UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

[  ] Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission File Number 1-10869

(Exact name of registrant, as specified in its charter)

(Address of principal executive offices) (Zip code)

(Registrant's telephone number, including area code)

(Former address if changed, since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X    No         .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes         No          Not Applicable   X   .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes        No   X    .

The number of shares outstanding (including shares held by affiliates) of the registrant's common stock, par value $0.01 per share at July 27, 2010 was 36,046,667.

TABLE OF CONTENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited), Continued

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

 TOC

Notes to Consolidated Financial Statements

TOC

We have historically derived significant revenue from a few key customers. Revenue from Lippert Components, Inc. totaled $331,484 and $55,458, for the quarters ended June 30, 2010 and 2009, respectively, which was 13 percent and 3 percent of total revenue, respectively.

 Trade accounts receivable from Lippert Components, Inc. were 1 percent and 17 percent of total accounts receivable as of June 30, 2010 and March 31, 2010 respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $6,458 and $87,654 as of June 30, 2010 and March 31, 2010, respectively.

 Revenue derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors totaled $527,280 and $540,271 for the quarters ended June 30, 2010 and 2009, respectively, which was 21 percent and 25 percent of total revenue, respectively. Accounts receivable from government-funded contracts represented 71 percent and 8 percent of total accounts receivable as of June 30, 2010 and March 31, 2010, respectively. Of these amounts, revenue derived from subcontracts with AM General LLC totaled $386,922 and $489,948 for the quarters ended June 30, 2010 and 2009, respectively, which represented 15 and 23 percent of our consolidated total revenue for each quarter, respectively. This customer also represented 10 percent and 8 percent of total accounts receivable at June 30, 2010 and March 31, 2010, respectively, and 20 percent and 13 percent of inventories at June 30, 2010 and March 31, 2010, respectively.

 

The Company currently has a full valuation allowance, as it is management's judgment that it is more-likely-than-not that net deferred tax assets will not be realized to reduce future taxable income.

 We recognize interest and penalties related to uncertain tax positions in "Other," net. As of June 30, 2010 and 2009, we had no provisions for interest or penalties related to uncertain tax positions.

 The tax years 2005 through 2009 remain open to examination by both the Internal Revenue Service of the United States and by the various state taxing authorities where we file.

 

Basic earnings per share is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed by dividing income or loss available to common stockholders by all outstanding and potentially dilutive shares during the periods presented, unless the effect is antidilutive. At June 30, 2010 and 2009, respectively, common shares issued under the Stock Bonus Plan but not yet earned totaling 98,929 and 225,870 were being held by the Company. For the quarters ended June 30, 2010 and 2009 respectively, 23,809 and zero shares were potentially includable in the calculation of diluted loss per share under the treasury stock method but were not included, because to do so would be antidilutive. At June 30, 2010 and 2009, options to purchase 2,634,908 and 2,980,659 shares of common stock were outstanding. For the quarters ended June 30, 2010 and 2009, respectively, options for 703,691 and 2,950,790 shares were not included in the computation of diluted loss per share because the option exercise price was greater than the average market price of the common stock. In-the-money options and warrants determined under the treasury stock method to acquire 568,444 and 5,035 shares of common stock for the quarters ended June 30, 2010 and 2009, respectively, were potentially includable in the calculation of diluted loss per share but were not included, because to do so would be antidilutive. 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable:  The carrying amounts approximate fair value because of the short maturity of these instruments.  

Investments:  The carrying value of these instruments is the amortized cost of the investments which approximates fair value.  See Note 4.  

At June 30, 2010, we have two reportable segments: technology and power products. Our reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different business strategies. The technology segment encompasses our technology-based operations including core research to advance our technology, application and production engineering and product development and job shop production of prototype components. The power products segment encompasses the manufacture and sale of motors and electronic controllers. Salaries of the executive officers and corporate general and administrative expense are allocated to our segments annually based on factors established at the beginning of each fiscal year. The percentages allocated to the technology segment and power products segment were 69 percent and 31 percent for the quarter ended June 30, 2010, and were 82 percent and 18 percent for the quarter ended June 30, 2009, respectively.

 Intersegment sales or transfers, which were eliminated upon consolidation, were $116,576 and $4,467, for the quarters ended June 30, 2010 and 2009, respectively.

