into products aimed at existing commercial markets for electrically propelledvehicles such as wheelchairs, golf carts and industrial utility vehicles as well asemerging markets expected to experience rapid growth including propulsion systems forclean electric, hybrid electric and fuel cell electric on-road and off-road vehicles,vehicle auxiliaries including those configured to operate at 42 volts and environmentallyfriendly, distributed power generators. Through January 22, 2004, we operated our businessin three segments: 1) technology - which encompasses the further advancement andapplication of our proprietary motors, generators, power electronics and software; 2)mechanical products – which encompasses the manufacture of motors and generators; and3) electronic products which encompasses the manufacture of electronic printed circuitboard assemblies, wire harnesses and complete electronic boxes. On January 22, 2004, weformalized a plan to sell or close our contract electronics manufacturing business. On May18, 2004, we completed the sale of the assets of this business for $0.9 million in cashand a 15% ownership interest in the purchaser. The financial results of this businesssegment for the current fiscal year and the previous two fiscal years have been presentedfor financial reporting purposes in our statement of operations under the captiondiscontinued operations. Our $0.01 par value common stock trades on the American, Chicago,Pacific, Frankfurt and Berlin stock exchanges under the symbol "UQM."

The Company’s revenue from continuing operations is derived fromtwo principal sources: 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 proprietarytechnology to customers’ products; and 2) the manufacture and sale of productsengineered by us.

Our objective is to leverage our technology base and name recognitionto develop and manufacture products for our customers that are superior in performance atcompetitive prices. To this end, we have initially focused our attention on four marketareas that have significant growth potential: 1) electric propulsion systems, generatorsand power electronic controllers for electric, hybrid electric and fuel cell electricvehicles. Virtually every automobile and truck manufacturer worldwide is developing suchvehicles. In the case of hybrid electric powerplants, additional customers include Tier Iand Tier II automotive suppliers who hope to provide complete hybrid electric systems totheir automotive customers; 2) electric propulsion systems and electronic controllers forsmall vehicles, such as electric wheelchairs, golf carts, small industrial vehicles, lawnand ground care equipment and the like; 3) vehicle auxiliaries including under-the-hoodpower accessories, such as electric air conditioning compressors and electric powersteering which are expected to replace existing belt-driven parasitic components now inuse as part of the automotive industry’s adoption of a new 42 volt standard and fuelcell components such as air compressor drive motors and electronic controllers to managethe operation of the fuel cell and its power generation; and 4) distributed powergeneration products such as wind generators, engine generators and power electroniccontrollers for both residential and commercial customers that need standby or backuppower, remote stand-alone power and grid-connected power. Fundamental to this strategy isthe continual advancement of our proprietary motor, generator, power electronic controllerand software technology portfolio and the maintenance of a high quality and competitivemanufacturing capability for products developed by us. During the last two years we haveachieved significant advancements in the performance of our permanent magnet motorsincluding a constant power speed ratio of 10 to 1 and nearly a two-fold improvement inpower density during continuous operation as well as improved peak torque and efficiencythrough a new method of motor control. See also "Technology" below.Substantially all of our research and development activities are the result of projectscontracted for and funded by our customers, and in most cases, we retain all orsubstantially all of the intellectual property rights in technology enhancements.Internally funded research and development expenditures were $461,223, $117,735 and$98,940 for the years ended March 31, 2004, 2003 and 2002, respectively.

Following the divestiture of our contract electronics manufacturingbusiness, we will have two principal operating units: 1) UQM Technologies, Inc., locatedin Frederick, Colorado, which includes the Corporate Headquarters and Engineering andProduct Development Center; and 2) wholly-owned subsidiary UQM Power Products,Inc.("UQM Power"), also located in Frederick, Colorado, which manufacturespermanent magnet electric motors and generators.

We also have a minority ownership position in EV Global Motors Company("EV Global"), and Windemere Eco Development Limited ("WED"). Thecarrying value of these investments on our balance sheet has been reduced to zero becausethey were impaired under generally accepted accounting principles. EV Global, based in LosAngeles, is a developer and distributor of electric bicycles. WED is an environmentallysensitive development of Windemere Island in the Bahamas. In May 2004, we received a 15%ownership in CD&M Electronics, Inc. (CD&M), a privately-held contract electronicsmanufacturing company, as part of the divestiture of our wholly-owned subsidiary, UQMElectronics, Inc. We did not record any value on our books for our ownership interest inCD&M because of substantial doubt as to the liquidity and realization of any suchvalue. Prior to February 2004, we also had a 38.25 percent ownership interest in TaiwanUQM Electric Co., Ltd. ("Taiwan UQM"), a joint venture with Kwang Yang MotorCompany, Ltd. ("KYMCO") and Turn-Luckily Technology Co., Ltd. Taiwan UQM,located in Taipei, Taiwan, was a licensee of ours and a manufacturer of starter motors andalternators for gasoline scooters. We sold our ownership interest in Taiwan UQM during thefourth quarter of fiscal 2004 for $445,275 resulting in a gain of $60,975 after recordingthe realization of cumulative foreign currency losses during the period of our ownership.Coincident with the sale, the license agreement with Taiwan UQM and the right of TaiwanUQM to use the UQM trademark were terminated. In addition, within the six months from thedate of sale, Taiwan UQM is obligated to change its corporate name to eliminate anyreference to the trademark UQM or UQM Technologies, Inc. 

Loss from continuing operations for the fiscal year ended March 31,2004 was $1,422,315, or $0.07 per common share, on total revenue of $5,040,904 versus aloss from continuing operations last fiscal year of $933,507, or $0.05 per common share,on total revenue of $7,552,360 and a loss from continuing operations for the fiscal yearended March 31, 2002 of $419,065, or $0.02 per common share, on total revenue of$7,748,995. Discontinued operations for the fiscal year ended March 31, 2004 resulted in aloss of $3,364,638, or $0.18 per common share, versus a loss from discontinued operationsof $2,665,143, or $0.14 per common share, for the fiscal year ended March 31, 2003 and aloss from discontinued operations of $8,173,590, or $0.47 per common share, for the fiscalyear ended March 31, 2002. Net loss for the fiscal year ended March 31, 2004 was$4,786,953, or $0.25 per common share, versus a net loss of $3,598,650, or $0.19 percommon share, last fiscal year and a net loss of $8,592,655, or $0.49 per common share,for the fiscal year ended March 31, 2002. 

In October 2003, we completed a secondary offering of 720,000 shares ofour common stock to institutional investors in North America and Europe. Net cash proceedsfrom the offering were $2,127,400.
***Technology Segment

Our technology segment encompasses the operations of the Engineeringand Product Development Center which shares a 28,000 square foot facility located inFrederick, Colorado with our motor manufacturing operations which are reported in themechanical products segment. The Engineering and Product Development Center is equippedwith research and development laboratories, prototype build and test facilities forelectric motors, generators, power electronic controllers, software, and vehicleintegration activities. The technology segment conducts sponsored and internally-fundedengineering activities directed toward the development of new products and the engineeringof motors, generators, and power electronic controllers to meet the requirements ofcustomers’ specific product applications, engineering services for our mechanicalproducts segment and the low volume manufacture of motors, generators and power electroniccontrollers. During the fiscal year ended March 31, 2004, total technology segment revenuedeclined 2.2 percent to $3,339,939 versus revenue of $3,416,032 for the fiscal year endedMarch 31, 2003 and declined 10.9 percent versus revenue of $3,747,725 for the fiscal yearended March 31, 2002. 

