Technology segment operations for the fiscal year ended March 31, 2003 resulted in a net loss of $408,831 compared to net earnings of $32,078 and a net loss of $921,583 for the fiscal year ended March 31, 2002 and 2001, respectively. The net loss in the current fiscal year is attributable to cost-overruns on development contracts, lower sales of low volume products and lower levels of other income versus last fiscal year. Segment earnings for the fiscal year ended March 31, 2002 are primarily attributable to higher gross profit margins on contract services and higher levels of other income versus the fiscal year ended March 31, 2001.

The mechanical products segment of the Company encompasses the operations of the Company’s wholly-owned subsidiary, UQM Power. UQM Power shares a 28,000 square foot facility located in Frederick, Colorado with the Company’s technology segment. Prior to October 2001, UQM Power’s operations consisted of the volume manufacture of motors and the contract manufacture of gears and gear assemblies. Due to continuing weak demand in the markets served by the Company, the gear market generally, and industry trends toward greater sourcing of customer gear requirements overseas, the Company divested its non-core contract gear manufacturing business. As a result, in the second quarter of the fiscal year ended March 31, 2002 the Company recorded a charge for discontinued operations of $1,676,450 reflecting management’s estimate of the difference between the expected liquidation value of the business and its carrying value and the expected future operating losses to be incurred during the winding down of operations. As a result, losses attributable to gearing operations were reclassified and separately presented on the Company’s financial statements as discontinued operations for the fiscal years ended March 31, 2003, 2002 and 2001.

Motor manufacturing operations consist of the high volume manufacture of the Company’s proprietary permanent magnet motors. For the fiscal year ended March 31, 2003, revenue from motor manufacturing operations rose 3 percent to $4,136,328 versus revenue of $4,001,270 for the fiscal year ended March 31, 2002 and rose 47 percent versus revenue of $2,805,300 for the fiscal year ended March 31, 2001. Net earnings from motor manufacturing operations for the year ended March 31, 2003 was $69,527 compared to net earnings of $23,160 and $219,325 for the fiscal year ended March 31, 2002 and 2001, respectively. The increase in earnings versus the prior year is attributable to higher production volumes.

Electronic Products Segment

The electronic products segment of the Company encompasses the operations of the Company’s wholly-owned subsidiary UQM Electronics and includes the manufacture of thru-hole and surface mount electronic printed circuit board assemblies, wire harness assemblies, value-added component assemblies incorporating either printed circuit board assemblies, wire harness assemblies or both, and complete turn-key electronic product builds. UQM Electronics conducts its operations from a 31,000 square foot manufacturing plant located in St. Charles, Missouri. During the fiscal year ended March 31, 2003, segment operations continued to be adversely impacted by a broad and significant business downturn in the contract electronics manufacturing sector, generally, including a substantial decline in consumer demand for electronic products. Electronic products segment revenue decreased 42 percent to $7,934,048 for the fiscal year ended March 31, 2003 versus revenue of $13,646,245 for the fiscal year ended March 31, 2002 and declined 58 percent versus revenue of $19,110,954 for the fiscal year ended March 31, 2001. Segment net loss for the fiscal year ended March 31, 2003 was $3,074,375 versus a net loss for the fiscal year ended March 31, 2002 of $6,326,793, which included a charge for the write-down of goodwill of $4,348,633, and a net loss of $1,340,280 for the fiscal year ended March 31, 2001.

The Company’s technology base includes a number of proprietary technologies and patents relating to brushless permanent magnet motors, generators and power electronic controllers, together with software code to intelligently manage the operation of the system. See also "Patents" below.

Attributes of the Company’s microprocessor-based digital power electronic controllers include high power operation (600 amps at 400 volts), four quadrant control (forward/reverse and motoring/generation), reduced switching losses (minimizing energy loss), intelligent control and controller area network capability.

In April 2002, the Company announced the successful completion of testing and the commercial availability of an integrated electric traction system ("INTETS"), the next generation of its motor technology for vehicle propulsion applications including battery, hybrid and fuel cell electric vehicles. INTETS maximizes the advantages of the UQM^(R) motor architecture by packaging a single speed gear reduction and differential inside the hollow rotor and integrating the power electronic controller with the machine. The INTETS system is the electrical equivalent of a conventional powertrain consisting of an internal combustion engine, transmission and differential. The INTETS system measures 15 inches (380 mm) in length with an 11 inch (280mm) diameter (excluding an optional electronic controller), incorporates internal epicyclic single-stage gearing, off-the-shelf internal differential components and parking pawl, and delivers continuous power of 30 kW, peak power of 75 kW and peak torque of 1,700 N-m. The optional, fully integrated, intelligent electronic controller can be programmed to meet a variety of vehicle configurations and incorporates controller area communications protocol for ease of use and integration by original equipment manufacturers. The complete system, including electronic controller has a peak efficiency exceeding 91 percent. In 2003, the operating performance of this system was independently verified through performance validation testing conducted by the U.S. Department of Energy’s Argonne National Laboratory Advanced Powertrain Research Facility.

Similarly, the Company is developing a line of modular motors that are expected to improve the continuous power output of the Company’s existing motors and generators by about 25 percent without increasing size or weight. Preliminary testing of initial prototypes is underway and the Company has filed several patent applications surrounding the design features of its line of modular motors.

In February 2003, we were granted an U.S. Patent covering our innovative and low cost design for accurately sensing the position of rotating shafts, the technology originally developed and incorporated in proprietary gearless brushless direct drive wheelchair motors. We believe that the patented technology has potentially broad application in a wide range of products where resolvers are used and we are pursuing commercialization of the technology directly with end users and through potential licensing arrangements.

Substantially all of the Company’s research and development activities are the result of projects contracted for and funded by customers, with the Company typically retaining intellectual property rights in the resulting technology developed. Customer funded development activities are recorded as contract services revenue and the associated development costs are shown as cost of contract services in the Company’s financial statements. For the year ended March 31, 2003, revenues from customer funded research and development activities were $2,985,639 and internally funded research and development expenditures were $117,735.