 The technology segment leases office, production and laboratory space in a building owned by the Power Products Segment based on a negotiated rate for the square footage occupied. Intercompany lease payments, were $45,900 and $45,900, for the quarters ended June 30, 2010 and 2009, respectively, and were eliminated upon consolidation.

 The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the quarter ended June 30, 2010:

The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the quarter ended June 30, 2009:

Employment Agreements

 We have entered into employment agreements with four of our officers which expire on August 22, 2012. The aggregate future base salary payable to these four executive officers under the employment agreements, over their remaining twenty-six month term is $2,060,023. In addition, we have recorded a liability of $1,166,480 and $1,155,416 at June 30, 2010 and March 31, 2010, respectively, representing the potential future compensation payable under the retirement and voluntary termination provisions of the employment agreements.

 Lease Commitments

 At June 30, 2010 there were no operating leases with initial non-cancelable terms in excess of one year.

 Litigation

 In November 2007, we filed an arbitration claim with the American Arbitration Association ("AAA") against Phoenix MC, Inc., as successor by merger to Phoenix Motorcars, Inc. ("Phoenix") seeking damages for Phoenix's breach of the Purchase and Supply Agreement between Phoenix and UQM Technologies, Inc. dated January 12, 2007. The matter was heard by an AAA arbitration panel (the "Panel") in December 2008. On February 24, 2009, the AAA notified us of the Panel's findings that Phoenix had materially breached the Agreement and awarded monetary damages to us in the amount of $5,309,649. In addition, the Panel awarded us post-award interest at the rate of 10 percent per annum on the unpaid amount of the award subsequent to February 6, 2009. On April 27, 2009, Phoenix filed a Chapter 11 bankruptcy petition with the U.S. Bankruptcy Court. On May 17, 2010 we received a final recovery from the U.S. Bankruptcy Court in this matter of $265,140, which has been recorded as other income in the first quarter of the current fiscal year.

 We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although adverse developments in these matters could have a material impact on a future reporting period.

 

 We generate revenue from two principal activities: 1) research, development and application engineering services that are paid for by our customers; and 2) the sale of motors, generators and electronic controls. The sources of engineering revenue typically vary from year to year and individual projects may vary substantially in their periods of performance and aggregate dollar value. Our product sales consist of both prototype low volume sales, which are generally sold to a broad range of customers, and annually recurring higher volume production.

 We have entered into a ten year Supply Agreement with CODA Automotive to supply UQM® PowerPhase® electric propulsion systems to CODA Automotive's production partner, HaFei. Initial shipments of production systems under the agreement are expected to begin later this calendar year and ramp up prior to scheduled deliveries of CODA's all-electric four-door sedan in the California market in the fall of 2010. CODA hopes to sell 14,000 vehicles in calendar year 2011 reaching an annual run rate of 20,000 vehicles, which, if achieved, would result in annual revenue to us well in excess of $50 million. 

The CODA all-electric sedan was developed by CODA's internal team of engineers working with multiple external engineering partners, including Porsche Engineering. The vehicle is propelled by a 100 kW UQM® PowerPhase® electric propulsion system and is expected to carry a 5-star crash worthiness rating and sell in the mid $30,000s after government tax credits.

 The CODA all-electric sedan chassis will be initially assembled and tested, incorporating the UQM® power-train on an existing large-scale assembly line operated by CODA's manufacturing and assembly partner, HaFei. Hafei is one of the premier production and R&D companies in China and is China's third largest automobile manufacturer. Hafei has over 575,000 square meters of production facilities and 11,000 employees.

 We understand that CODA is also working to establish final vehicle assembly in southern California where at a minimum the battery system would be installed in the chassis produced by Hafei. It is likely, that over time, the UQM propulsion system and other US- sourced components would be assembled into the vehicle in Southern California, rather than China.

 After the end of the quarter, we announced that an international automobile company had placed an initial order for over fifty PowerPhase® electric propulsion systems as part of their fleet build and vehicle development activities. Deliveries under the order are scheduled to occur in the fourth calendar quarter of 2010 and the first calendar quarter of 2011. Automobile companies typically build test fleets to evaluate new vehicles that are under development prior to their market launch. Introduction of the vehicle is targeted for 2012 and we have quoted delivery and price for over 25,000 systems.