Total segment revenue and cost of contract services by fiscal year wereas follows:

                                     Year    Ended March    31,                                 
     2004       
     2003       
     2002       
Contract    Services 
$  2,747,833 
$  2,985,639 
$  2,999,342 
Cost of    Contract Services
$  2,215,196 
$  2,506,944 
$  2,053,745 
Product Sales
$     592,106 
$     430,393 
$     748,383 
Technology segment operations for the fiscal year ended March 31, 2004resulted in a net loss of $1,289,738 compared to net losses of $1,003,034 and $442,225 forthe fiscal years ended March 31, 2003 and March 31, 2002, respectively. The net loss inthe current fiscal year is attributable to increased internally-funded technologydevelopment, cost-overruns on development contracts, and lower levels of other incomeversus last fiscal year. Segment losses for the fiscal year ended March 31, 2003 areprimarily attributable to lower gross profit margins on contract services and lower levelsof other income versus the fiscal year ended March 31, 2002.
***Mechanical Products Segment 

Our mechanical products segment encompasses the operations of ourwholly-owned subsidiary, UQM Power. UQM Power shares a 28,000 square foot facility locatedin Frederick, Colorado with the technology segment. Prior to October 2001, UQMPower’s operations consisted of the volume manufacture of motors and the contractmanufacture of gears and gear assemblies. Due to continuing weak demand in the markets weserved, the gear market generally, and industry trends toward greater sourcing of customergear requirements overseas, we divested our non-core contract gear manufacturing business.As a result, the operating results of the discontinued gear business are reported asdiscontinued operations in the statement of operations for the fiscal years ended March31, 2003 and 2002.

Motor manufacturing operations consist of the volume manufacture of ourproprietary permanent magnet motors. Mechanical products segment operations for the fiscalyear ended March 31, 2004 resulted in a net loss of $132,577, or $0.01 per common share,on total revenue of $1,700,965, versus net earnings of $69,527, or nil per common share,on total revenue of $4,136,328 for the fiscal year ended March 31, 2003 and net earningsof $23,160, or nil per common share, on total revenue of $4,001,270 for the fiscal yearended March 31, 2002. The decline in revenue for the year ended March 31, 2004 versus thetwo prior fiscal years is attributable to lower production volumes of wheelchairpropulsion motors which was partially offset by revenue increases from the launch ofproduction for fan blower motors used in the air conditioning system on a militaryaircraft. In March 2004 we received an order for the production of wheelchair motors inthe amount of $637,500 which represents deliveries through November, 2005. We do notexpect to receive any additional orders for new wheelchair production motors from InvacareCorporation, although orders for field service and warranty units are expected to continuefor the foreseeable future.
***Electronic Products Segment – Discontinued Operations

In January 2004, we formalized a plan to sell or close our wholly-ownedsubsidiary UQM Electronics, Inc., located in St. Charles, Missouri. This businessconsisted of the manufacture of thru-hole and surface mount electronic printed circuitboard assemblies, wire harness assemblies, value-added component assemblies incorporatingeither printed circuit board assemblies, wire harness assemblies or both, and completeturn-key electronic product builds. Over the last several years, segment operations wereadversely impacted by a broad and significant business downturn in the contractelectronics manufacturing sector, generally, including a substantial decline in consumerdemand for electronic products which contributed to the our decision to divest thisnon-core business. On May 18, 2004, we completed the divestiture of the assets of thisbusiness for $0.9 million in cash and a 15% ownership interest in the purchaser. Thepurchase price was determined by negotiation between us and the purchaser. In addition,the purchaser executed a sublease on our St. Charles, Missouri manufacturing facility forthe remaining term of our lease. The operations of UQM Electronics, Inc. are reported asdiscontinued operations in our statement of operations for the fiscal years ended March31, 2004, 2003 and 2002. Discontinued operations for this business resulted in a loss of$3,364,638, or $0.18 per common share, versus a loss from discontinued operations of$2,480,172, or $0.13 per common share, for the fiscal year ended March 31, 2003 and a lossfrom discontinued operations of $5,852,490, or $0.33 per common share, for the fiscal yearended March 31, 2002.
**Technology

Our technology base includes a number of proprietary technologies andpatents relating to brushless permanent magnet motors, generators and power electroniccontrollers, together with software code to intelligently manage the operation of thesystem. See also "Patents" below.

The typical architecture of a UQM motorconsists of a stator winding employing a high pole count configuration, which allows forhigh copper utilization (minimizing energy loss and cost) and a hollow rotor upon whichpowerful rare earth magnets are mounted on the outer circumference. The stator is affixedto an aluminum housing containing a mounting ring and bearings, which allows the rotor tobe suspended within the stator. Commutation of the machine is accomplished electronicallyby sensing the position of the rotor in relation to the stator and intelligently pulsingelectrical energy into the stator such that the electric field generated by the statorinteracts with the magnetic field of the rotor producing rotational motion ("motoroperation"). Conversely, the application of rotational motion to the rotor by anexternal force results in the generation of electrical power ("generatoroperation"). UQM machines can be operated in either a forward or reverse direction ofrotation and either in motor or generator mode and can dynamically change from one mode ofoperation to another in millisecond response time. The hollow design of the rotor permitsthe packaging of other components such as gears and electromechanical brakes in theinterior of the machine. These design features contribute to lower usage of copper andiron and other materials generally (due to smaller package dimensions), reducingmanufacturing cost over those for conventional machines of similar power. In addition, theutilization of neodymium-iron-boron ("NdFeB") magnet material in a wide range ofconsumer devices, such as cell phones, disk drives and medical devices, has dramaticallyimproved the availability, performance and price of this material, allowing us to priceour advanced motors and controls competitively with lesser performing conventional motorswhich management believes will accelerate the rate of commercialization of our technology.

Attributes of the our permanent magnet motor technology includebrushless electronic commutation; a relatively large air-gap dimension; the use ofpowerful rare earth NdFeB magnet material; good heat rejection; low iron content; and lowmechanical losses. As a result, UQM motors have high operating efficiencies (>90%),high power density (high power output to weight ratio) and generally have smaller externaldimensions and weight for a given power output, improving packageability.
Attributes of our microprocessor-based digital power electroniccontrollers include high power operation (600 amps at 400 volts), four quadrant control(forward/reverse and motoring/generation), reduced switching losses (minimizing energyloss), intelligent control and controller area network ("CAN") capability.

In addition, we havedeveloped and patented a method of control embodied in electronic component architectureand software code (Phase Advance Control) which allows UQM motors to deliver high outputtorque at low operating speeds and low torque at high operating speeds from the samemachine. Conventional permanent magnet motor designs are limited to operating at eitherhigh torque at low speeds or low torque at high speeds; but not both. In most vehiclepropulsion applications, high torque is required to launch the vehicle from a standingstop transitioning to high power as the vehicle is accelerated to highway speeds. Inconventional internal combustion engine powered vehicles, the transition from high torqueto high power is typically accomplished through the multiple gear changes performed by amechanical transmission. UQM motors, incorporating phase advance technology, are ideallysuited as propulsion drives in electric, hybrid electric and fuel cell electric vehiclesdue to the ability to power a vehicle from a standing stop to highway speeds withoutmechanical gear changes, thereby eliminating the size, weight and cost of mechanicaltransmissions.
We have developed an integrated electric traction system("INTETS"), the next generation of our motor technology for vehicle propulsionapplications including battery, hybrid and fuel cell electric vehicles. INTETS maximizesthe advantages of the UQM motor architecture by packaging a single speed gear reductionand differential inside the hollow rotor and integrating the power electronic controllerwith the machine. The INTETS system is the electrical equivalent of a conventionalpowertrain consisting of an internal combustion engine, transmission and differential. TheINTETS system measures 15 inches (380 mm) in length with an 11 inch (280mm) diameter(excluding an optional electronic controller), incorporates internal epicyclicsingle-stage gearing, off-the-shelf internal differential components and parking pawl, anddelivers continuous power of 30 kW, peak power of 75 kW and peak torque of 1,700 N-m. Theoptional, fully integrated, intelligent electronic controller can be programmed to meet avariety of vehicle configurations and incorporates controller area communications protocolfor ease of use and integration by original equipment manufacturers. The complete system,including electronic controller and gearing has a peak efficiency exceeding 91 percent. In2003, the operating performance of this system was independently verified throughperformance validation testing conducted by the U.S. Department of Energy’s ArgonneNational Laboratory Advanced Powertrain Research Facility. 