In recent years, the Company has focused its research and development activities on the development of commercial products and production engineering activities to lower the cost of manufacture, as well as enhance the performance and capability of its technology portfolio, as opposed to basic research in the field. Management believes that the Company’s future growth is dependent, in part, on the continued advancement of its technology portfolio and its ability to commercialize its technology in additional product applications and markets. Accordingly, the Company expects to continue to pursue additional customer funded programs to accomplish this objective.

All of the markets in which the Company operates are highly competitive. The markets served by the technology segment are additionally characterized by rapid changes due to technological advances that can render existing technologies and products obsolete.

The technology segment has developed advanced electric propulsion systems and components which it hopes to market to vehicle Original Equipment Manufacturers throughout the world for use in electric, hybrid electric and fuel cell electric vehicles. At present, the market for such systems is not significant, although various legislative mandates and incentives are expected to accelerate the development of a market for vehicles propelled by such systems. There are numerous companies developing products that do or soon will compete with the Company’s drive systems. Some of these companies possess significantly greater financial, personnel and other resources than the Company, including established supply arrangements and volume manufacturing operations.

The Company believes its 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 these industries is extremely competitive. The Company will face substantial competition on a continuing basis from numerous competitors, many of whom possess longer operating histories, significantly greater financial resources and marketing, distribution and manufacturing capability. The Company believes its principal competitors include Advanced DC, Owosso Corporation, Emerson Electric, General Electric, Rockwell International, and Baldor.

The electronic products segment competes primarily in the automotive, telecommunications, medical, computer and industrial markets. Each of these markets is extremely competitive. The Company will face substantial competition on a continuing basis from numerous competitors, many of whom possess longer operating histories, significantly greater financial resources, marketing, distribution and manufacturing capability. The Company believes its principal competitors include Jabil Circuit, Plexus, EFTC Corporation, Flextronics International, Solectron, Celestica Corporation and Baldwin.

The Company holds several groups or families of patents. U.S. Patent Nos. 5,004,944; 5,311,092 and 5,319,844 disclose and claim a lightweight high-power electromagnetic transducer and method of making the same. Corresponding applications have been filed and issued in several foreign countries.

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

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

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

U.S. Patent No. 5,982,063 discloses and claims an electric motor having an 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 discloses and claims a method for controlling a brushless electric motor having a rotor, and relates to an accurate method for sensing rotor position and detecting rotational speed over a broad range of speeds. Corresponding applications have been filed and are pending in several foreign countries.

In 2002, a patent application was filed in the United States for a rotor cooling apparatus. In addition, corresponding applications have been filed at the European Patent Office and Canada.

More recently, a U.S. patent application was filed directed to a segmented machine casing and a method of making the same and an apparatus and method for connecting parallel stator windings. The deadline for filing foreign applications for these latter two applications has not yet passed.

During 1994, the Company and Alcan Aluminium Limited ("Alcan") executed an agreement in which Alcan assigned to the Company all of its rights, title and interests in certain motor technology developed under a program funded by Alcan.   This agreement further provides that the Company shall pay to Alcan royalties of one-half of one percent on revenue derived from the manufacture and sale of products or processes embodying the related technology.

The Company also intends to rely on the unpatented proprietary know-how it has developed and now utilizes in its products. There can be no assurance that others will not independently develop, acquire or obtain access to the Company's technology. Although the Company protects its unpatented proprietary rights by executing confidentiality agreements with its management, employees and others with access to the Company's technology, these measures may not be adequate to protect the Company from disclosure or misappropriation of its proprietary information.

The Company owns three U.S. Trademark Registrations for "UNIQ" (International Class 7 for power Transducers, Class 12 for Utility Land Vehicles, and Class 16 for Publications). The Class 12 trademark is subject to renewal in June 2006; the Class 7 trademark is subject to renewal in August 2006; and the Class 16 trademark is subject to renewal in February 2007.

The Company has registered the letters "UQM" in the U.S. Patent and Trademark Office. Counterpart applications have been filed in 26 countries throughout the world and 25 of those countries have granted registrations or indicated them to be allowable. Those trademarks are directed to the same trademark classes as the mark "UNIQ". The foreign trademark registrations and applications include major markets where the Company is doing business or establishing business contacts.

The Company has registered the trademark "POWERPHASE" which it uses in conjunction with certain of its electronic propulsion systems. Corresponding applications for trademark registration were filed in 11 countries. The trademark is registered in the European Community and various other foreign countries.

The Company’s technology segment had unperformed service contracts from customers which will provide future revenue to the Company upon completion aggregating approximately $1.4 million and an order backlog for prototype motors and controllers of approximately $0.3 million at April 30, 2003 compared to $1.4 million and $.06 million, respectively at April 30, 2002. All such service contracts are subject to amendment, modification or cancellation. The Company expects to complete all unperformed service contracts over the next eight months and ship motor and controller backlog products over the next six months.

The Company’s mechanical products segment had an order backlog of approximately $1.0 million at April 30, 2003 compared to $3.7 million at April 30, 2002. The Company expects to ship all backlog products within the next four months.

The Company’s electronic products segment had an order backlog of approximately $1.0 million at April 30, 2003 compared to $5.4 million at April 30, 2002. The Company expects to ship all backlog products within the next eight months.

During the fiscal year ended March 31, 2003, the Company had two significant customers, one of which is a customer of its electronic products segment, Tyco International, Ltd. which accounted for revenue of $3,874,903 or 25.0 percent of consolidated total revenue. The other is a customer of its mechanical products segment, Invacare Corporation, which accounted for revenue of $4,136,328 or 26.7 percent of consolidated total revenue. These customers, in total, represented 64 percent of total accounts receivable and 33 percent of inventories at March 31, 2003. Tyco International has informed us that they will not place additional orders with us after their current purchase commitment is fulfilled in August, 2003.