 We have also been awarded a $45.1 million Grant from the U.S. DOE under the American Recovery and Reinvestment Act ("ARRA") to accelerate the manufacturing and deployment of electric vehicles, batteries and components in the United States. The Grant, which was finalized in January 2010, provides for a 50 percent cost-share by the Company raising the total value of the project to $90.2 million. Capital expenditures for facilities, tooling and manufacturing equipment and the qualification and testing of products associated with the launch of volume production for CODA Automotive are expected to qualify for reimbursement under the DOE program. The Grant also provides for the reimbursement of qualifying pre-award expenditures incurred after August 5, 2009. Expected reimbursements under this provision for production engineering expenditures incurred through June 30, 2010 totaled approximately $2.0 million and when recognized will be recorded as a reduction of production engineering expense resulting in a reduction in net loss. Reimbursements received from the DOE through June 30, 2010 for capital assets acquired totaled $4.0 million, which were recorded as a reduction in the cost basis of the assets acquired.

 Throughout the quarter we continued to experience broad demand for our electric propulsion systems and related products from a wide-range of customers worldwide. We believe that the increased demand is due, in part, to an expansion in the number of all-electric and hybrid electric vehicle platforms being developed for potential introduction in the passenger automobile market and the amount of government grants and loans available to encourage the development and introduction of clean vehicles. In the truck market, we are continuing to supply DC-to-DC converters to Eaton Corporation as part of their hybrid electric propulsion system which powers medium duty hybrid trucks manufactured by International Truck and Engine Corporation, Peterbilt Motors Company and Freightliner Trucks. We expect to see further growth in deliveries to these markets as the global economy continues to improve. In addition, we expect that demand for our electric propulsion system and generator products will remain strong for the foreseeable future as vehicle makers continue to focus on the development and introduction of electric and hybrid electric vehicles as part of the restructuring of the global automotive industry to provide a broader selection of highly fuel efficient vehicles to consumers.

 Contract services revenue for the first fiscal quarter declined 26.8 percent to $302,228, due to the application of engineering resources to non-billable production engineering activities. We expect funded engineering activities to be at similar levels for the remainder of the fiscal year as we continue to transfer engineering staff from research related activities to production related activities.

 During the quarter ended June 30, 2010, product sales revenue increased 31.3 percent to $2,253,096, driven primarily by an increase in demand for electric propulsion systems and generators.

 Gross profit margins on product sales for the quarter ended June 30, 2010 were 37.8 percent versus 28.4 percent for the comparable quarter last fiscal year.  Gross contribution dollars on product sales for the quarter increased 74.5 percent to $851,160 versus $487,784 for the comparable quarter last fiscal year. The improvement is attributable to improved overhead absorption and reduced production costs associated with higher volumes and improvements in supply chain management.

 Production engineering expenditures nearly doubled to $803,634 for the quarter ended June 30, 2010 versus $426,435 for the same quarter last fiscal year. The increase is attributable to expanded production engineering activities in support of our customers' production intent requirements.

 Other income was $265,140 for the quarter reflecting a cash recovery arising from the completion of the bankruptcy proceedings of Phoenix MC, Inc.

 Net loss for the first fiscal quarter decreased to $486,870, or $0.01 per common share, on total revenue of $2,555,324 versus a net loss of $629,116 or $0.02 per common share on total revenue of $2,129,319 for the comparable quarter last fiscal year. The decrease in net loss is primarily attributable to the expansion in gross profit contribution dollars and the cash recovery arising from the completion of the Phoenix MC, Inc. bankruptcy proceedings.

 Our liquidity throughout the fiscal year was sufficient to meet our operating requirements. At June 30, 2010 we had cash and short-term investments totaling $26,616,528. Net cash used in operating activities and capital expenditures and prepayments for property and equipment for the first quarter were $1,520,438 and $2,418,598 versus $1,286,884 and $34,793 for the same quarter last fiscal year.

 As the markets for electrified vehicles continue to emerge and expand into additional vehicle platforms over the next several years, we expect to experience potentially rapid growth in our revenue coincident with the introduction of electric products for our customers. Should these expectations be realized, our existing cash and short-term investments may not be adequate to fund our anticipated growth and, as a result, we may need to raise additional capital to fund the higher than currently anticipated growth in our business.