Similarly, we are developing a line ofmodular motors that are expected to improve the continuous power output of our existingmotors and generators by about 25 percent without increasing size or weight. Preliminarytesting of initial prototypes is underway and we have filed several patent applicationssurrounding the design features of our line of modular motors.

We have also developed and successfully tested a permanent magnetelectronic motor system that achieves a 10 to 1 top speed to base speed ratio (constantpower speed ratio or CPSR). The newly developed system provides both high torque and highspeed capability in the same machine at levels significantly greater than that of theindustry’s best performing motor technology. Many electric motor applications requirehigh torque capability for starting and low speed operation, but must also achieve highspeed. For military vehicles, high torque at low speed translates into obstacle and gradeclimbing capability, while high speed enables pursuit, dash and evasive maneuvers as wellas on-road convoy transport. Many commercial applications have similar requirements.Conventional vehicles achieve the high torque required for launch and low end accelerationand the constant power required for high road speed by using a transmission and multiplegear changes. Prior to the performance breakthrough, UQM systems incorporating phaseadvance were able to achieve a top speed to base speed ratio of 4 to 1. Electricallypropelled vehicles designed around 4 to 1 limitation, sometimes require unwanted gearingand/or have less than desired performance. This has particularly been the case in the moredemanding off-highway equipment and military vehicle applications. Providing vehicledevelopers with electric propulsion systems capable of a top speed to base speed ratio of10 to 1 overcomes a significant limitation and opens up many new application opportunitiesfor UQM systems.

In February 2003, we were granted a U.S. Patent covering our innovativeand low cost design for accurately sensing the position of rotating shafts, the technologyoriginally developed and incorporated in proprietary gearless brushless direct drivewheelchair motors. We believe that the patented technology has potentially broadapplication in a wide range of products where resolvers are used and we are pursuingcommercialization of the technology directly with end users and through potentiallicensing arrangements.

In September 2003, we developed a new method of control for ourpermanent magnet motor and generator systems that further enhances their performance. Thenew method of control incorporates sophisticated techniques that extract power fromsubstantially the entire electrical cycle of the motor, resulting in maximized poweroutput and efficiency. Testing of these performance enhancements demonstrated increasedpeak power output by 33 percent, continuous power output by nearly 100 percent andimproved system efficiency at various operating points from 2 to 8 percent. In addition,the new method of control includes enhanced user configurable functionality, increaseddata transmission and processing speeds which improve the feedback, prognostics anddiagnostic capabilities, all of which enhance the durability and functionality of thesystems.

In March 2004, we introduced a 42 volt integrated starter motorgenerator system that mounts directly to the engine crankshaft and delivers 710newton-meters of engine starting torque, 10 kilowatts of power-assist in motoring mode andpeak power generation of 15 kilowatts at engine operating speeds from 1,200 rpm to 2,800rpm. The system is designed as a power-assist hybrid system for light and medium dutytrucks, sport utility vehicles and off-road vehicles. The starter motor generator unit,which can also be configured to deliver a variety of speed/torque profiles, measures fourinches in length and 16 inches in diameter, excluding the flywheel housing, and isdesigned to be fully integrated in the flywheel of an engine. The system also features acontroller area network ("CAN") compatible UQM power electronic digitalcontroller that intelligently manages the system’s operation including the dynamicapplication of the power-assist motoring function and regenerative braking function.

Power-assist systems provide additional power-on-demand to thedrivetrain of a hybrid vehicle to enhance the performance of the engine and vehicle whilereducing fuel consumption. The power-assist feature provides up to 10 kW of accelerationpower to the engine for a short duration during high engine load conditions. Additionalfeatures of the system include high-speed engine start capability, regenerative brakingand higher levels of onboard electrical power availability to handle increased electricalloads from accessories. The UQM power-assist system was developed in response to customerdemand for a low cost system capable of delivering meaningful improvements in vehicleperformance, fuel consumption and onboard power availability. The system has undergoneextensive evaluation and demonstration testing in two hybrid electric vehicles.

Substantially all of our research and development activities are theresult of projects contracted with and funded by customers, for which we typically retainintellectual property rights in the resulting technology developed. Customer fundeddevelopment activities are recorded as contract services revenue and the associateddevelopment costs are shown as cost of contract services in our financial statements. Forthe year ended March 31, 2004, revenues from customer funded research and developmentactivities were $2,747,833 and internally funded research and development expenditureswere $461,223.

In recent years, we have focused our research and developmentactivities on the development of commercial products and production engineering activitiesto lower the cost of manufacture, as well as enhance the performance and capability of ourtechnology portfolio, as opposed to basic research in the field. Management believes thatour future growth is dependent, in part, on the continued advancement of our technologyportfolio and our ability to commercialize our technology in additional productapplications and markets. Accordingly, we expect to continue to pursue additional customerfunded programs and to selectively invest in internally funded development projects toaccomplish this objective.
**Competition

All of the markets in which we operate are highly competitive. Themarkets served by the technology segment are additionally characterized by rapid changesdue to technological advances that can render existing technologies and products obsolete.

The technology segment has developed advanced electric propulsionsystems and components which it hopes to market to vehicle Original EquipmentManufacturers and their Tier I suppliers throughout the world for use in electric, hybridelectric and fuel cell electric vehicles. During fiscal 2004, the emerging market forhybrid electric automobiles began to expand at an unexpected rate due to the marketsuccess of the Toyota Prius hybrid electric passenger car and the Honda Insight and Civichybrid electric passenger cars. As a result, several auto makers have announced plannedintroductions of similar vehicles and others are expected to follow as the marketacceptance of these vehicles continues to grow. In order to capitalize on this expandeddemand, we anticipate that we will need to make substantial investments in humanresources, manufacturing facilities and equipment, production and application engineeringamong other things, in order to compete successfully as this market emerges. We cannotassure you that we will be able to compete successfully in this market or any other marketthat now exists or may develop in the future.There are numerous companies developing products that do or soon will competewith our systems. Some of these companies possess significantly greater financial,personnel and other resources than we do, including established supply arrangements andvolume manufacturing operations. We believe our principal competitors include Honda,Toyota, Hitachi, Matsushita, Siemens, Delphi and Ballard Power Systems.
The mechanical products segment competes primarily in the automotive,heavy equipment, military, aerospace and medical products industries. Each of theseindustries is extremely competitive. We will face substantial competition on a continuingbasis from numerous competitors, many of whom possess longer operating histories,significantly greater financial resources and marketing, distribution and manufacturingcapability. We believe our principal competitors include Advanced DC, Allied Motion,Emerson Electric, General Electric, Rockwell International, and Baldor.
**Patents – New Patent Continuation

We hold several groups or families of patents. 