Principal raw materials and components purchased by the Company include iron, steel, electronic components, magnet material and copper wire. Most of the above items are available from several suppliers and the Company generally relies on more than one supplier for each item. Certain components used by the Company are custom designs and if the Company’s current supplier no longer made them available to the Company, the Company could experience production delays.

For the year ended March 31, 2003, $1,162,967, or approximately 7.5 percent of the Company’s consolidated total revenue was derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors.

For the year ended March 31, 2002, $1,040,251, or approximately 4.9 percent of consolidated total revenue was derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors.

For the year ended March 31, 2001, $853,341, or approximately 3.4 percent of consolidated total revenue was derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors.

Some of the Company’s contracts with the U.S. Government provide for the reimbursement of costs on a 50 percent cost-sharing basis based on not-to-exceed billing rates negotiated between the Company and the U.S. Government. Other U.S. Government business is performed under firm fixed price contracts. On "cost-share" and "firm fixed price" contracts, the Company can incur an actual loss in the performance thereof if incurred costs exceed the contract amount. All U.S. Government contracts with the Company are subject to modification or cancellation at the convenience of the Government.

As of April 30, 2003, the Company had 89 full-time employees. The Company has entered into employment contracts with two of its executive officers, which expire December 31, 2007. None of the Company’s employees are covered by a collective bargaining agreement. The Company’s management believes that its relationship with its employees has been generally satisfactory.

In addition to its full-time staff, the Company from time to time engages the services of outside consultants and contract labor to meet peak workload or specialized program requirements. The Company does not anticipate any difficulty in locating additional qualified professional engineers, technicians and production workers, if so required, to meet expanded research and development or manufacturing operations.

The following factors and other information in this document and the information incorporated by reference should be carefully considered before investing in our securities.

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

We have had accumulated deficits as follows:

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

Our electronic products segment manufactures products to customers' design specifications as a contract manufacturer. We purchase inventory on behalf of customers for which the customer is financially obligated in the event its production order with us is cancelled or otherwise not fulfilled. Some of our customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. In addition, our electronics manufacturing contracts generally do not include minimum purchase requirements and during economic downturns such as we have experienced in the current fiscal year, some of our customers have reduced and may continue to reduce their orders for our services and our electronics manufacturing revenue has declined and may continue to decline. If customers were to experience financial difficulties, reduce their orders, not honor financial obligations for the inventory we hold for them, or not pay the accounts receivable due from them, we could experience a material adverse change in our financial condition, results of operations and liquidity.

A significant portion of our total revenue is currently concentrated among two large customers, Tyco International and Invacare Corporation. Tyco International has informed us that they will not place additional orders with us after their current purchase commitment is fulfilled in August 2003. We expect to realize approximately $600,000 in revenue between April 2003 and August 2003 upon shipment of the products currently on order from this customer. Although the Company hopes to replace some or all of the revenue from the loss of the Tyco International business with orders from new customers and additional orders from existing customers, there can be no assurance that the Company will be successful in replacing such revenue. If the Company is not successful in replacing all the revenue now derived from Tyco International we will experience a material adverse change in our financial condition, results of operations and liquidity. The loss of our remaining significant customer, Invacare Corporation or a significant reduction in revenue from this customer could cause us to experience a material adverse change in our financial condition, results of operations and liquidity.

Historically a large portion of our sales have been to companies in the electronics industry, which is subject to rapid technological change and product obsolescence. If our customers are unable to create products that keep pace with the changing technological environment, our customers' products could become obsolete and the demand for our manufacturing services could decline significantly, causing a material adverse change in our financial condition, results of operations and liquidity.

We had a net loss of $3,598,650 during fiscal year 2003. Cash balances stood at $2,476,276 at March 31, 2003.  If our losses continue at this level, they could consume some or all of our current cash balances. During several fiscal years prior to the fiscal years ended March 31, 2003 and 2002, we experienced substantial growth in our revenue, which increased our working capital requirements. Should future growth resume at a similar rate or an accelerated rate, the working capital requirements to fund our operations and pursue acquisition opportunities may consume our existing cash balances.

Some of our technology has been developed under government funding by United States government agencies. In some cases, government agencies in the United States can require us to obtain or produce components for our systems from sources located in the United States rather than foreign countries. Our contracts with government agencies are also subject to the risk of termination at the convenience of the contracting agency and in some cases grant "march-in" rights to the government. March-in rights are the right of the United States government or the applicable government agency, under limited circumstances, to exercise a non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government to facilitate commercialization of technology developed with government funding if we fail to commercialize the developed technology. The implementation of restrictions on our sourcing of components or the exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.

In developing electric motors for use in vehicles, wheelchairs and other applications, we face competition from very large domestic and international companies, including the world's largest automobile manufacturers. These companies have far greater resources to apply to research and development efforts than we have, and they may independently develop motors that are technologically more advanced than ours.  

Our ability to compete effectively against other companies in our industry will depend, in part, on our ability to protect our proprietary technology. Although we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be successful in doing so. We have historically pursued patent protection in a limited number of foreign countries where we believe significant markets for our products exist or where potentially significant competitors have operations. It is possible that a substantial market could develop in a country where we have not received patent protection and under such circumstances our proprietary products would not be afforded legal protection in these markets. Further, our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours. We cannot assure you that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we cannot assure that we would be successful in enforcing our intellectual property rights. In addition, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country where we may operate or sell our products in the future.

If third parties assert technology infringement claims against us, the defense of the claims could involve significant legal costs and require our management to divert time and attention from our business operations. If we are unsuccessful in defending any claims of infringement, we may be forced to obtain licenses or to pay royalties to continue to use our technology. We may not be able to obtain any necessary licenses on commercially reasonable terms or at all. If we fail to obtain necessary licenses or other rights, or if these licenses are costly, our results of operations may suffer either from reductions in revenues through our inability to serve customers or from increases in costs to license third-party technologies.

Because some of our motors are designed to be used in vehicles including wheelchairs, and because vehicle accidents can cause injury to persons and property, we are subject to a risk of claims for product liability. We carry product liability insurance of $1 million covering all of our products. If we were to experience a large insured loss, it might exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable levels, any of which could impair our financial position and results of operations.