Cash and cash equivalents and short-term investments at June 30, 2010 were $26,616,528 and working capital (the excess of current assets over current liabilities) was $29,753,472 compared with $30,148,783 and $31,001,650, respectively, at March 31, 2010. The decrease in cash and short-term investments and working capital is primarily attributable to operating losses, higher levels of accounts receivable, lower levels of accounts payable and expenditures for long-lived assets.

 Accounts receivable increased $806,846 to $2,502,484 at June 30, 2010 from $1,695,638 at March 31, 2010. The increase is primarily due to higher levels of billings arising principally from billings under our DOE ARRA stimulus grant as of June 30, 2010. Substantially all of our customers are large well-established companies of high credit quality. Although we have not established an allowance for bad debts at June 30, 2010 and no allowance for bad debts was deemed necessary at March 31, 2010, in light of current economic conditions we may need to establish an allowance for bad debts in the future.

 Costs and estimated earnings on uncompleted contracts increased $251,654 to $932,400 at June 30, 2010 versus $680,746 at March 31, 2010. The increase is due to less favorable billing terms on certain contracts in process at June 30, 2010 versus March 31, 2010. Estimated earnings on contracts in process increased to $638,078 or 13.0 percent of contracts in process of $4,909,772 at June 30, 2010 compared to estimated earnings on contracts in process of $544,417 or 11.8 percent of contracts in process of $4,607,545 at March 31, 2010. The increase is attributable to higher expected margin on certain contracts in process at June 30, 2010.

 Inventories increased $170,161 to $1,461,487 at June 30, 2010 principally due to higher levels of work-in-process and finished goods inventories. Work-in-process and finished goods inventory increased $148,073 and $28,754, respectively, reflecting higher levels of low volume product builds in process at June 30, 2010.

Prepaid expenses and other current assets increased to $285,673 at June 30, 2010 from $140,285 at March 31, 2010 primarily due to the prepayment of insurance premium costs on our commercial insurance coverage.

 We invested $2,418,596 for the acquisition of property and equipment during the quarter ended June 30, 2010 compared to $34,793 during the comparable quarter last fiscal year. The increase in capital expenditures is primarily due to renovation costs for work being performed on our new facility and purchases of manufacturing equipment during the quarter

 Patent and trademark costs decreased $11,470 to $408,971 at June 30, 2010 versus $420,441 at March 31, 2010 primarily due to the systematic amortization of patent issuance costs.

 Accounts payable decreased $597,397 to $824,382 at June 30, 2010 from $1,421,779 at March 31, 2010, primarily due to the timing of the payment of renovation costs on our new facility.

 Other current liabilities decreased $280,124 to $769,119 at June 30, 2010 from $1,049,243 at March 31, 2010. The decrease is primarily attributable to lower levels of customer prepayments at June 30, 2010.

 Billings in excess of costs and estimated earnings on uncompleted contracts decreased $37,208 to $14,344 at June 30, 2010 from $51,552 at March 31, 2010 reflecting decreased billings on certain engineering contracts in process at June 30, 2010 in advance of the performance of the associated work versus March 31, 2010.

 Deferred compensation under executive employment agreements increased $11,064 to $1,166,480 at June 30, 2010 from $1,155,416 at March 31, 2010 reflecting periodic accruals of future severance obligations under executive employment agreements.

 Common stock and additional paid-in capital were $359,477 and $112,293,133, respectively, at June 30, 2010 compared to $359,467 and $112,211,227 at March 31, 2010. The increases in common stock and additional paid-in capital were primarily attributable to non-cash share based payments and share issuances under our equity incentive plan.

 Quarter Ended June 30, 2010

 Operations for the first quarter ended June 30, 2010, resulted in a net loss of $486,870, or $0.01 per common share, compared to a net loss of $629,116, or $0.02 per common share for the comparable period last year. The reduction in net loss is primarily attributable to higher levels of product sales revenue, expanded gross profit margins and a final distribution from the bankruptcy court in the matter of Phoenix MC.

 Revenue from contract services decreased $110,654, or 27 percent, to $302,228 at June 30, 2010 versus $412,882 for the comparable quarter last year. The decrease is primarily due to the application of engineering resources to support production engineering and low volume production activities.