U.S. Patent Nos. 5,004,944; 5,311,092 and 5,319,844 disclose and claiman electromagnetic transducer and method of making the same. Corresponding applicationshave been filed and issued in several foreign countries.

U.S. Patent No. 5,107,151 discloses and claims a switching circuitemploying semi-conductor devices in series with an inductor to avoid commutation breakdownand extending the current range of switching by using IGBT devices. Correspondingapplications have been filed in foreign countries, some of which have issued, and some ofwhich have been abandoned.

U.S. Patent No. 5,592,731 and U.S. Patent No. 5,382,859 relate to astator for high-power density electric motors and generators, and a method of constructingthe same. Corresponding applications have been filed in foreign countries, and most ofthese foreign applications have issued as patents. 

U.S. Patent No. 5,677,605 discloses and claims a brushless motor anddrive system using phase timing advancement. Corresponding applications have been filed inforeign countries, some of which are issued, some of which have been abandoned, and someof which are pending.

U.S. Patent No. 5,982,063 discloses and claims an electric motor havingan internal brake. Corresponding patent applications have been filed in foreign countries.Some of the foreign applications have issued, and others are still pending.

U.S. Patent No. 6,522,130 and 6,693,422 disclose and claim a method forcontrolling a brushless electric motor having a rotor, and relates to a method for sensingrotor position and detecting rotational speed. Corresponding applications have been filedand are pending in several foreign countries. The foreign applications have either issuedor are still pending.

In 2002, a patent application was filed in the United States for arotor cooling apparatus. Corresponding applications have been filed at the European PatentOffice and Canada.

During 1994, we executed an agreement with Alcan Aluminium Limited("Alcan") in which Alcan assigned to us all of its rights, title and interestsin certain motor technology developed under a program funded by Alcan.   Thisagreement further provides that we shall pay to Alcan royalties of one-half of one percenton revenue derived from the manufacture and sale of products or processes embodying therelated technology. 

We also intend to rely on the unpatented proprietary know-how we havedeveloped and now utilize in our products. We cannot provide assurance that others willnot independently develop, acquire or obtain access to our technology. Although we protectour unpatented proprietary rights by executing confidentiality agreements with ourmanagement, employees and others with access to our technology, these measures may not beadequate to protect us from disclosure or misappropriation of our proprietary information.
**Trademarks**
We own three U.S. Trademark Registrations for "UNIQ"(International Class 7 for power Transducers, Class 12 for Utility Land Vehicles, andClass 16 for Publications). The Class 12 trademark is subject to renewal in June 2006; theClass 7 trademark is subject to renewal in August 2006; and the Class 16 trademark issubject to renewal in February 2007.

We have registered the letters "UQM" in the U.S. Patent andTrademark Office. Counterpart applications have been filed in numerous countriesthroughout the world, most of which have granted registrations or indicated them to beallowable. Those trademarks are directed to the same trademark classes as the mark"UNIQ". The foreign trademark registrations and applications include majormarkets where we are doing business or establishing business contacts.

We have also registered the trademark "POWERPHASE" which weuse in conjunction with certain of our propulsion systems. Corresponding applications fortrademark registration were filed in 11 countries. The trademark is registered in theEuropean Community and various other foreign countries.**Backlog**
Our technology segment had unperformed service contracts from customerswhich will provide future revenue upon completion aggregating approximately $1.4 millionand an order backlog for prototype motors and controllers of approximately $0.3 million atApril 30, 2004 compared to $1.4 million and $0.3 million, respectively at April 30, 2003.All such service contracts are subject to amendment, modification or cancellation. Weexpect to complete all unperformed service contracts over the next seventeen months andship motor and controller backlog products over the next four months.

Our mechanical products segment had an order backlog of approximately$1.1 million at April 30, 2004 compared to $1.0 million at April 30, 2003. We expect toship all backlog products within the next nineteen months.
**Customers and Suppliers

We have one significant customer, Invacare Corporation, which is acustomer of our mechanical products segment and accounted for revenue of $1,643,215, or32.6 percent of consolidated total revenue in the fiscal year ended March 31, 2004 and$4,136,328, or 54.8 percent of consolidated total revenue, and $4,001,270, or 51.6 percentof consolidated total revenue, for the fiscal years ended March 31, 2003 and March 31,2002, respectively. This customer also represented 14.1 percent, 22.5 percent and 15.9percent of total accounts receivable at March 31, 2004, 2003, and 2002, respectively.Inventories consisting of raw materials, work-in-process and finished goods for InvacareCorporation were 9.5 percent, 8.7 percent and 15.8 percent of consolidated totalinventories at March 31, 2004, 2003 and 2002, respectively.

Principal raw materials and components purchased by us include iron,steel, electronic components, magnet material and copper wire. Most of the above items areavailable from several suppliers and we generally rely on more than one supplier for eachitem. Certain components used by us are custom designs and if our current supplier nolonger made them available to us, we could experience production delays.
**U.S. Government Contracts

Revenue derived from contracts with agencies of the U.S. Government andfrom subcontracts with U.S. Government prime contractors was $1,011,818, or approximately20.1 percent of our consolidated total revenue, for the year ended March 31, 2004,$1,162,967, or approximately 15.4 percent of consolidated total revenue, for the yearended March 31, 2003 and $1,040,251, or approximately 13.4 percent of consolidated totalrevenue, for the year ended March 31, 2002.

Some of our contracts with the U.S. Government provide for thereimbursement of costs on a 50 percent cost-sharing basis based on not-to-exceed billingrates negotiated between us and the U.S. Government. Other U.S. Government business isperformed under firm fixed price contracts. On "cost-share" and "firm fixedprice" contracts, we can incur an actual loss in the performance thereof if incurredcosts exceed the contract amount. All U.S. Government contracts with us are subject tomodification or cancellation at the convenience of the Government.
**Employee and Labor Relations

As of April 30, 2004, we had 33 full-time employees. We have enteredinto employment contracts with two of our executive officers, which expire December 31,2007. None of our employees are covered by a collective bargaining agreement. Managementbelieves that our relationship with employees has been generally satisfactory.

In addition to our full-time staff, we from time to time engage theservices of outside consultants and contract labor to meet peak workload or specializedprogram requirements. We do not anticipate any difficulty in locating additional qualifiedprofessional engineers, technicians and production workers, if so required, to meetexpanded research and development or manufacturing operations. 
**Risk Factors

The following factors and other information in this document and theinformation incorporated by reference should be carefully considered before investing inour securities.
**We have incurred significant operating losses and may continue to do so.

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

                                        Fiscal    Year Ended March    31,                               
        2004       
      2003       
      2002       Net loss
$  4,786,953 
$  3,598,650 
$  8,592,655 
We have had accumulated deficits as follows:
March 31, 2004
$  52,142,981 March 31, 2003
$  47,356,028 
In the future we plan to make additional investments in productdevelopment and commercialization, which is likely to cause us to remain unprofitable.
**Our operating losses and working capital requirements could consume ourcurrent cash balances.

We had a net loss of $4,786,953 for the fiscal year ended March 31,2004 which included estimated losses from discontinued operations of $3,364,638. Cashbalances were $3,005,709 at March 31, 2004. If our losses continue they could consume someor all of our cash balances. Management expects to make additional investments in humanresources, manufacturing facilities and equipment, production and application engineeringamong other things in order to effectively compete in the emerging market for hybridelectric vehicles which will expand our operating losses and require us to secureadditional funding beyond our existing cash resources. We cannot assure you, however, thatfunding will be available on terms acceptable to us.
**Our government contracts can be cancelled with little or no notice andcould restrict our ability to commercialize our technology.