The Company owns or leases its offices and manufacturing facilities and believes these facilities to be well maintained, adequately insured and suitable for their present and intended uses. Information concerning facilities of the Company as of March 31, 2003, is set forth in the table below:

The Company filed a lawsuit in the Circuit Court of St. Louis County, Missouri in June 2002 against Hussman Corporation, a wholly-owned subsidiary of Ingersoll Rand Corporation, a former customer of its electronics product segment seeking payment for inventory purchased on behalf of Hussman. The Company is seeking damages of approximately $375,000 plus attorneys’ fees and other costs. The customer has filed various counterclaims, including breach of contract. The Company believes it has substantial and meritorious defenses against the counterclaims and intends to vigorously contest them. In November 2002, the Company also filed an additional lawsuit against Lumimove, Inc., another former customer of its electronics product segment in the Circuit Court of St. Louis County, Missouri seeking payment for inventory purchased on behalf of Lumimove. The Company is seeking damages of approximately $180,000 plus attorneys’ fees and other costs. Both actions are currently scheduled for trial in the fall of 2003. It is not possible to predict or determine the outcome of these legal actions, or to provide an estimate of potential losses, if any, at this time, however, should the court award damages on the counterclaim in the Hussman matter it could have a material adverse effect on the Company’s financial position, results of operations and liquidity.

In addition, the Company is 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 the Company’s financial position, results of operations or cash flow, although there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders of the Company during the quarter ended March 31, 2003.

The Company’s 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:

On May 22, 2003 the closing price of the Company’s common stock, as reported on the American Stock Exchange, was $2.54 per share and there were 902 holders of record of the Company’s common stock.

The Company has not paid any cash dividends on its common stock since inception and intends for the foreseeable future to retain any earnings to finance the growth of its business. Future dividend policy will be determined by the Board of Directors of the Company based upon consideration of the Company’s earnings, capital needs and other factors then relevant.

ITEM 6. SELECTED FINANCIAL DATA

UQM Technologies, Inc.

Consolidated Selected Financial Data

Cash and cash equivalents at March 31, 2003 was $2,476,276 and working capital (the excess of current assets over current liabilities) was $4,110,141 compared with $1,411,509 and $3,184,735, respectively, at March 31, 2002. The increase in cash and cash equivalents and working capital is primarily attributable to proceeds from the sale of common stock during the first quarter, net of subsequent repayments of debt.

Accounts receivable declined $1,628,552 to $1,034,002 at March 31, 2003 from $2,662,554 at March 31, 2002. The decrease is primarily attributable to lower revenue levels.

Costs and estimated earnings on uncompleted contracts decreased $254,729 to $187,484 at March 31, 2003 versus $442,213 at March 31, 2002. The decrease is due to more favorable billing terms on contracts in process at March 31, 2003. Estimated earnings on contracts in process declined to $619,403 or 24.6 percent of contracts in process of $1,903,214 at March 31, 2003 compared to estimated earnings on contracts in process of $1,025,313 or 29.2 percent of contracts in process of $2,486,598 at March 31, 2002. The decrease in estimated margins on contracts in process is attributable to anticipated cost overruns on certain engineering projects during the fiscal year ended March 31, 2003.

Inventory obligations of certain customers increased $386,805 to $789,767 at March 31, 2003 compared to $402,962 at March 31, 2002. The increase is due to slower than expected resolution of customer legal obligations for this inventory (see "Item 3 Legal Proceedings" above).

Inventories declined $2,613,088 to $1,620,262 principally due to a decline in raw material and work-in-process inventories of $2,278,324 and $435,981, respectively. The decline in raw materials inventories is attributable to reduced stocking levels, improved inventory turns and higher levels of inventory reserves for slow moving and obsolete inventory which accounted for $589,019 of the decline. The decline in work-in-process inventories is attributable to lower production levels in the electronic products segment.

Equipment of discontinued operations held for sale, net, declined to zero at March 31, 2003 compared to $1,253,432 at March 31, 2002 reflecting completion of the divestiture of the assets of the discontinued gear business.

Other current assets declined to zero at March 31, 2003 due to the recognition of deferred offering costs upon completion of a secondary stock offering during the first quarter.

The Company invested $304,114 for the acquisition of property and equipment during the fiscal year compared to $513,973 last fiscal year. The decrease in capital expenditures is primarily attributable to reduced capital expenditure requirements at the Company’s electronic products segment. In addition, the Company invested $1,049,692 during the fiscal year for the expansion of its facility in Frederick, Colorado to accommodate the relocation of the Company’s corporate headquarters and engineering staff from Golden, Colorado.

Accounts payable declined to $975,344 from $2,693,312 at March 31, 2003, primarily due to declining revenue levels and an associated decline in raw material inventory purchases by the electronics segment during the current fiscal year.

Other current liabilities increased $226,021 to $794,575 at March 31, 2003 from $568,554 at March 31, 2002. The increase is primarily attributable to the accrual of committed raw material inventory purchases, higher levels of accrued warranty costs, customer deposits, accrued rents and accrued loss reserves on certain engineering contracts.

In fiscal year 2001, a limited partnership in which the Company was a 50 percent owner sold its principal asset, the Company's headquarters building in Golden, Colorado, and was subsequently liquidated. As a result of this transaction, the Company recorded a deferred gain that was recognized ratably over the remaining term on the Golden facility lease that expired in September 2002. As a result the current portion of deferred gain on sale of real estate decreased to zero at March 31, 2003 from $322,139 at March 31, 2002.