 Product sales for the first quarter increased $536,659 or 31 percent to $2,253,096, compared to $1,716,437 for the comparable period last year. Power products segment revenue for the quarter ended June 30, 2010 increased to $684,294 from $520,932 for the comparable quarter last fiscal year due to increased shipments of DC-to-DC converters and vehicle auxiliary motors. Technology segment product revenue for the quarter ended June 30, 2010 increased 31 percent to $1,568,802, compared to $1,195,505 for the quarter ended June 30, 2009 due to increased shipments of prototype propulsion motors and controllers.

 Gross profit margins for the quarter ended June 30, 2010 increased to 37.7 percent compared to 28.4 percent for the quarter ended June 30, 2009. Gross profit on contract services was 37.4 percent during the first quarter this fiscal year compared to 28.2 percent or the quarter ended June 30, 2009. The improvement is primarily due to improved pricing on certain engineering contracts in process at June 30, 2010. Gross profit margin on product sales for the first quarter this year rose to 37.8 percent compared to 28.4 percent for the first quarter last year. The improvement is primarily due to lower material costs and improved overhead absorption arising from higher production levels during the current quarter versus the comparable quarter last year.

 Research and development expenditures for the quarter ended June 30, 2010 decreased to $119,319 compared to $186,146 for the quarter ended June 30, 2009 reflecting reduced levels of cost-sharing on government research programs and lower levels of on-going software research activities.

 Production engineering costs were $803,634 for the first quarter versus $426,435 for the first quarter last fiscal year. The increase is attributable to higher sample costs, and expansion of the group and its activities in preparation for the launch of higher volume manufacturing operations.

 Selling, general and administrative expense for the quarter ended June 30, 2010 was $822,841 compared to $639,778 for the same quarter last year. The increase is attributable to higher levels of marketing and facility related expenses partially offset by lower levels of legal expenses versus the same quarter last fiscal year.

 Interest income increased to $28,708 for the quarter ended June 30, 2010 versus $15,285 for the same period last fiscal year. The increase is attributable to higher levels of invested cash balances.

 Interest expense decreased to zero for the quarter ended June 30, 2010 compared to $7,203 for the comparable period last fiscal year reflecting the payoff of the mortgage debt on our Frederick, Colorado facility during the previous fiscal year.

 Liquidity and Capital Resources

 Our cash balances and liquidity throughout the quarter ended June 30, 2010 were adequate to meet operating needs. At June 30, 2010, we had working capital (the excess of current assets over current liabilities) of $29,753,472 compared to $31,001,650 at March 31, 2010.

 For the quarter ended June 30, 2010, net cash used in operating activities was $1,520,438 compared to net cash used in operating activities of $1,286,884 for the comparable quarter last fiscal year. The increase in cash used for the first fiscal quarter is primarily attributable lower levels of accounts payable, which were partially offset by a lower net loss.

 Net cash used in investing activities for the first quarter was $10,346,714 compared to cash provided by investing activities of $1,060,157 for the comparable quarter last fiscal year. The increase in net cash used in investing activities for the first quarter was primarily due to increased levels of short-term investments and higher levels of capital expenditures associated with the establishment of high volume manufacturing capability and capacity for the CODA vehicle launch later this calendar year.

 We expect to fund our operations over the next year from existing cash and short-term investment balances and from available bank financing, if any. We may need to invest substantially greater financial resources during fiscal 2011 on the commercialization of our products in emerging markets, including a significant increase in human resources, and increased expenditures for equipment, tooling and facilities. These capital requirements may be substantially reduced by the funding of 50 percent of qualified capital expenditures from the Company's grant from the U.S. DOE under the ARRA. Working capital requirements related to our supply agreement with CODA could be potentially as high as $20 million if CODA achieves their calendar 2011 production targets. Although we expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage consistent with the execution of our business plan, our planned working capital requirements may consume a substantial portion of our cash reserves June 30, 2010. If customer demand accelerates substantially, our losses over the short-term may increase together with our working capital requirements. In addition, our $45.1 million DOE stimulus grant requires us to provide matching funds of 50 percent on all qualifying expenditures under the grant. As of June 30, 2010 we have provided matching funds of $39.6 million, and potentially require future matching funds of $5.5 million over the remaining term of the grant. We do not currently have sufficient funds to meet all of this potential future funding requirement.

 If our existing financial resources are not sufficient to execute our business plan, including meeting future funding requirements under the DOE stimulus grant, we may issue equity or debt securities in the future, although we cannot assure that we will be able to secure additional capital should it be required to implement our current business plan. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, or at all, we will modify our strategy to align our operation with then available financial resources.