Some of our technology has been developed under government funding byUnited States government agencies. In some cases, government agencies in the United Statescan require us to obtain or produce components for our systems from sources located in theUnited States rather than foreign countries. Our contracts with government agencies arealso subject to the risk of termination at the convenience of the contracting agency andin some cases grant "march-in" rights to the government. March-in rights are theright of the United States government or the applicable government agency, under limitedcircumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license toany technology developed under contracts funded by the government to facilitatecommercialization of technology developed with government funding. March-in rights can beexercised if we fail to commercialize the developed technology. The implementation ofrestrictions on our sourcing of components or the exercise of march-in rights by thegovernment or an agency of the government could restrict our ability to commercialize ourtechnology.
**We face intense competition in our motor development and may be unableto compete successfully.

In developing electric motors for use in vehicles and otherapplications, we face competition from very large domestic and international companies,including the world’s largest automobile manufacturers. These companies have fargreater resources to apply to research and development efforts than we have, and they mayindependently develop motors that are technologically more advanced than ours.
**If we are unable to protect our patents and other proprietarytechnology, we will be unable to prevent third parties from using our technology, whichwould impair our competitiveness and ability to commercialize our products. In addition,the cost of enforcing our proprietary rights may be expensive and result in increasedlosses.

Our ability to compete effectively against other companies in ourindustry will depend, in part, on our ability to protect our proprietary technology.Although we have attempted to safeguard and maintain our proprietary rights, we do notknow whether we have been or will be successful in doing so. We have historically pursuedpatent protection in a limited number of foreign countries where we believe significantmarkets for our products exist or where potentially significant competitors haveoperations. It is possible that a substantial market could develop in a country where wehave not received patent protection and under such circumstances our proprietary productswould not be afforded legal protection in these markets. Further, our competitors mayindependently develop or patent technologies that are substantially equivalent or superiorto ours. We cannot assure that additional patents will be issued to us or, if they areissued, as to the scope of their protection. Patents granted may not provide meaningfulprotection from competitors. Even if a competitor’s products were to infringe patentsowned by us, 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 operations and wecannot assure that we would be successful in enforcing our intellectual property rights.In addition, effective patent, trademark, service mark, copyright and trade secretprotection may not be available in every country where we may operate or sell our productsin the future. If third parties assert technology infringement claims against us, thedefense of the claims could involve significant legal costs and require our management todivert time and attention from our business operations. If we are unsuccessful indefending any claims of infringement, we may be forced to obtain licenses or to payroyalties to continue to use our technology. We may not be able to obtain any necessarylicenses on commercially reasonable terms or at all. If we fail to obtain necessarylicenses or other rights, or if these licenses are costly our results of operations maysuffer either from reductions in revenues through our inability to serve customers or fromincreases in costs to license third-party technologies.
**Use of our motors in vehicles could subject us to product liabilityclaims, and product liability insurance claims could cause an increase in our insurancerates or could exceed our insurance limits, which could impair our financial condition,results of operations and liquidity.

Because some of our motors are designed to be used in vehicles, andbecause vehicle accidents can cause injury to persons and property, we are subject to arisk of claims for product liability. We carry product liability insurance of $1 millioncovering all of our products. If we were to experience a large insured loss, it mightexceed our coverage limits, or our insurance carriers could decline to further cover us orraise our insurance rates to unacceptable levels, any of which could impair our financialposition and results of operations.
**ITEM 2.**PROPERTIES**
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, 2004 is set forth in the table below:
Ownership or           Location              
Square Feet
Expiration    Date of Lease
                          Use                               Frederick, Colorado
28,000
Own
manufacturing laboratories    and officesSt. Charles, Missouri (1)
31,000
Leased
manufacturing and offices
(1)We completed a sublease on this    facility in May 2004 coincident with the divestiture of our contract electronics    manufacturing business.**ITEM 3.**LEGAL PROCEEDINGS**Litigation
We filed a lawsuit in    Circuit Court of St. Louis County, Missouri in June 2002 against Hussman Corporation, a    wholly owned subsidiary of Ingersoll Rand Corporation and a former contract manufacturing    customer of our electronic products segment, seeking payment for inventory purchased on    behalf of the customer and lost profits on a cancelled production order.

We sought damages of approximately $700,000 plus attorneys’ fees    and other costs. The customer filed various counterclaims, including breach of contract.    On January 16, 2004, the court issued a ruling that did not compel the customer to honor    its contract with us and dismissing the claims of both parties. As a result of this    ruling, we fully reserved for the recorded balance of inventory obligations of certain    customers during the quarter ended December 31, 2003, resulting in a charge of $ 688,815.
In addition, 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 we cannot provide    assurance that adverse developments in these matters could not have a material impact on a    future reporting period.**ITEM 4**SUBMISSION OF MATTERS TO A VOTE    OF SECURITY HOLDERS
The following matters    submitted to a vote of security holders of the Company during the quarter ended March 31,    2004.
None.
**PART II.****ITEM 5**MARKET    FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF    EQUITY SECURITIES
Our common stock trades on    the American, Chicago, Pacific, Frankfurt and Berlin Stock Exchanges. The high and low    closing prices, by fiscal quarter, as reported by the American Stock Exchange for the last    two years are as follows:
2004
High
Low
Fourth Quarter
$3.47
$2.27
Third Quarter
$3.70
$2.73
Second Quarter
$3.85
$2.91
First Quarter
$3.05
$2.19
2003
High
Low
Fourth Quarter
$3.64
$2.57
Third Quarter
$3.35
$2.40
Second Quarter
$3.90
$1.85
First Quarter
$4.55
$3.60
On May 24, 2004 the closing price of our common stock, as reported onthe American Stock Exchange, was $3.00 per share and there were 917 holders of record ofour common stock.

We have not paid any cash dividends on our common stock since inceptionand we intend for the foreseeable future to retain any earnings to finance the growth ofour business. Future dividend policy will be determined by the Board of Directors basedupon consideration of our earnings, capital needs and other factors then relevant.
**ITEM 6****SELECTED    FINANCIAL DATA**
UQM    Technologies, Inc.
Consolidated    Selected Financial Data
                                                   Year    Ended March    31,                                              
       2004     
     2003     
      2002     
      2001     
     2000     Contract services    revenue
$ 2,747,833 
2,985,639 
2,999,342 
2,283,292 
1,702,937 Product sales
$ 2,293,071 
4,566,721 
4,749,653 
3,900,404 
2,943,918 Loss from continuing    operationsbefore other income    (expense)
$(1,426,059)
(1,235,780)
(828,681)
(1,291,595)
(5,640,696)Loss from continuing    operations
$(1,422,315)
(933,507)
(419,065)
(1,122,258)
(6,020,679)Discontinued    operations
$(3,364,638)
(2,665,143)
(8,173,590)
(2,017,864)
(451,128)Net loss
$(4,786,953)
(3,598,650)
(8,592,655)
(3,140,122)
(6,471,807)Net loss per common share -basic and diluted:Continuing operations
$    (.07)       
(.05)       
(.02)       
(.06)       
(.36)       Discontinued operations
$    (.18)       
(.14)       
(.47)       
(.12)       
(.03)       
$    (.25)       
(.19)       
(.49)       
(.18)       
(.39)       
==        
==        
==        
==        
==        Total assets
$ 8,721,258 
11,492,562 
16,129,535 
27,481,593 
24,257,843 Long-term obligations    (1)
$ 1,072,034 
1,189,262 
2,121,738 
3,471,760 
4,394,582 Cash dividend declared percommon 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*This Report contains forward-looking statements that involve risks anduncertainties. These statements may differ materially from actual future events orresults. Readers are referred to the Risk Factors section at the end of Item 1. **Financial Condition

Cash and cash equivalents at March 31, 2004 were $3,005,709 and workingcapital (the excess of current assets over current liabilities) was $3,780,441 comparedwith $2,476,276 and $4,110,141, respectively, at March 31, 2003. The increase in cash andcash equivalents is primarily attributable to proceeds from a secondary offering completedin October 2003, which resulted in cash proceeds, net of offering costs, of $2,127,400.

Accounts receivable declined $521,007 to $512,995 at March 31, 2004from $1,034,002 at March 31, 2003. The decrease is primarily attributable to thereclassification of the accounts receivable of the discontinued electronic productssegment to assets of discontinued operation at March 31, 2004.

Costs and estimated earnings on uncompleted contracts increased $58,500to $245,984 at March 31, 2004 versus $187,484 at March 31, 2003. The increase is due toless favorable billing terms on contracts in process at March 31, 2004. Estimated earningson contracts in process declined to $305,943 or 12.2 percent of contracts in process of$2,500,059 at March 31, 2004 compared to estimated earnings on contracts in process of$619,403 or 24.6 percent of contracts in process of $2,522,617 at March 31, 2003. Thedecrease in estimated margins on contracts in process is attributable to anticipated costoverruns on certain engineering projects during the fiscal year ended March 31, 2004.

Inventory obligations of certain customers decreased $789,767 to nil atMarch 31, 2004. The decrease is primarily attributable to the reclassification of theinventory obligations of certain customers of the discontinued electronic products segmentto assets of discontinued operation at March 31, 2004.

Inventories declined $1,191,824 to $428,438 principally due to lowerlevels of raw material and finished goods inventories which declined $833,459 and$330,020, respectively. The decline in raw materials inventories is attributable toreduced stocking levels associated with lower production volumes, and the reclassificationof the inventory of the discontinued electronic products segment to assets of discontinuedoperation at March 31, 2004.

Prepaid expenses decreased to $72,649 at March 31, 2004 from $112,568at March 31, 2003 primarily due to lower levels of prepaid software maintenance costs atthe end of the current fiscal year versus the prior fiscal year end.

Assets of discontinued operations was $1,226,943 at March 31, 2004compared to nil at March 31, 2003 reflecting the estimated realizable value of all assetsof the discontinued electronic products segment, other than cash, at March 31, 2004. Seealso note 13 below.

We invested $147,388 for the acquisition of property and equipmentduring the fiscal year compared to $298,621 last fiscal year. The decrease in capitalexpenditures is primarily due to a planned reduction in capital spending in our technologysegment.

Accounts payable declined to $392,474 at March 31, 2004 from $975,344at March 31, 2003, primarily due to the reclassification of the accounts payable of thediscontinued electronic products segment to commitments of discontinued operation at March31, 2004.

Other current liabilities decreased $536,317 to $258,258 at March 31,2004 from $794,575 at March 31, 2003*.*The decrease is primarily attributable tolower levels of accrued loss reserves on certain engineering contracts, customer depositsand the reclassification of the accrued liabilities of the discontinued electronicproducts segment to commitments of discontinued operation at March 31, 2004.

Liabilities and commitments of discontinued operation were $746,682 atMarch 31, 2004 compared to nil at March 31, 2003, reflecting the estimated liabilities ofthe discontinued electronic products segment including the estimated obligation for futurelease payments on the manufacturing facility in St. Charles, Missouri. On May 18, 2004, wecompleted a sublease with the purchaser of the assets of our discontinued contractelectronics manufacturing business for the remaining term of our lease agreement. However,we remain the primary obligor and due to doubt regarding the sublessee’s financialcapability to meet its obligations under the sublease, we have recorded an estimate of thepotential shortfall under our master lease, should the sublease obligation not be fullyhonored.

Billings in excess of costs and estimated earnings on uncompletedcontracts decreased $34,126 to $189,252 at March 31, 2004 from $223,378 at March 31, 2003.The decrease is due to lower revenue and reduced billing rates on engineering contractsduring the fiscal year ended March 31, 2004 versus the prior fiscal year.

Long-term debt, less current portion decreased $125,918 to $946,423 atMarch 31, 2004 reflecting principal repayments on the mortgage debt for our Frederick,Colorado facility.

Common stock and additional paid-in capital increased to $195,726 and$58,025,631, respectively, at March 31, 2004 compared to $188,445 and $55,885,486 at March31, 2003. The increases were primarily attributable to completion of a secondary offeringof 720,000 shares of common stock to institutional investors in North America and Europe.
**Results of Continuing Operations

Continuing operations for the fiscal year ended March 31, 2004,resulted in a loss of $1,422,315, or $0.07 per common share, compared to a loss fromcontinuing operations of $933,507, or $0.05 per common share, and $419,065, or $0.02 percommon share, for the fiscal years ended March 31, 2003 and 2002, respectively. Theincrease in the current year loss from continuing operations is attributable to lowerrevenue levels, higher levels of internally funded research and development expendituresand the inclusion in the prior two fiscal years of deferred gains on sale of real estateof $322,139, or $0.02 per common share, and $379,997, or $0.02 per common share,respectively.

Revenue from contract services declined $237,806, or 8.0 percent, to$2,747,833 at March 31, 2004 compared to $2,985,639 for the fiscal year ended March 31,2003 primarily due to the application of additional engineering resources to internallyfunded research and development programs during the fiscal year. Revenue from contractservices decreased $13,703, or 0.5 percent, for the year ended March 31, 2003 compared torevenue for the year ended March 31, 2002 reflecting decreased activity on revenuegenerating programs during the second half of fiscal year 2003.

Product sales this fiscal year declined 49.8 percent to $2,293,071compared to $4,566,721 for the year ended March 31, 2003. Product sales revenue for thefiscal year ended March 31, 2003 declined 3.9 percent versus product sales revenue for theyear ended March 31, 2002 of $4,749,653. Mechanical products segment revenue for the yearended March 31, 2004 decreased $2,435,363, or 58.9 percent, to $1,700,965 compared to$4,136,328 for fiscal year ended March 31, 2003 due to decreased shipments of wheelchairpropulsion motors, which was partially offset by the launch of production of fan blowermotors used in the air conditioning systems on a military aircraft. We expect productionof wheelchair propulsion motors to continue at current levels through November 2005. We donot expect to receive additional orders for new wheelchair production motors from InvacareCorporation, although orders for field service and warranty units are expected to continuefor the foreseeable future. Mechanical products segment revenue for the fiscal year endedMarch 31, 2003 rose $135,058, or 3.4 percent, versus revenue for the fiscal year endedMarch 31, 2002 reflecting increased shipments of wheelchair motors. Technology segmentproduct revenue for the fiscal year ended March 31, 2004 increased $161,713, or 37.6percent, to $592,106 compared to $430,393 for fiscal year ended March 31, 2003 due toincreased shipments of fuel cell air compressor drive motors and proprietary propulsionsystems. Technology segment product revenue for the fiscal year ended March 31, 2003decreased $317,990, or 42.5 percent, versus revenue for the fiscal year ended March 31,2002 reflecting reduced demand for proprietary propulsion systems.

Gross profit on contract services was 19.4 percent this fiscal yearcompared to 16.0 and 31.5 percent for the fiscal years ended March 31, 2003 and 2002,respectively. The increase in contract services margins for the current fiscal year versusthe fiscal year ended March 31, 2003 is attributable to lower levels of cost overruns oncertain engineering contracts this year versus the prior fiscal year period. The decreasein contract services margins for the fiscal year ended March 31, 2003 versus the fiscalyear ended March 31, 2002 is attributable to cost overruns on certain engineeringcontracts. Gross profit margin on product sales this fiscal year was 14.5 percent comparedto 14.8 percent and 9.8 percent in the fiscal years ended March 31, 2003 and 2002,respectively. The decrease in margins on product sales for this fiscal year versus theprior fiscal year resulted from decreased overhead absorption associated with lowerrevenue levels. The increase in margins on product sales for the fiscal year ended March31, 2003 versus the fiscal year ended March 31, 2002 is due to reduced material costs.

Research and development expenditures for the fiscal year ended March31, 2004 increased to $461,223 compared to $117,735 and $98,940 for the fiscal years endedMarch 31, 2003 and 2002, respectively. The increase is primarily due to internally fundeddevelopment of a new micro-processor platform for our power electronic controls,production engineering costs and an increase in cost-share type contracts.

General and administrative expense this fiscal year was $1,799,472compared to $2,245,182 and $2,139,851 for the fiscal years ended March 31, 2003 and 2002,respectively. The decrease in general and administrative expenses for this fiscal yearversus last fiscal year is primarily attributable to cost reduction activities at allbusiness units throughout the year. The increase in general and administrative expensesfor the fiscal year ended March 31, 2003 versus the fiscal year ended March 31, 2002 isprimarily attributable to higher levels of marketing and consulting costs.

Write-down of assets for the fiscal year ended March 31, 2004 of$30,523 is attributable to the write-down of patent application costs. The write-down ofassets for the fiscal year ended March 31, 2003 of $26,384 is primarily attributable tothe impairment and disposal of obsolete equipment.

Interest income declined to $26,362 for the current fiscal yearcompared to $28,035 and $64,068 for the fiscal years ended March 31, 2003 and 2002,respectively. The decrease is generally attributable to lower interest rates on investedfunds versus the two prior fiscal years.

Interest expense increased to $84,193 for the year ended March 31, 2004compared to $62,266 and $34,459 for the fiscal years ended March 31, 2003 and 2002,respectively. The increase is primarily attributable to higher average mortgage borrowingsthroughout the current fiscal year as compared to the two prior fiscal years.

Gain on sale of real estate was nil for the fiscal year ended March 31,2004 compared to $322,139 and $379,997 for each of the two preceding fiscal years,respectively. The gain in the prior two fiscal years is attributable to the recognition ofdeferred gain from the sale of our facility in Golden, Colorado.
**Results of Discontinued Operations

In January 2004, we announced our intention to exit our contractelectronics manufacturing business. As a result, during the quarter ended March 31, 2004,we recorded a loss from operations of the discontinued electronic products segment of$3,364,638 of which $770,434 represents the loss on disposal of the segment’s assets.Additionally, for all periods presented, we reclassified operating results of theelectronic products segment to loss from operations of discontinued electronic productssegment. All segment assets were reclassified to the balance sheet caption "assets ofdiscontinued operation" as of March 31, 2004. Lease and commitments were recorded asa current liability under the caption "liabilities and commitments of discontinuedoperations". On May 18, 2004, we completed the divestiture of the assets of thisbusiness for $900,000 in cash and a 15% ownership interest in the purchaser. We have notrecorded any value for the common stock of the purchaser received in this transaction. Inaddition, the purchaser executed a sublease on our St. Charles, Missouri manufacturingfacility for the remaining term of our lease. However, we are the primary obligor on thelease and due to doubt regarding the sublessee’s financial capability to meet itsobligation under the sublease, we have recorded an estimate of the potential shortfallunder our master lease should payments under the sublease obligation not be fully honored.

In October 2001, we announced our intention to exit our non-corecontract gear manufacturing business. As a result, during the quarter ended September 30,2001, we recorded a charge of $1,676,450 for the estimated loss on disposal of the geardivision, which included a provision of $663,792 for expected operating losses during thephase-out period. Additionally, for all periods presented, we reclassified operatingresults of the gear division to loss from operations of discontinued gear division, andreclassified all capital equipment and associated term debt as current under the followingbalance sheet captions: equipment of discontinued operations held for sale, net and termdebt and accrued future losses of discontinued operations, respectively. We completed thedivestiture of the contract gear manufacturing business during the first quarter of thefiscal year ended March 31, 2003.

Loss from discontinued operations for the fiscal year ended March 31,2004 was $3,364,638, or $0.18 per common share, compared to a loss from discontinuedoperations of $2,665,143, or $0.14 per common share, and $8,173,590, or $0.47 per commonshare, for the fiscal years ended March 31, 2003 and 2002, respectively.
**Liquidity and Capital Resources

Our cash balances and liquidity throughout the fiscal year ended March31, 2004 were adequate to meet operating needs. At March 31, 2004, we had working capital(the excess of current assets over current liabilities) of $3,780,441 compared to$4,110,141 at March 31, 2003. Working capital decreased by $329,700 primarily due to thewinding down of operations of our contract electronics manufacturing business. Thedivestiture of our contract electronics manufacturing business, which was completed on May18, 2004, generated net cash proceeds of approximately $900,000.

For the year ended March 31, 2004 net cash used by operating activitieswas $1,292,699 compared to net cash provided by operations of $134,462 for the year endedMarch 31, 2003. The decrease is primarily attributable to higher levels of operatinglosses and lower levels of cash generated from reductions in accounts receivables andinventory this fiscal year versus last fiscal year. The increase in cash provided byoperating activities for the year ended March 31, 2003 versus the fiscal year ended March31, 2002 was primarily due to cash provided from lower levels of accounts receivable andinventory.

Net cash provided by investing activities for the fiscal year endedMarch 31, 2004 was $243,018 compared to cash used by investing activities of $1,412,654for the previous fiscal year. The increase in cash provided by investing activities thisfiscal year was due to the sale of our ownership interest in Taiwan UQM which provided netcash proceeds of $445,275 and lower levels of capital expenditures for property andequipment, facility expansion and patent and trademark costs.

Net cash provided by financing activities was $2,032,800 for the fiscalyear ended March 31, 2004 versus $5,089,916 for the comparable period last year. Thedecrease is attributable to reduced proceeds from the sale of common stock and reducedproceeds from bank borrowings during the current fiscal year. Net cash provided byfinancing activities for fiscal 2003 rose substantially versus the fiscal 2002 level of$530,306 due to completion of a secondary offering in fiscal 2003 of $4.4 million andincreased bank borrowings.

Our operating results and liquidity during the fiscal year wereadversely impacted by the reduction in orders of a significant customer in our mechanicalproducts segment, an adverse court ruling against our electronic products segment and ourdecision to divest our contract electronics manufacturing business. 

Our debt facilities require compliance with certain financial covenantsin order for the financing to continue to be available on a long-term basis. At March 31,2004 we were in compliance with all financial covenants. In the event our operatingresults are not sufficient to maintain compliance with these covenants, we couldexperience a material adverse change in liquidity.

We expect to manage our operations and working capital requirements tominimize the future level of operating losses and working capital usage, however, wecannot provide assurance that we will be successful in achieving these objectives. Duringfiscal 2004, the emerging market for hybrid electric automobiles began to expand at anunexpected rate due to the market success of the Toyota Prius hybrid electric passengercar and the Honda Insight and Civic hybrid electric passenger cars. As a result, severalauto makers have announced planned introductions of similar vehicles and others areexpected to follow as the market acceptance of these vehicles continues to grow. As aresult of this industry trend, we expect expanded demand for our proprietary propulsionsystems which are ideally suited for a wide range of hybrid electric vehicle platforms. Inorder to capitalize on this anticipated expansion in demand, we expect to make substantialinvestments in human resources, manufacturing facilities and equipment, production andapplication engineering among other things, and the scope of these investments may exceedour currently available cash resources. Accordingly, we expect to fund our futureoperations from existing cash balances and from the future issuance of equity or debtsecurities or a combination thereof. We can, however, not provide any assurance thatfinancing or equity capital to fund planned operations will be available on termsacceptable to us. In the event financing or equity capital to fund future growth is notavailable, we will modify our strategy to align our operations with then availablefinancial resources.
**Contractual Obligations**
The following table presents information about our contractualobligations and commitments as of March 31, 2004:
**Tabular Disclosure of    Contractual    Obligations                                    Payments    due by Period**          Total**Less Than

1 Year**1 – 3 Years**3 – 5 Years**More than

5 Years
Long-Term Debt Obligations
$  1,072,034 
125,611 
904,953 
41,470 
-       
Capital Lease Obligations
-       
-       
-       
-       
-       
Operating Lease Obligations
$     787,185 
272,090 
515,095 
-       
-       
Purchase Obligations
-       
-       
-       
-       
-       Executive Compensation under Employment    Agreements
$  2,138,000 
432,000 
1,447,000 
259,000 
-       Other Long-Term Liabilities Reflected on the    Balance Sheet under GAAP
-       
-       
-       
-       
-       
Total
$  3,997,219 
829,701 
2,867,048 
300,470 
-       **Critical Accounting Policies

The preparation of financial statements and related disclosures inconformity with accounting principles generally accepted in United States requiresmanagement to make judgements, assumptions and estimates that effect the dollar valuesreported in the Consolidated Financial Statements and accompanying notes. Note 1 to theConsolidated Financial Statements describes the significant accounting policies andmethods used in preparation of the Consolidated Financial Statements. Estimates are usedfor but not limited to allowance for doubtful accounts receivables, costs to completecontracts, recoverability of inventories and warranty costs. Actual results could differmaterially from these estimates. The following critical accounting policies are impactedsignificantly by judgements, assumptions and estimates used in preparation of theConsolidated Financial Statements.
***Accounts Receivable***
Our trade accounts receivable are subject to credit risks associatedwith the financial condition of our customers and their liquidity. We evaluate allcustomers periodically to assess their financial condition and liquidity and setappropriate credit limits based on this analysis. As a result, the collectibility ofaccounts receivable may change due to changing general economic conditions and factorsassociated with each customers’ particular business. We have established a reservefor potentially uncollectible trade accounts receivable which is our best estimate of theamount of trade accounts receivable that we believe may become uncollectible at a futuredate due to the foregoing factors. At March 31, 2004 we had recorded reserves foruncollectible trade accounts receivable of $29,843. It is reasonably possible, that futureevents or changes in circumstances could cause the realizable value of our trade accountsreceivable to decline materially, resulting in material losses.
***Asset Recovery and Realization – Discontinued Operations

On May 18, 2004, we completed the sale of the assets of our electronicproducts segment. Part of the consideration received from this divestiture was commonstock of the purchasing entity, a privately-held corporation. In our judgement there isdoubt regarding our ability in the future to sell or otherwise liquidate the common stockof the purchasing entity, and accordingly, we recorded the stock at no value as a resultof this uncertainty. In the event we are able to realize value from the sale orliquidation of this asset at a future date, we would at that time record a gain equal tothe amount of the value received. In addition, the purchaser completed a subleaseagreement with us whereby it effectively assumed the remaining lease obligation under ourmaster lease. Similarly, in our judgement there is doubt regarding the purchaser’sfinancial capability to meets its obligations under the sublease agreement. Accordingly,we have recorded a liability of $204,066 which represents our estimate of the potentialfuture shortfall under our master lease should the sublease obligation not be fullyhonored. This estimate could be revised either up or down depending on future events, andany such changes could result in a material impact on our financial condition, results ofoperation and liquidity.
***Inventories***
We maintain raw material inventories of electronic components, motorparts and other materials to meet our expected manufacturing needs for proprietaryproducts and for products manufactured to the design specifications of our customers. Someof these components may become obsolete or impaired due to bulk purchases in excess ofcustomer requirements. Accordingly, we periodically assesses our raw material inventoryfor potential impairment of value based on then available information, expectations andestimates and establish impairment reserves for estimated declines in the realizable valueof our inventories. The actual realizable value of our inventories may differ materiallyfrom these estimates based on future occurrences and any resulting change in ourestimates. It is reasonably possible, that future events or changes in circumstances couldcause the realizable value of our inventories to decline materially, resulting inadditional material impairment losses.
***Percentage of Completion Revenue Recognition on Long-term Contracts:Costs and Estimated Earnings in Excess of Billings on***Uncompleted Contracts***
We recognize revenue on the development projects funded by ourcustomers using the percentage-of-completion method. Under this method, contract servicesrevenue is based on the percentage that costs incurred to date bear to management’sbest estimate of the total costs to be incurred to complete the project. Many of thesecontracts involve the application of our technology to customers’ products and otherapplications with demanding specifications. Management’s best estimates havesometimes been adversely impacted by unexpected technical challenges requiring additionalanalysis and redesign, failure of electronic components to operate in accordance withmanufacturers published performance specifications, unexpected prototype failuresrequiring the purchase of additional parts and a variety of other factors that may causeunforeseen delays and additional costs. It is reasonably possible that total costs to beincurred on any of the projects in process at March 31, 2004 could be materially differentfrom management’s estimates, and any modification of management’s estimate oftotal project costs to be incurred could result in material changes in the profitabilityof affected projects or result in material losses on any affected projects.
**New Accounting Pronouncements**
In December 2003, the Financial Accounting Standards Board (FASB)issued Interpretation No. 46 (FIN46R), "*Consolidation of Variable InterestEntities*" (revised December 2003). Fin 46 addresses how a business enterpriseshould evaluate whether it has a controlling financial interest in an entity through meansother than voting rights and accordingly should consolidate the entity. FIN46R replacesFASB Interpretation No. 46 "*Consolidation of Variable Interest Entities*",which was issued in January 2003. We do not have interests in any variable interestentities, therefore, FIN46R had no impact on our financial condition or results ofoperations.

In May 2003, the FASB issued SFAS No. 150, *"Accounting forCertain Financial Instruments with Characteristics of both Liabilities and Equity*".This statement establishes standards for the classification and measurement of certainfinancial instruments with characteristics of both liabilities and equity. The statementalso includes required disclosures for financial instruments within its scope. Thestatement was effective for instruments entered into or modified after May 31, 2003 andotherwise will be effective as of January 1, 2004, except for mandatorily redeemablefinancial instruments. For certain mandatorily redeemable financial instruments, thestatement will be effective for the Company on January 1, 2005. The effective date hasbeen deferred indefinitely for certain other types of mandatorily redeemable financialinstruments. We currently do not have any financial instruments that are within the scopeof this statement; therefore, SFAS No. 150 had no impact on our financial conditionor results of operations.
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