In April 2002, the Company completed a secondary offering of 1,160,095 shares of common stock together with two-year warrants to purchase 232,019 shares of common stock at an exercise price of $5.73 per share. Cash proceeds, net of offering expenses, were $4,435,212. Immediately following completion of the offering the Company applied $3,182,947 of the proceeds to the reduction of debt. In November 2002, the Company re-financed an existing mortgage on its Frederick, Colorado facility including a portion of the expenditures related to expansion of the facility. As a result of both of these transactions, current portion of long-term debt decreased $445,122 to $116,921, long-term debt decreased $35,682 to $1,072,341 and revolving line-of-credit declined $2,254,000 to zero at March 31, 2003.

Term debt and accrued future losses of discontinued operations decreased $789,960 to zero at March 31, 2003 due to the repayment of term loans and the cessation of operations of gear manufacturing operations during the fiscal year ended March 31, 2003.

Billings in excess of costs and estimated earnings on uncompleted contracts decreased $159,361 to $223,378 at March 31, 2003 from $382,739 at March 31, 2002 reflecting billings on engineering contracts at a rate slower than the performance of the associated work during the fiscal year.

Common stock and additional paid-in capital increased to $188,445 and $55,885,486, respectively, at March 31, 2003 compared to $176,798 and $51,444,359 at March 31, 2002. The increases are primarily attributable to completion of a secondary offering of common stock during the fiscal year ended March 31, 2003.

Continuing operations for the fiscal year ended March 31, 2003, resulted in a loss of $3,413,679, or $0.18 per common share compared to a loss from continuing operations of $6,271,555, or $0.36 per common share and $2,042,538, or $0.12 per common share for the fiscal years ended March 31, 2002 and 2001, respectively. Loss from continuing operations for the fiscal years ended March 31, 2003 and 2001 included charges of $140,471 and $291,818, respectively, associated with the write-down of assets. Loss from continuing operations for the fiscal year ended March 31, 2002 included a charge of $4,348,633 for the write-down of goodwill. In addition to the charges noted above, operating results for the fiscal year ended March 31, 2003 included a charge to cost of sales associated with the impairment of $942,733 electronic component raw material inventory at the Company's electronic product segment.

Revenue from contract services was flat for the fiscal year ended March 31, 2003 at $2,985,639 versus $2,999,342 for the fiscal year ended March 31, 2002 reflecting decreased activity on revenue generating activities during the second half of the current fiscal year. Revenue from contract services increased $716,050 or 31 percent for the year ended March 31, 2002 compared to revenue for the year ended March 31, 2001. The increase was attributable to stronger demand for development programs during the fiscal year ended March 31, 2002.

Product sales this fiscal year declined 32 percent to $12,500,769 compared to $18,395,898 for the year ended March 31, 2002. Revenue for the fiscal year ended March 31, 2002 declined 20 percent versus revenue for the year ended March 31, 2001 of $23,011,358. Mechanical products segment revenue for the year ended March 31, 2003 increased $135,058 or 3 percent to $4,136,328 compared to $4,001,270 for fiscal year ended March 31, 2002. Mechanical products segment revenue for the fiscal year ended March 31, 2002 rose $1,195,970 or 43 percent compared to revenue for the fiscal year ended March 31, 2001 of $2,805,300. The growth in mechanical products segment revenue in each fiscal year is attributable to increased shipments of wheelchair motors. Mechanical product segment revenues during the fourth quarter of this fiscal year declined approximately 34 percent from the average production levels during the preceding three fiscal quarters due to the economic weakness in major world markets. The Company expects production to continue at these decreased levels through the first and second quarters of the fiscal year ending March 31, 2004. Electronic products segment revenue for the fiscal year ended March 31, 2003 decreased 42 percent to $7,934,048 compared to $13,646,245 for fiscal year ended March 31, 2002. Electronic products segment revenue for the fiscal year ended March 31, 2002 decreased $5,464,709 or 29 percent compared to revenue of $19,110,954 for the fiscal year ended March 31, 2001. The decline in revenue in both years is attributable to generally reduced order levels and the loss of significant customers arising from deteriorating economic conditions following the events of September 11, 2001. Technology segment product revenue for the fiscal year ended March 31, 2003 decreased 42 percent to $430,393 compared to $748,383 for fiscal year ended March 31, 2002. Technology segment product revenue for the fiscal year ended March 31, 2002 decreased $346,721 or 32 percent compared to revenue of $1,095,104 for the fiscal year ended March 31, 2001. The decrease in both years is attributable to reduced demand for proprietary propulsion systems.

Gross profit on contract services was 13.5 percent this fiscal year compared to 31.5 and 15.4 percent for the fiscal years ended March 31, 2002 and 2001, respectively. The decline in contract services margins for the current fiscal year versus the fiscal years ended March 31, 2002 and 2001 is attributable to cost overruns on certain engineering contracts this year. Gross profit margins on product sales this fiscal year was a negative 2.2 percent compared to 6.3 and 10.0 percent in the fiscal years ended March 31, 2002 and 2001, respectively. The decrease in margins on product sales for this fiscal year versus each of the two prior comparable fiscal years is attributable to a charge of $942,733 and $341,632 for the impairment of inventory for 2003 and 2002, respectively, decreased overhead absorption due to declining revenue levels and a less favorable product mix.

Research and development expenditures for the fiscal year ended March 31, 2003 increased to $117,735 compared to $98,940 and $103,231 for the fiscal years ended March 31, 2002 and 2001, respectively. The increase is primarily due to an increase in cost-share type contracts this fiscal year versus each of the prior two fiscal years.

General and administrative expense this fiscal year was $3,579,407 compared to $3,729,064 and $3,786,669 for the fiscal years ended March 31, 2002 and 2001, respectively. The decrease in general and administrative expenses for this fiscal year versus last fiscal year is primarily attributable to lower general and administrative expense in the Company's electronic products segment and lower professional fees associated with acquisition activities. The decrease in general and administrative expenses for the fiscal year ended March 31, 2002 versus the fiscal year ended March 31, 2001 is attributable to professional fees associated with acquisition activities in the fiscal year 2001.

Write-down of assets for the fiscal year ended March 31, 2003 of $140,471 is primarily attributable to the impairment and disposal of obsolete equipment. Write-down of assets for the fiscal year ended March 31, 2001 of $291,818 is attributable to the retirement of obsolete electronic equipment and the write-down of the Company’s investment in Aeromax Corporation.