 The following table presents information about our contractual obligations and commitments as of June 30, 2010:

None.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the dollar values reported in the consolidated financial statements and accompanying notes. Note 1 to the consolidated financial statements contained in our annual report on Form 10-K for the fiscal year ended March 31, 2010 describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for doubtful accounts receivables, costs to complete contracts, the recoverability of inventories and the fair value of financial and long-lived assets. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.

Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customer's particular business. Because substantially all of our customers are large well-established companies with excellent credit worthiness, we have not established a reserve at June 30, 2010 and March 31, 2010 for potentially uncollectible trade accounts receivable. In light of current economic conditions we may need to establish an allowance for bad debts in the future. It is also reasonably possible, that future events or changes in circumstances could cause the realizable value of our trade accounts receivable to decline materially, resulting in material losses.

 Inventories

We maintain raw material inventories of electronic components, motor parts and other materials to meet our expected manufacturing needs for proprietary products and for products manufactured to the design specifications of our customers. Some of these components may become obsolete or impaired due to bulk purchases in excess of customer requirements. Accordingly, we periodically assesses our raw material inventory for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value of our inventories. The actual realizable value of our inventories may differ materially from these estimates based on future occurrences. It is reasonably possible that future events or changes in circumstances could cause the realizable value of our inventories to decline materially, resulting in additional material impairment losses.

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

We recognize revenue on development projects funded by our customers using the percentage-of-completion method. Under this method, contract services revenue is based on the percentage that costs incurred to date bear to management's best estimate of the total costs to be incurred to complete the project. Many of these contracts involve the application of our technology to customers' products and other applications with demanding specifications. Management's best estimates have sometimes been adversely impacted by unexpected technical challenges requiring additional analysis and redesign, failure of electronic components to operate in accordance with manufacturers published performance specifications, unexpected prototype failures requiring the purchase of additional parts and a variety of other factors that may cause unforeseen delays and additional costs. It is reasonably possible that total costs to be incurred on any of the projects in process at June 30, 2010 could be materially different from management's estimates, and any modification of management's estimate of total project costs to be incurred could result in material changes in the profitability of affected projects or result in material losses on any affected projects.

 Fair Value Measurements and Asset Impairment

Some of our assets and liabilities may be subject to analysis as to whether the asset or liability should be marked to fair value and some assets may be evaluated for potential impairment in value. Fair value estimates and judgments may be required by management for those assets that do not have quoted prices in active markets. These estimates and judgments may include fair value determinations based upon the extrapolation of quoted prices for similar assets and liabilities in active or inactive markets, for observable items other than the asset or liability itself, for observable items by correlation or other statistical analysis, or from our assumptions about the assumptions market participants would use in valuing an asset or liability when no observable market data is available. Similarly, management evaluates both tangible and intangible assets for potential impairments in value. In conducting this evaluation, management may rely on a number of factors to value anticipated future cash flows including operating results, business plans and present value techniques. Rates used to value and discount cash flows may include assumptions about interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management's judgment in applying them to the analysis of asset impairment. Changes in any of the foregoing estimates and assumptions or a change in market conditions could result in a material change in the value of an asset or liability resulting in a material adverse change in our operating results.

 New Accounting Pronouncements

In October 2009, the FASB issued new standards for revenue recognition with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are required to be adopted in the first quarter of FY 2012; however, early adoption is permitted. We do not expect these new standards to significantly impact our consolidated financial statements.

 In October 2009, the FASB issued new standards for the accounting for certain revenue arrangements that include software elements. These new standards amend the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. These new standards are required to be adopted in the first quarter of FY 2012; however, early adoption is permitted. We do not expect these new standards to significantly impact our consolidated financial statements.

 In January 2010, the FASB issued amended standards that require additional fair value disclosures. These amended standards require disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of FY 2012. We do not expect these new standards to significantly impact our consolidated financial statements.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. We do not use financial instruments to any degree to manage these risks and do not hold or issue financial instruments for trading purposes. All of our product sales, and related receivables are payable in U.S. dollars. We are not subject to interest rate risk on our debt obligations.

 We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2010, we performed an evaluation under the supervision and with the participation of our management, including CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities and Exchange Act of 1934). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2010.