Write-down of goodwill for fiscal year ended March 31, 2002 of $4,348,633 is attributable to the Company’s assessment that the fair value of its electronic products segment exceeded its recorded value at March 31, 2002.

Interest income declined to $28,035 for the current fiscal year compared to $64,067 and $59,588 for the fiscal years ended March 31, 2002 and 2001, respectively. The decrease is generally attributable to lower interest rates on invested funds versus the two prior fiscal years.

Interest expense decreased to $68,050 for the year ended March 31, 2003 compared to $372,084 and $298,690 for the fiscal years ended March 31, 2002 and 2001, respectively. The decrease for the fiscal year ended March 31, 2003 versus the fiscal year ended March 31, 2002 is due to the repayment of equipment term loans and line-of-credit borrowings during the current fiscal year. The increase for the fiscal year ended March 31, 2002 versus the fiscal year March 31, 2001 is attributable to higher interest rates on borrowings throughout the fiscal year ended March 31, 2002 on the Company’s lines-of-credit.

Gain on sale of real estate was $322,139 for the fiscal year ended March 31, 2003 compared to $379,997 and $19,286 for each of the two preceding fiscal years, respectively. The gain is attributable to the recognition of deferred gain through the remaining lease term arising from the sale of the Company’s Golden facility during the fiscal year ended March 31, 2001 by a partnership of which the Company held a 50 percent ownership stake.

In October 2001, the Company announced its intention to exit its non-core contract gear manufacturing business. As a result, during the quarter ended September 30, 2001, the Company recorded a charge of $1,676,450 for the estimated loss on disposal of the gear division, which included a provision of $663,792 for expected operating losses during the phase-out period. Additionally, for all periods presented, the Company reclassified operating results of the gear division to loss from operations of discontinued gear division, and reclassified all capital equipment and associated term debt as current under the following balance sheet captions: equipment of discontinued operations held for sale, net and term debt and accrued future losses of discontinued operations, respectively. The Company completed the divestiture of the contract gear manufacturing business during the first quarter of the fiscal year ended March 31, 2003.

Loss from operations of the discontinued gear division for the fiscal year ended March 31, 2003 was $184,971, or $0.01 per common share compared to a loss of $2,321,100, or $0.13 per common share and $1,097,584, or $0.06 per common share for the fiscal years ended March 31, 2002 and 2001, respectively. The decrease in the loss this fiscal year is attributable to the completion of the divestiture process during the first quarter of the fiscal year.

The Company’s cash balances and liquidity throughout the fiscal year ended March 31, 2003 were adequate to meet operating needs, although liquidity was adversely impacted by a general tightening of bank credit discussed below. At March 31, 2003, the Company had working capital (the excess of current assets over current liabilities) of $4,110,141 compared to $3,184,735 at March 31, 2002. Working capital increased by $925,406 primarily due to the proceeds from the Company's secondary offering, which resulted in cash proceeds, net of offering costs, of $4,435,212. Proceeds from the stock offering were subsequently partially applied to the repayment of term debt and revolving line-of-credit borrowings.

For the year ended March 31, 2003 net cash provided by operations was $488,905 compared to net cash provided by operations of $1,946,936 for the year ended March 31, 2002. The decline in cash provided by operating activities in this fiscal year as compared to the prior fiscal year is primarily attributable to and due to lower levels of cash generated from reductions in the level of accounts payable this fiscal year and the effect of a charge for the write-down of goodwill last fiscal year. The increase in cash provided by operating activities of $5,404,130 for the year ended March 31, 2002 versus the fiscal year ended March 31, 2001 was primarily due to cash provided from decreases in the level of accounts receivable and inventory in the fiscal year ended March 31, 2002 versus cash used on these items in the prior fiscal year.

Cash used by investing activities of continuing operations for the fiscal year ended March 31, 2003 was $1,418,147 compared to $588,205 for the previous fiscal year. The increase is primarily attributable to expansion of the Company's Frederick, Colorado facility, partially offset by lower levels of capital expenditures for machinery and equipment. Cash used for the acquisition of property and equipment was $513,973 for the fiscal year ended March 31, 2002 versus $2,151,041 for the fiscal year ended March 31, 2001. Equipment purchases and net cash used by operating activities during fiscal 2001 were primarily funded from cash proceeds received from the sale of real estate, net of distributions to a minority interest, of $1,752,365 and from cash proceeds from borrowings, net of repayments, which amounted to $3,986,158.

Cash flows provided by financing activities of continuing operations was $1,716,764 for the fiscal year ended March 31, 2003 versus cash flow used by financing activities of $1,814,315 for the comparable period last year. The increase this fiscal year is primarily attributable to completion of a secondary offering that resulted in net cash proceeds of $4,435,212, offset by repayments of debt and revolving line-of-credit, net of new borrowings secured by facility, totaling $2,734,804. Cash flows used by financing activities for the fiscal year ended March 31, 2002 was primarily attributable to repayments of our revolving line-of-credit and repayments of term debt.

During the first half of the current fiscal year, the Company’s liquidity was adversely impacted by a general tightening of credit in the banking industry. As a result of these conditions and continued operating losses, the Company’s banking facilities were not renewed requiring the Company to apply $3,182,947 of its then available cash balances to the repayment of these debt obligations. Liquidity was additionally negatively impacted by the elimination of then available additional borrowing availability of approximately $1,200,000 on the lines-of-credit, which were not renewed. At March 31, 2003, cash and cash equivalents were $2,476,276 and working capital was $4,110,141. The Company expects to manage its operations and working capital requirements to minimize the future level of operating losses and working capital usage, however, we cannot provide assurance that we will be successful in achieving these objectives. In addition, some of the Company's significant customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. To the extent these customers experience financial difficulties sufficient to impair their ability to honor their financial commitments or further reduce their orders for goods and services, the Company could experience a material adverse change in its financial condition, results of operations and liquidity.

The Company is actively considering possible future acquisitions at any given time and from time to time enters into non-binding letters of intent with respect to possible acquisitions. The Company expects to continue its strategy of growing its business through expanding its product line of permanent magnet motors and controllers, securing production orders from new and existing customers for electronic assemblies, designing and introducing new products for manufacture, seeking strategic alliances to accelerate the commercialization of its technology and pursuing synergistic and accretive acquisitions. The Company believes its financial resources are sufficient to fund its operations for at least the next eighteen months. The Company expects to finance its operations and future growth from existing cash resources, cash flow from operations, if any, and through the issuance of equity or debt securities or a combination thereof. There can, however, be no assurance that existing cash resources will be sufficient to fund these objectives or that financing or equity capital will be available on terms acceptable to the Company. In the event existing cash resources are not sufficient to fund operations as currently configured, or financing or equity capital to fund future growth is not available, the Company will modify its strategy to align its operations with its then available financial resources.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in United States requires management to make judgements, assumptions and estimates that effect the amount reported in the Consolidated Financial Statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. Estimates are used for but not limited to allowance for doubtful accounts receivables, costs to complete contracts, collectibility of inventory obligations of certain customers, recoverability of inventories and warranty costs. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgements, assumptions and estimates used in preparation of the Consolidated Financial Statements.

The Company’s trade accounts receivable are subject to credit risks associated with the financial condition of its customers and their liquidity. The Company evaluates all customers periodically to assess their financial condition and liquidity and sets appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customers particular business. The Company has established a reserve for potentially uncollectible trade accounts receivable which is management’s best estimate of the amount of trade accounts receivable that it believes may become uncollectible at a future date due to the foregoing factors. At March 31, 2003, the Company has recorded reserves for uncollectible trade accounts receivable of $28,756. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company’s trade accounts receivable to decline materially, resulting in additional material losses.

The Company’s electronic products segment provides contract manufacturing services for a variety of customers. Typically the Company requires its customers to contractually commit to pay for any non-returnable or non-cancelable raw material inventory purchased by the Company on behalf of its customers. The significant economic downturn in the contract electronics manufacturing industry over the last two years has caused originally scheduled or anticipated production runs to be reduced or cancelled by customers resulting in substantial amounts of raw material inventory being held by the Company for which current or former customers are contractually obligated. To date several customers have failed to honor their contractual obligation to pay for non-cancelable and non-returnable raw material purchased by the Company on their behalf. Accordingly, the Company has reclassified this inventory, together with allowances for the Company’s best estimate of uncollectible amounts, in its financial statements. At March 31, 2003 such inventory, net of allowances for uncollectible amounts of $367,710, was $789,767. The Company intends to pursue legal action against those customers who fail to honor their contractual obligations to the Company and has filed to-date two such lawsuits, both of which are awaiting trial. Although the Company believes that its contracts with customers are enforceable, there are inherent risks in litigation and it is possible the Company will not prevail in these actions, the customer will assert counterclaims and prevail on such claims or that if the Company does prevail, the customer will nevertheless not have the financial resources to pay any judgement rendered by the court. In the event the Company does not prevail in litigation, substantially all of this inventory obligation could be rendered uncollectible. Such an outcome, should it occur, could have a materially adverse effect on the Company’s results of operations, financial condition and liquidity.

The Company maintains raw material inventories of electronic components, motor parts and other materials to meet its expected manufacturing needs for proprietary products and for products manufactured to the design specifications of its customers. Some of these components may become obsolete or unusable due to design changes. Accordingly, the Company periodically assesses its raw material inventory for potential impairment of value based on then available information, expectations and estimates and establishes impairment reserves for estimated declines in the realizable value of its inventories. The actual realizable value of the Company’s inventories may differ materially from these estimates based on future occurrences and any resulting change in the Company’s estimates. The Company separately classifies raw material inventory when the inventory for which the customer is contractually obligated to pay is not currently being utilized or is not expected to be used at a future date in production operations (see "Inventory Obligations of Certain Customers" above). At March 31, 2003, the Company has recorded inventory reserves of $1,032,290. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company’s inventories to decline materially, resulting in additional material impairment losses.

Percentage of Completion Revenue Recognition on Long-term Contracts: Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts

The Company recognizes revenue on the development projects funded by its customers using the percentage-of-completion method. Under this method, contract services revenue is based on the percentage that costs incurred to date bear to management’s best estimate of the total costs to be incurred to complete the project. Many of these contracts involve the application of the Company’s technology to customers’ products and other applications with demanding specifications. Management’s best estimates have sometimes been adversely impacted by unexpected technical challenges requiring, additional analysis and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts and a variety of other factors that caused unforeseen delays and additional costs. It is reasonably possible that total costs to be incurred on any of the projects in process at March 31, 2003 could be materially different from management’s estimates, and any modification of management’s estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 required that, beginning April 1, 2002 goodwill would no longer be amortized for any intangible assets determined to have an indefinite useful life and acquired in a business combination accounted for under the purchase method and completed prior to June 30, 2001. In addition, the Company was required to assign goodwill to specific reporting units and then test it for impairment at least annually under a two step approach designed to compare the carrying value of each reporting unit to the fair value of the reporting unit. The Company was required to reassess its intangible assets, including goodwill recorded in connection with earlier acquisitions accounted for under the purchase method, including their useful lives. The Company adopted SFAS No. 141 and SFAS No. 142 on March 31, 2002.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. On April 1, 2002, the Company early adopted SFAS No. 143 which had no material impact on the Company’s financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. On April 1, 2002, the Company adopted SFAS No. 144 which had no material impact on the Company’s financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, and amendment of FASB Statement No. 13, and Technical Corrections." This Statement, among other things, amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Certain provisions of SFAS No.145 are effective for fiscal years beginning after May 15, 2002, and other provisions related to specific transactions are effective for those transactions occurring after May 15, 2002. On October 1, 2002, the Company adopted SFAS No. 145 which had no material impact on the Company’s financial condition or results of operations.