PART II-OTHER INFORMATION

TOC

 In November 2007, we filed an arbitration claim with the American Arbitration Association ("AAA") against Phoenix MC, Inc., as successor by merger to Phoenix Motorcars, Inc. ("Phoenix") seeking damages for Phoenix's breach of the Purchase and Supply Agreement between Phoenix and UQM Technologies, Inc. dated January 12, 2007. The matter was heard by an AAA arbitration panel (the "Panel") in December 2008. On February 24, 2009, the AAA notified us of the Panel's findings that Phoenix had materially breached the Agreement and awarded monetary damages to us in the amount of $5,309,649. In addition, the Panel awarded us post-award interest at the rate of 10 percent per annum on the unpaid amount of the award subsequent to February 6, 2009. On April 27, 2009, Phoenix filed a Chapter 11 bankruptcy petition with the U.S. Bankruptcy Court. On May 17, 2010 we received a final recovery from the U.S. Bankruptcy Court in this matter of $265,140, which was recorded as other income in the first quarter of the current fiscal year.

 We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, and based on current available information, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flow, although adverse developments in these matters could have a material impact on a future reporting period.

 You should carefully consider the risks described below before making an investment decision.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. 

Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

 This report and the documents incorporated by reference also contain forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below.

 We have incurred significant losses and may continue to do so.

We have had accumulated deficits as follows:

In the future, we plan to make additional investments in product development, facilities and equipment and other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses at least through March 31, 2011 and potentially beyond.

Our net loss for the quarter ended June 30, 2010 was $486,870 versus a net loss for the comparable quarter last fiscal year of $629,116. At June 30, 2010, our cash and short-term investments totaled $26,616,528. Our net loss for the fiscal year ended March 31, 2010 was $4,140,872 versus a net loss for the fiscal year ended March 31, 2009 of $4,402,019. Our working capital requirements could increase substantially with the launch of production for CODA and other customers. We are not certain that our existing cash resources will be sufficient to fund our working capital requirements or to complete our business plan. Should our existing cash resources be insufficient, we may need to secure additional funding, which may not be available on terms acceptable to us, if at all.

 On January 13, 2010, we finalized a $45.1 million award under the American Recovery and Reinvestment Act's Electric Drive Vehicle Battery and Component Manufacturing Initiative with the U.S. Department of Energy. This Award is subject to terms and conditions specified in the agreement between us and the DOE. We are required to make a cash investment on a dollar-for-dollar matching basis to receive funds under this Award. If we are unable to match the total amount of the $45.1 million award with funding from non-Federal sources, we will be unable to take advantage of the entire Award, and could become ineligible for continued participation in the program. The payment of the incurred costs under the award has been limited to $8.1 million through August 25, 2010 until various conditions are satisfied. These conditions include 1) DOE's review and approval of our accounting system; and 2) mutual agreement of an updated total estimated cost of the project. In the event either condition is not satisfied by August 25, 2010 the grant may be terminated. In addition, we are required within one year after the effective date of the award to provide DOE with an additional updated total estimated cost of the project along with firm commitments for our 50 percent share of the total estimated cost of the project. If all such funds have not been secured, we must submit by such a date, a funding plan to obtain the remainder of such funds that is acceptable to the DOE. In the event we do not satisfy the foregoing contingencies, the award may be terminated. In addition, the award may be terminated at any time at the convenience of the government. Although we expect to satisfy the contingencies contained in the award, we can not assure that the contingencies will be satisfied and the contract will not be terminated prior to receiving all of the proceeds.

 CODA's manufacturing partner may not purchase from us all or any portion of the 20,000 systems provided for under its supply agreement.

 We may experience challenges in launching production of electric propulsion systems on the scale envisioned under the CODA supply agreement.

 We have not to date produced electric propulsion systems on the scale we intend to manufacture to fulfill our obligations under the CODA supply agreement, although we have several years of experience manufacturing motors and electronics that are smaller and operate at lower power levels. We will also need to hire additional personnel, as well as acquire new equipment and tooling to launch production for CODA, which will require significant time and expense. We may not sell a sufficient number of systems to CODA or other customers to cover these expenses.

 Our revenue is highly concentrated among a small number of customers.

 Our customer arrangements generally are non-exclusive, have no long-term volume commitments and are often done on a purchase order basis. We cannot be certain that customers that have accounted for significant revenue in past periods will continue to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. If one or more of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected. 

 As a manufacturer of motors, generators, and other component parts, our business model depends on the ability of third parties in our industry to develop, produce and market products that include or are compatible with our technology and then to sell these products into the marketplace. Our ability to generate revenue depends significantly on the commercial success of our customers and partners. Failure of these third parties to achieve significant sales of products incorporating our products and fluctuations in the timing and volume of such sales could have a material adverse effect on our business, financial condition and results of operations.

 Our electric propulsion systems use rare earth minerals and unavailability or limited supply of these minerals could prevent us from manufacturing our products in production quantities or increase our costs.

 A prolonged downturn in global economic conditions may materially adversely affect our business.

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. March-in rights can be exercised 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.

Some of our orders for the future delivery of products are placed under blanket purchase orders which may be cancelled by our customers at any time. The amount payable to the company, if any, upon cancellation by the customer varies by customer. Accordingly, we may not recognize as revenue all or any portion of the amount of outstanding order backlog we have reported.

 Our business depends, in part, on the expansion of the market for hybrid electric vehicles and the future introduction and growth of a market for all-electric vehicles.

 Although our electric propulsion systems may be used in a wide variety of products, the market for electric and hybrid vehicles is fairly new. At the present time, batteries used to power electric motors have limited life and require several hours to charge, and charging stations for electric motors are not widely available. Electric and hybrid vehicles also tend to be priced higher than comparable gasoline-powered vehicles. As a result, consumers may experience concerns about driving range limitations, battery charging time and higher purchase costs of electric or hybrid automobiles. If consumer preferences shift to vehicles powered by other alternative methods, or if concerns about the availability of charging stations cannot be overcome, the market for all-electric cars, and therefore our electric propulsion systems, may be limited. In addition, our electric propulsion systems are incorporated in buses used for mass transit in several U.S. cities. If passenger traffic in these mass transit systems declines, demand for our products may also decrease.

The popularity of alternative fuel based vehicles and "green energy" initiatives are highly dependent on macro-economic conditions, including oil prices and the overall health of the economy. When oil prices fall, interest in and resources allocated to the development of advanced technology vehicles and propulsion systems may diminish. The recent downturn in the world economy also has severely impacted the automotive industry, slowing the demand for vehicles generally and reducing consumers' willingness to pay more for environmentally friendly technology.

We believe our proprietary systems are suited for a wide-range of vehicle electrification applications. We currently expect to make substantial investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, to capitalize on the anticipated expansion in demand for products related to this market area. However, our experience in this market area is limited. Our sales in this area will depend in part on the market acceptance of and demand for our proprietary propulsion systems and related future products. We are not certain that we will be able to introduce or market our products, develop other new products or product enhancements in a timely or cost-effective manner or that our products will achieve market acceptance.

The market for electric and other alternative fuel vehicles and equipment and the demand for our products are influenced, to a degree, by federal, state and local regulations relating to air quality, greenhouse gases and pollutants. These laws and regulations may change, which could result in transportation or equipment manufacturers abandoning or delaying their interest in electric or hybrid electric vehicles or equipment. In addition, a failure by authorities to enforce current laws and regulations or to adopt additional environmental laws or regulations could limit the demand for our products.

Although many governments have identified as a significant priority the development of alternative energy sources, governments may change their priorities, and any change they make could materially affect our revenue or the development of our products.

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 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 most of our motors are designed for use in vehicles, 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 $10 million covering most 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.

We may be subject to warranty claims for defects or alleged defects in our products, and the risk of such claims arising will increase as our production and sales increase. In addition, in response to consumer demand, vehicle manufacturers have been providing, and may continue to provide, increasingly longer warranty periods for their products. As a consequence, these manufacturers may require their suppliers, such as us, to provide correspondingly longer product warranties. As a result, we could incur substantially greater warranty claims in the future.

Sales of substantial numbers of shares of our common stock in the public market, or the perception that significant sales are likely, could adversely affect the market price of our common stock. The number of shares of common stock available for future sale through our shelf registration statement is equal to approximately 18% of the currently outstanding shares of our common stock. We cannot predict the effect that market sales of such a large number of shares would have on the market price of our common stock. Moreover, actual or anticipated downward pressure on the market price of our common stock due to actual or anticipated sales of our common stock could cause some institutions or individuals to engage in short sales of our common stock, which may itself cause the market price of our common stock to decline.