In July 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No.146 applies to costs associated with (1) an exit activity that does not involve an entity newly acquired in a business combination or (2) a disposal activity within the scope of SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Those costs include (a) certain termination benefits (so-called one-time termination benefits), (b) costs to terminate a contract that is not a capital lease, and (c) other associated costs including costs to consolidate facilities or relocate employees. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002, however earlier application is encouraged. On October 1, 2002, the Company adopted SFAS No. 146 which had no material impact on the Company’s financial condition or results of operations.

In November 2002 the FASB issued Financial Interpretation No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – and interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 (FIN 45)." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002.

In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based Compensation-Transition and Disclosure an amendment of FASB Statement No.123." SFAS No.148 amends SFAS No.123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Statement is effective for fiscal years beginning after December 15, 2002, however earlier application is encouraged. The provisions of SFAS No. 148 have no material impact on the Company, as we do not plan to adopt the fair-value method of accounting for stock options at the current time.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. The Company plans to adopt SFAS No. 149 on April 1, 2003 and expects that the adoption of SFAS No. 149 will not have a material impact on its financial condition and results of operations.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company does not use financial instruments to any degree to manage these risks and does not hold or issue financial instruments for trading purposes. All of the Company's product sales, and related receivables are payable in U.S. dollars. The Company is subject to interest rate risk on its debt obligations. One of the Company’s long-term debt obligations has a variable rate of interest indexed to the prime rate. The interest rate on these instruments approximates current market rates as of March 31, 2003. A one percent change in the prime interest rate would increase or decrease interest expense by $2,395 on an annual basis on outstanding borrowings at March 31, 2003 on debt with adjustable interest rate provisions.

The Board of Directors

UQM Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of UQM Technologies, Inc. and subsidiaries (Company) as of March 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended March 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UQM Technologies, Inc. and subsidiaries as of March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Denver, Colorado

May 15, 2003

See accompanying notes to consolidated financial statements.

                                                                                                                                  (Continued)

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

Non-Cash Investing and Financing Transactions:

In accordance with the provisions of the Company’s stock option plans, the Company accepts as payment of the exercise price or as repayment of promissory notes from officers issued under the option plans, mature shares of the Company’s common stock held by the option holder for a period of six months prior to the date of the option exercise or promissory note repayment. For the years ended March 31, 2002 and 2001, the Company issued 110,059 and 20,045 shares of common stock for an aggregate exercise price of $337,696 and $63,864 respectively, for which the Company received 55,850 and 7,983 shares of common stock as payment for the exercise price.

Prior to the enactment of the Sabanes-Oxley Act of 2002, the Company accepted promissory notes from officers of the Company in satisfaction of the exercise price of options exercised. These notes receivable were recorded as a reduction of stockholders’ equity in the consolidated financial statements. For the year ended March 31, 2001, the Company issued 11,000 shares of common stock for an aggregate exercise price of $38,500 for which the Company received a promissory note for the same amount.

See accompanying notes to consolidated financial statements.

     (i)         Goodwill

      (k)         Contract Services Revenue and Cost Recognition

        (o)        Comprehensive Loss

         (s)         New Accounting Pronouncements

 UQM TECHNOLOGIES, INC.

         Inventories at March 31, 2003, and 2002 consist of:

        Other current liabilities at March 31, 2003 and 2002, consists of:

       Long-term debt at March 31, 2003 and 2002 consists of:

   The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are presented below:

As of March 31, 2003, the Company had net operating loss carryforwards (NOL) of approximately $45 million for U.S. income tax purposes that expire in varying amounts through 2023. Approximately $3 million of the net operating loss carryforwards are attributable to stock options, the benefit of which will be credited to additional paid-in capital if realized. However, due to the provisions of Section 382 of the Internal Revenue Code, the utilization of a portion of these NOLs is limited. Future ownership changes under Section 382 could occur that would result in additional Section 382 limitations, which would restrict the use of NOLs. In addition, any Section 382 limitation could be further reduced to zero if the Company fails to satisfy the continuity of business enterprise requirement for the two-year period following an ownership change.

 Non-Employee Director Stock Option Plan

In February 1994, the Company’s Board of Directors ratified a Stock Option Plan for Non-Employee Directors pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. The Company has 253,333 shares of common stock available for future grant under the Plan. Option terms range from 3 to 10 years from the date of grant. Option prices are equal to the fair market value of common shares at the date of grant. Forfeitures under the Plan are available for re-issuance at a future date.

The following table presents summarized activity under the plan:

The following table presents summarized information about stock options outstanding for non-employee directors:

  Warrants

In April 2002, the Company completed a secondary offering of 1,160,095 shares of common stock together with two-year warrants to acquire an additional 232,019 shares of the Company’s common stock. The warrants have an exercise price of $5.73 per share. All of the warrants were outstanding at March 31, 2003.

The Company completed a private placement in fiscal 1998 of 750,000 units which consisted of one common share and one warrant at an exercise price of $8.00 per share. The warrants were scheduled to expire two years from the date of issuance. In March 2000, warrants to acquire 299,375 shares of common stock were extended for eighteen months. Of the originally extended warrants, warrants to purchase 188,250 shares of common stock were extended for an additional period of two years in fiscal 2002 at the fair value of such extensions resulting in cash proceeds to the Company of $105,007. The warrants expire in October 2003. All of the extended warrants were outstanding at March 31, 2003.

The Company has historically derived significant revenue from a few key customers. The customers from which more than 10% of total revenue has been derived and the percentage of revenue is summarized as follows:

 UQM TECHNOLOGIES, INC.

Assets and liabilities of the discontinued gear division were as follows:

The following table summarizes significant financial statement information for continuing operations of each of the reportable segments for the year ended March 31, 2002:

Segment information has been reclassified to reflect corporate overhead allocation consistent with the current year presentation. The following table summarizes significant financial statement information for continuing operations of each of the reportable segments for the year ended March 31, 2001: