UQM (UQM) 10-Q 2010 Q4 Quarterly report

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 December 31, 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

                   UQM TECHNOLOGIES, INC.               

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

                Colorado                   (State or other jurisdiction of incorporation or organization)       84-0579156       (I.R.S. Employer Identification No.)

        4120 Specialty Place, Longmont, Colorado 80504       

(Address of principal executive offices) (Zip code)

                              (303) 682-4900                                

(Registrant's telephone number, including area code)

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):

 [  ]  Large accelerated filer [ X ]  Accelerated filer [  ]  Non-accelerated filer [  ]  Smaller reporting company

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

Yes       No   X    .

The number of shares outstanding (including shares held by affiliates) of the registrant's common stock, par value $0.01 per share at January 28, 2011 was 36,238,796.

TABLE OF CONTENTS

Part  I	Financial Information
	Item 1	Financial Statements (unaudited)
			Consolidated Balance Sheets as of December 31, 2010 and March 31, 2010
			Consolidated statements of operations for the quarters and nine month periods ended
			December 31, 2010 and 2009
			Consolidated statements of cash flows for the nine month periods ended
			December 31, 2010 and 2009
			Notes to Consolidated Financial Statements
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 3	Quantitative and Qualitative Disclosures About Market Risk
	Item 4	Controls and Procedures
Part II	Other Information
	Item 1	Legal Proceedings
	Item 1A	Risk Factors
	Item 6	Exhibits and Reports on Form 8-K

PART I - FINANCIALINFORMATION

ITEM 1: FINANCIAL STATEMENTS

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

					December 31, 2010		March 31, 2010
Assets
Current assets:
	Cash and cash equivalents					$  12,810,086		17,739,600
	Short-term investments					11,952,223		12,409,183
	Accounts receivable					3,387,423		1,695,638
	Costs and estimated earnings in excess of billings on
		uncompleted contracts				297,202		680,746
	Inventories					1,884,148		1,291,326
	Prepaid expenses and other current assets					397,880		140,285
				Total current assets		30,728,962		33,956,778
Property and equipment, at cost:
	Land					1,859,988		1,825,968
	Building					6,425,918		5,402,176
	Machinery and equipment					6,724,500		4,524,188
						15,010,406		11,752,332
	Less accumulated depreciation					(4,663,458)		(4,090,962)
				Net property and equipment		10,346,948		7,661,370
Patent costs, net of accumulated amortization of
	$772,525 and $738,556					271,179		297,623
Trademark costs, net of accumulated amortization of
	$54,134 and $50,769					119,453		122,818
Other assets						157,677		643,984
			Total assets			$ 41,624,219		42,682,573
								(Continued)
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited), Continued

				December 31, 2010		March 31, 2010
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable				$    1,139,252		1,421,779
	Other current liabilities				953,532		1,049,243
	Short-term deferred compensation under executive employment
		agreements			739,200		432,554
	Billings in excess of costs and estimated earnings on
		uncompleted contracts			42,418		51,552
			Total current liabilities		2,874,402		2,955,128
Long-term deferred compensation under executive employment
	agreements				549,528		722,862
			Total liabilities		3,423,930		3,677,990
Commitments and contingencies
Stockholders' equity:
	Common stock, $.01 par value, 50,000,000
		shares authorized; 36,172,776 and 35,946,738 shares
		issued and outstanding			361,728		359,467
	Additional paid-in capital				113,201,855		112,211,227
	Accumulated deficit				(75,363,294)		(73,566,111)
			Total stockholders' equity		38,200,289		39,004,583
			Total liabilities and stockholders' equity		$   41,624,219		42,682,573
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

				Quarter Ended December 31,					Nine Months Ended December 31,
				2010			2009		2010		2009
Revenue:
	Contract services				$       166,687			223,081		512,177		1,067,475
	Product sales				1,923,787			1,784,133		6,161,179		5,339,600
					2,090,474			2,007,214		6,673,356		6,407,075
Operating costs and expenses:
	Costs of contract services				97,094			143,612		447,844		725,332
	Costs of product sales				1,553,546			1,221,211		4,594,997		3,617,375
	Research and development				10,537			138,821		282,484		452,656
	Production engineering				874,054			1,077,821		2,534,370		2,092,137
	Reimbursement of costs under DOE grant				(546,803)			-		(3,098,747)		-
	Selling, general and administrative				1,045,845			1,425,835		4,045,663		2,668,682
					3,034,273			4,007,300		8,806,611		9,556,182
		Loss before other income (expense)				(943,799)		(2,000,086)		(2,133,255)		(3,149,107)
Other income (expense):
	Interest income				11,150			17,410		70,803		44,182
	Interest expense				-			(1,793)		-		(15,697)
	Other				129			-		265,269		11,000
					11,279			15,617		336,072		39,485
		Net loss				$    (932,520)		(1,984,469)		(1,797,183)		(3,109,622)
		Net loss per common share - basic and
			diluted			$ (0.03)		(0.06)		(0.05)		(0.11)
Weighted average number of shares of
	common stock outstanding - basic and
	diluted				36,137,980			33,317,601		36,030,576		29,014,418
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

										Nine Months Ended December 31,
										2010	2009
Cash flows from operating activities:
	Net loss									$   (1,797,183)		(3,109,622)
	Adjustments to reconcile net loss to net cash used in
		operating activities:
				Depreciation and amortization						616,305		446,793
				Non-cash equity based compensation						1,132,064		584,870
				Impairment of inventory						-		3,620
				Gain on sale of equipment						(1,004)		-
				Change in operating assets and liabilities:
					Accounts receivable and costs and estimated earnings in
						excess of billings on uncompleted contracts				(1,100,964)		174,466
					Inventories					(592,822)		253,507
					Prepaid expenses and other current assets					(257,595)		(68,737)
					Accounts payable and other current liabilities					(358,922)		403,388
					Billings in excess of costs and estimated earnings on
						uncompleted contracts				(9,134)		39,280
					Deferred compensation under executive
						employment agreements				133,312		67,941
									Net cash used in operating activities	(2,235,943)		(1,204,494)
Cash flows from investing activities:
	Purchases of short-term investments									(16,291,905)		(11,459,185)
	Maturities of short-term investments									16,807,566		2,190,538
	Decrease (increase) in other long-term assets									1,412		(1,232)
	Acquisition of property and equipment									(6,069,182)		(8,355,004)
	Property and equipment reimbursements received from DOE under
			grant							3,004,234		-
	Increase in patent and trademark costs									(7,525)		(23,105)
	Cash proceeds from the sale of equipment									1,004		-
								Net cash used in investing activities		(2,554,396)		(17,647,988)
Cash flows from financing activities:
	Issuance of common stock in follow-on offering, net of offering costs									-		31,664,373
	Repayment of debt									-		(416,923)
	Issuance of common stock under employee stock purchase plan									1,006		84,142
	Issuance of common stock upon exercise of employee stock options									3,570		1,033,674
	Issuance of common stock upon exercise of warrants									-		180,196
	Purchase of treasury stock									(143,751)		(160,175)
							Net cash provided by (used in) financing activities			(139,175)		32,385,287
Increase (decrease) in cash and cash equivalents										(4,929,514)		13,532,805
Cash and cash equivalents at beginning of period										17,739,600		2,501,999
Cash and cash equivalents at end of period										$  12,810,086		16,034,804
Supplemental cash flow information:
	Interest paid in cash during the period									$              -		17,075
Supplemental non-cash investing information:
	Change in classification of long-term asset to short-term investment during the nine months ended December 31, 2010 in the amount of $58,701.
See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

1. The accompanying consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, which were solely of a normal recurring nature, necessary to a fair presentation of the results for the interim periods, have been made. Certain prior year amounts have been reclassified to conform to the current period presentation. The results for the interim periods are not necessarily indicative of the results to be expected for the fiscal year. The Notes contained herein should be read in conjunction with the Notes to our Consolidated Financial Statements filed on Form 10-K for the year ended March 31, 2010.

2. New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board ("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.

In April 2010, the FASB issued a new standard on the milestone method of revenue recognition. This new standard provides guidance on the criteria that is necessary to apply the milestone method of revenue recognition. This new standard is required to be adopted in the first quarter of FY2012. We do not expect this new standard to significantly impact our consolidated financial statements.

3. Stock-Based Compensation

Stock Option Plans

As of December 31, 2010, we had 640,689 shares of common stock available for future grant to employees, consultants and key suppliers under our 2002 Equity Incentive Plan ("Plan"). Under the Plan, the exercise price of each option is set at the fair value of the common stock on the date of grant and the maximum term of the option is 10 years from the date of grant. Options granted to employees generally vest ratably over a three-year period. The maximum number of options that may be granted to an employee under the Plan in any calendar year is 500,000 options. Forfeitures under the Plan are available for re-issuance at any time prior to expiration of the Plan in 2013. Options granted under the Plan to employees require the option holder to abide by certain Company policies, which restrict their ability to sell the underlying common stock. Prior to the adoption of the Plan, we issued stock options under our 1992 Incentive and Non-Qualified Option Plan, which expired by its terms in 2002. Forfeitures under the 1992 Incentive and Non-Qualified Option Plan may not be re-issued.

Non-Employee Director Stock Option Plan

In February 1994 our Board of Directors ratified a Stock Option Plan for Non-Employee Directors ("Directors Plan") pursuant to which Directors may elect to receive stock options in lieu of cash compensation for their services as directors. As of December 31, 2010, we had 77,635 shares of common stock available for future grant under the Directors Plan. Option terms range from 3 to 10 years from the date of grant. Option exercise prices are equal to the fair value of the common shares on the date of grant. Options granted under the plan generally vest immediately. Forfeitures under the Directors Plan are available for re-issuance at a future date.

Stock Purchase Plan

We have established a Stock Purchase Plan under which eligible employees may contribute up to 10 percent of their compensation to purchase shares of our common stock at 85 percent of the fair market value at specified dates. At December 31, 2010 we had 506,330 shares of common stock available for issuance under the Stock Purchase Plan. During the quarters and nine month periods ended December 31, 2010 and 2009, we issued zero and 10,572 shares, and 277 and 56,540 shares of common stock, respectively, under the Stock Purchase Plan. Cash received by us upon the purchase of shares under the Stock Purchase Plan for the quarters and nine month periods ended December 31, 2010 and 2009 was zero and $24,421, and $1,006 and $84,142, respectively.

Stock Bonus Plan

We have a Stock Bonus Plan ("Stock Plan") administered by the Board of Directors. At December 31, 2010 there were 763,718 shares of common stock available for future grant under the Stock Plan. Under the Stock Plan, shares of common stock may be granted to employees, key consultants, and directors who are not employees as additional compensation for services rendered. Vesting requirements for grants under the Stock Plan, if any, are determined by the Board of Directors at the time of grant. There were 7,903 and zero shares and 243,076 and zero shares granted under the Stock Plan during the quarters and nine month periods ended December 31, 2010 and 2009, respectively.

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

We use the Black-Scholes-Merton option pricing model for estimating the fair value of stock option awards. The table below shows total share-based compensation expense for the quarters and nine month periods ended December 31, 2010 and 2009 and the classification of these expenses:

	Quarter Ended December 31,		Nine Months Ended December 31,
	2010	2009	2010	2009
Costs of contract services	$   22,077	23,771	63,547	64,072
Costs of product sales	27,230	19,699	77,693	56,087
Research and development	1,684	6,132	15,280	23,558
Production engineering	24,876	29,417	76,084	80,308
Selling, general and administrative	200,028	351,963	899,460	360,845
	$ 275,895	430,982	1,132,064	584,870

Share based compensation capitalized in inventories were insignificant in the quarters and nine month periods ended December 31, 2010 and December 31, 2009.

We adjust share-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments in the quarters and nine month periods ended December 31, 2010 and December 31, 2009 were insignificant.

All shares granted under the Director's Plan are vested.

A summary of the status of non-vested shares under the 2002 Equity Incentive Plan as of December 31, 2010 and 2009 and changes during the quarters and nine month periods ended December 31, 2010 and 2009 is presented below:

	Nine Months Ended December 31, 2010		Nine Months Ended December 31, 2009
		Weighted-Average		Weighted-Average
	Shares	Grant Date	Shares	Grant Date
	Under Option	Fair Value	Under Option	Fair Value
Non-vested at April 1	338,747	$ 1.93	283,454	$ 1.40
Granted	-	$   -	-	$   -
Vested	-	$   -	-	$   -
Forfeited	(1,832)	$ 1.61	-	$   -
Non-vested at June 30	336,915	$ 1.94	283,454	$ 1.40
Granted	510,132	$ 1.37	-	$   -
Vested	(297,594)	$ 1.21	(128,471)	$ 1.47
Forfeited	-	$   -	(5,873)	$ 1.58
Non-vested at September 30	549,453	$ 1.80	149,110	$ 1.35
Granted	-	$   -	193,304	$ 2.38
Vested	(64,435)	$ 2.38	-	$   -
Forfeited	(7,119)	$ 1.58	-	$   -
Non-vested at December 31	477,899	$ 1.73	342,414	$ 1.93

As of December 31, 2010, there was $553,622 of total unrecognized compensation costs related to stock options granted under the 2002 Equity Incentive Plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 25 months. The total fair value of stock options that vested during the quarters and nine month periods ended December 31, 2010 and 2009 was $153,658 and zero, and $512,720 and $188,401, respectively.

There were zero and 193,304 and 510,132 and 193,304 employee stock option grants under the 2002 Equity Incentive Plan during the quarters and nine month periods ended December 31, 2010, and 2009, respectively.

A summary of the non-vested shares under the Stock Bonus Plan as of December 31, 2010 and 2009 and changes during the quarters and nine month periods ended December 31, 2010 and 2009 are presented below:

	Nine Months Ended December 31, 2010		Nine Months Ended December 31, 2009
		Weighted-Average		Weighted-Average
	Shares	Grant Date	Shares	Grant Date
	Under Contract	Fair Value	Under Contract	Fair Value
Non-vested at April 1	98,929	$ 2.97	225,870	$ 3.08
Granted	-	$   -	-	$   -
Vested	-	$   -	-	$   -
Forfeited	-	$   -	-	$   -
Non-vested at June 30	98,929	$ 2.97	225,870	$ 3.08
Granted	235,173	$ 2.51	-	$   -
Vested	(139,767)	$ 2.57	(45,342)	$ 3.20
Forfeited	-	$   -	-	$   -
Non-vested at September 30	194,335	$ 2.70	180,528	$ 3.05
Granted	7,903	$ 1.92	-	$   -
Vested	(140,039)	$ 2.74	(81,600)	$ 3.14
Forfeited	-	$   -	-	$   -
Non-vested at December 31	62,199	$ 2.50	98,928	$ 2.97

As of December 31, 2010, there was $118,176 of total unrecognized compensation costs related to common stock granted under our Stock Bonus Plan. The unrecognized compensation cost at December 31, 2010 is expected to be recognized over a weighted average period of 10 months. The total fair value of common stock granted under the Stock Bonus Plan that vested during the quarters and nine month periods ended December 31, 2010 and 2009, was $383,667 and $256,224, and $743,454 and $401,137, respectively.

Expected volatility is based on historical volatility. The expected life of options granted are based on historical experience.

Additional information with respect to stock option activity during the quarter and nine month periods ended December 31, 2010 under our 2002 Equity Incentive Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2010	2,377,075	$ 3.45	3.9 years	$ 2,509,155
Granted	-	$    -
Exercised	(1,000)	$ 3.57		$           600
Forfeited	(3,166)	$ 3.57
Outstanding at June 30, 2010	2,372,909	$ 3.45	3.7 years	$ 1,264,435
Granted	510,132	$ 2.52
Exercised	-	$    -		$          -
Forfeited	(6,334)	$ 3.59
Outstanding at September 30, 2010	2,876,707	$ 3.28	4.0 years	$    328,687
Granted	-	$    -
Exercised	-	$    -		$          -
Forfeited	(7,119)	$2.37
Outstanding at December 31, 2010	2,869,588	$ 3.29	3.7 years	$      74,736
Exercisable at December 31, 2010	2,391,689	$ 3.34	3.1 years	$      58,346
Vested and expected to vest at December 31, 2010	2,844,869	$ 3.29	3.7 years	$      73,875

Additional information with respect to stock option activity during the quarter and nine month periods ended December 31, 2009 under our 2002 Equity Incentive Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2009	2,740,815	$ 3.66	4.7 years	$          -
Granted	-	$    -
Exercised	-	$    -		$          -
Forfeited	-	$    -
Outstanding at June 30, 2009	2,740,815	$ 3.66	4.4 years	$    341,705
Granted	-	$    -
Exercised	(254,094)	$ 2.71		$    535,449
Forfeited	(5,873)	$ 2.66
Outstanding at September 30, 2009	2,480,848	$ 3.76	4.0 years	$ 5,803,280
Granted	193,304	$ 4.73
Exercised	(79,009)	$ 3.55		$    722,353
Forfeited	(667)	$ 3.57
Outstanding at December 31, 2009	2,594,476	$ 3.84	3.9 years	$ 8,237,679
Exercisable at December 31, 2009	2,252,062	$ 3.85	3.7 years	$ 7,177,246
Vested and expected to vest at December 31, 2009	2,579,709	$ 3.84	3.9 years	$ 8,187,269

Additional information with respect to stock option activity during the quarter and nine month periods ended December 31, 2010 under our Director's Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2010	256,653	$ 3.15	2.6 years	$   303,651
Granted	-	$    -
Exercised	-	$    -		$         -
Forfeited	(977)	$ 7.63
Outstanding at June 30, 2010	255,676	$ 3.13	2.4 years	$   143,003
Granted	100,136	$ 2.63
Exercised	-	$    -		$         -
Forfeited	(24,039)	$ 3.57
Outstanding at September 30, 2010	331,773	$ 2.96	3.3 years	$     45,771
Granted	19,697	$ 1.92
Exercised	-	$    -		$         -
Forfeited	(21,684)	$ 3.40
Outstanding at December 31, 2010	329,786	$ 2.86	3.4 years	$     14,384
Exercisable at December 31, 2010	329,786	$ 2.86	3.4 years	$     14,384
Vested and expected to vest at December 31, 2010	329,786	$ 2.86	3.4 years	$     14,384

Additional information with respect to stock option activity during the quarter and nine month periods ended December 31, 2009 under our Director's Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at April 1, 2009	222,919	$ 2.77	2.7 years	$       -
Granted	-	$    -
Exercised	-	$    -		$       -
Forfeited	-	$    -
Outstanding at June 30, 2009	222,919	$ 2.77	2.5 years	$   48,096
Granted	-	$    -
Exercised	(19,802)	$ 3.20		$   13,861
Forfeited	-	$    -
Outstanding at September 30, 2009	203,117	$ 2.73	2.5 years	$ 614,947
Granted	53,536	$ 4.73
Exercised	-	$    -		$      -
Forfeited	-	$    -
Outstanding at December 31, 2009	256,653	$ 3.15	2.9 years	$ 950,797
Exercisable at December 31, 2009	256,653	$ 3.15	2.9 years	$ 950,797
Vested and expected to vest at December 31, 2009	256,653	$ 3.15	2.9 years	$ 950,797

Cash received by us upon the exercise of stock options for the quarters and nine month periods ended December 31, 2010 and 2009 was zero and $280,537, and $3,570 and $1,033,674, respectively. The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares.

4. We have an investment policy approved by the Board of Directors that governs the quality, acceptability and dollar concentration of our investments. Investments are comprised of marketable securities and consist primarily of commercial paper, asset-backed and mortgage-backed notes and bank certificates of deposits with original maturities beyond three months. All marketable securities and corporate bonds are held in our name at three major financial institutions who hold custody of the investments. All of our investments are held-to-maturity investments as we have the positive intent and ability to hold until maturity. These securities are recorded at amortized cost.

The amortized cost and unrealized gain or loss of our investments at December 31, 2010 and March 31, 2010 were:

		December 31, 2010		March 31, 2010
		Amortized Cost	Gain (Loss)	Amortized Cost	Gain (Loss)
Short-term investments:
U.S. government and government agency
	securities	$   1,506,265	(5,500)	4,994,624	576
Commercial paper, corporate and foreign bonds		9,704,984	(92,584)	1,656,875	(2,389)
Certificates of deposit		740,974	-	5,757,684	-
		11,952,223	(98,084)	12,409,183	(1,813)
Long-term investment:
Certificates of deposit (included in other assets)		-	-	58,701	-
		$ 11,952,223	(98,084)	12,467,884	(1,813)

The time to maturity of held-to-maturity securities were:

	December 31, 2010	March 31, 2010
Three to six months	$ 10,553,774	1,349,290
Six months to one year	1,398,449	11,059,893
Over one year	-	58,701
	$ 11,952,223	12,467,884

5. At December 31, 2010 and March 31, 2010, the estimated period to complete contracts in process ranged from one to six months and one to fourteen months, respectively. We expect to collect all related accounts receivable arising therefrom within sixty days of billing. The following summarizes contracts in process:

			December 31, 2010	March 31, 2010
Costs incurred on uncompleted contracts			$   4,164,413	4,063,128
Estimated earnings			523,410	544,417
			4,687,823	4,607,545
Less billings to date			(4,433,039)	(3,978,351)
			$      254,784	629,194
Included in the accompanying balance sheets as follows:
	Costs and estimated earnings in excess of billings on
		uncompleted contracts	$      297,202	680,746
	Billings in excess of costs and estimated earnings on
		uncompleted contracts	(42,418)	(51,552)
			$      254,784	629,194

6. Inventories at December 31, 2010 and March 31, 2010 consist of:

	December 31, 2010	March 31, 2010
Raw materials	$ 1,578,311	512,572
Work-in-process	277,775	744,525
Finished products	28,062	34,229
	$ 1,884,148	1,291,326

Our raw material inventory is subject to obsolescence and potential impairment due to bulk purchases in excess of customers' requirements. We periodically assess our inventory for recovery of its carrying value based on available information, expectations and estimates, and adjust inventory-carrying values to the lower of cost or market for estimated declines in the realizable value. During the nine month periods ended December 31, 2010 and 2009, we impaired obsolete inventory with a carrying value of zero and $3,620, respectively.

7. Government Grants

We have a $45,145,534 Grant with the U.S. Department of Energy ("DOE") under the American Recovery and Reinvestment Act ("ARRA"). The Grant provides funds to facilitate the manufacture and deployment of electric drive vehicles, batteries and electric drive vehicle components in the United States. Pursuant to the terms of the Agreement, the DOE will reimburse us for 50 percent of qualifying costs incurred on or after August 5, 2009 for the purchase of facilities, tooling and manufacturing equipment, and for engineering costs related to product qualification and testing of our electric propulsion systems and other products. The period of the Grant is through January 12, 2013.

We recognize government grants when it is probable that the Company will comply with the conditions attached to the grant arrangement and the grant will be received.

Funding for qualifying project costs incurred is limited to $32.0 million until we provide DOE with an additional updated total estimated cost of the project along with evidence of firm commitments for our 50 percent share of the total estimated cost of the project no later than July 13, 2011. If all such funds have not been secured, we must submit, by such date, a funding plan to obtain the remainder of such funds, which is acceptable to the DOE. In the event we do not satisfy the foregoing contingency, the Grant may be terminated. In addition, the Grant may be terminated at any time at the convenience of the government.

The Grant is also subject to our compliance with certain reporting requirements. The ARRA imposes minimum construction wage and labor standards for projects funded by the Grant.

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

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

On September 7, 2010 the Grant was amended to remove certain conditions related to the qualification of our accounting systems and the mutual agreement on updated total costs eligible for reimbursement under the Grant. As a result of this amendment certain engineering costs incurred subsequent to August 5, 2009 became eligible for reimbursement and such reimbursements have been recognized during the nine month period ended December 31, 2010.

At December 31, 2010 we had received reimbursements from the DOE under the Grant totaling $9.2 million and had grant funds receivable of $1.2 million.

The application of grant funds to eligible capital asset purchases under the DOE Grant as of December 31, 2010 is as follows:

	Purchase Cost	Grant Funding	Recorded Value
Land	$      896,388	448,194	448,194
Building	8,819,797	4,409,898	4,409,899
Machinery and Equipment	4,904,487	2,452,243	2,452,244
	$ 14,620,672	7,310,335	7,310,337

The application of grant funds to eligible capital asset purchases under the DOE Grant as of March 31, 2010 is as follows:

	Purchase Cost	Grant Funding	Recorded Value
Land	$      896,388	448,194	448,194
Building	6,772,314	3,386,157	3,386,157
Machinery and Equipment	470,936	235,468	235,468
	$   8,139,638	4,069,819	4,069,819

8. Other current liabilities at December 31, 2010 and March 31, 2010 consist of:

	December 31, 2010	March 31, 2010
Accrued payroll and employee benefits	$     131,571	175,579
Accrued personal property and real estate taxes	287,156	354,807
Accrued warranty costs	120,513	75,903
Unearned revenue	250,044	356,596
Accrued royalties	60,779	34,515
Other	103,469	51,843
	$     953,532	1,049,243

9. Stockholders' Equity

Changes in the components of stockholders' equity during the quarter and nine month period ended December 31, 2010 were as follows:

		Number of
		common		Additional		Total
		shares	Common	paid-in	Accumulated	stockholders'
		issued	stock	capital	deficit	equity
Balances at April 1, 2010		35,946,738	$ 359,467	112,211,227	(73,566,111)	39,004,583
Issuance of common stock upon exercise
	of employee stock options	1,000	10	3,560	-	3,570
Compensation expense from
	employee and director stock
	option and common stock grants	-	-	78,346	-	78,346
Net loss		-	-	-	(486,870)	(486,870)
Balances at June 30, 2010		35,947,738	$ 359,477	112,293,133	(74,052,981)	38,599,629
Issuance of common stock under
	stock bonus plan	139,767	1,398	320,601	-	321,999
Issuance of common stock under
	employee stock purchase plan	277	3	1,003	-	1,006
Purchase of treasury stock		(36,896)	(369)	(101,639)	-	(102,008)
Compensation expense from
	employee and director stock
	option and common stock grants	-	-	455,824	-	455,824
Net loss		-	-	-	(377,793)	(377,793)
Balances at September 30, 2010		36,050,886	$ 360,509	112,968,922	(74,430,774)	38,898,657
Issuance of common stock under
	stock bonus plan	140,039	1,400	13,774	-	15,174
Purchase of treasury stock		(18,149)	(181)	(41,562)	-	(41,743)
Compensation expense from
	employee and director stock
	option and common stock grants	-	-	260,721	-	260,721
Net loss		-	-	-	(932,520)	(932,520)
Balances at December 31, 2010		36,172,776	$ 361,728	113,201,855	(75,363,294)	38,200,289

10. Significant Customers 

We have historically derived significant revenue from a few key customers. Revenue from CODA Automotive totaled $259,756 and $249,600, and $687,556 and $396,850, for the quarters and nine month periods ended December 31, 2010 and 2009, respectively, which was 12 percent and 12 percent, and 10 percent and 6 percent, of our consolidated total revenue, respectively. Revenue from Proterra, Inc. totaled $225,900 and $34,392, and $320,340 and $34,392, for the quarters and nine month periods ended December 31, 2010 and 2009, respectively, which was 11 percent and 2 percent, and 5 percent and 1 percent, of our consolidated total revenue, respectively.

Trade accounts receivable from CODA Automotive were 9 percent and 3 percent of total accounts receivable as of December 31, 2010 and March 31, 2010, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $825,442 and $350,425 as of December 31, 2010 and March 31, 2010, respectively. Trade accounts receivable from Proterra, Inc. were 5 percent and nil of total accounts receivable as of December 31, 2010 and March 31, 2010, respectively. Inventories consisting of raw materials, work-in-progress and finished goods for this customer totaled $27,515 and $14,150 as of December 31, 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 $177,025 and $350,324 and $1,021,359 and $1,911,360 for the quarters and nine month periods ended December 31, 2010 and 2009, respectively, which was 8 percent and 17 percent, and 15 percent and 30 percent of our consolidated total revenue for the quarters and nine month periods ended December 31, 2010 and 2009, respectively. Accounts receivable from government-funded contracts represented 59 percent and 8 percent of total accounts receivable as of December 31, 2010 and March 31, 2010, respectively. Of these amounts, revenue derived from subcontracts with AM General LLC totaled $46,478 and $183,953 and $762,088 and $1,393,816 for the quarters and nine months ended December 31, 2010 and 2009, respectively, which represented 2 and 9 percent, and 11 and 22 percent, of our consolidated total revenue for the quarters and nine month periods ended December 31, 2010 and 2009, respectively. This customer also represented 12 percent and 8 percent of total accounts receivable at December 31, 2010 and March 31, 2010, respectively, and nil and 13 percent of inventories at December 31, 2010 and March 31, 2010, respectively.

11. Income Taxes

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 Income (expense)," net. As of December 31, 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.

12. Loss Per Common Share

Basic earnings per share is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed by dividing income or loss available to common stockholders by all outstanding and potentially dilutive shares during the periods presented, unless the effect is antidilutive. At December 31, 2010 and 2009, respectively, common shares issued under the Stock Bonus Plan but not yet earned totaling 62,199 and 98,928 were being held by the Company. For the quarters and nine month periods ended December 31, 2010 and 2009 respectively, 1,018 and 43,200 shares, and 8,194 and 21,260 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 December 31, 2010 and 2009, options to purchase 3,209,772 and 2,855,951 shares of common stock, respectively, were outstanding. For the quarter and nine month periods ended December 31, 2010 and 2009, respectively, options for 2,293,190 and 402,100, and 1,238,463 and 1,289,177 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 44,891 shares and 1,002,523, and 363,929 and 535,561, shares of common stock for the quarters and nine month period ended December 31, 2010 and 2009, respectively, were potentially includable in the calculation of diluted loss per share but we were not, because to do so would be antidilutive.

13. Fair Value of Financial Instruments

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

Cash and cash equivalents, 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.

14. Fair Value Measurements

Liabilities measured at fair value on a recurring basis as of December 31, 2010 are summarized below:

                                      Fair Value Measurements at Reporting Date Using   

  

Quoted Prices

    

In Active

Significant

   

Markets

Other

Significant

  

For Identical

Observable

Unobservable

  

Liabilities

Inputs

Inputs

 

     Total     

      (Level 1)      

  (Level 2)  

   (Level 3)   

Deferred compensation under

    

executive employment agreements ⁽¹⁾

$ 1,288,728    

-

-

1,288,728      

      

Note (1)

$739,200 included in current liabilities and $549,528 included in long term liabilities on our consolidated balance sheet as of December 31, 2010.

Liabilities measured at fair value on a recurring basis as of March 31, 2010 are summarized below:

			Fair Value Measurements at Reporting Date Using
				Quoted Prices
				In Active	Significant
				Markets	Other	Significant
				For Identical	Observable	Unobservable
				Liabilities	Inputs	Inputs
			Total	(Level 1)	(Level 2)	(Level 3)
Deferred compensation under
	executive employment agreements (1)		$ 1,155,416	-	-	1,155,416
Note (1)		$432,554 included in current liabilities and $722,862 included in long term liabilities on our consolidated balance sheet as of March 31, 2010.

Deferred compensation under executive employment agreements represents the future compensation potentially payable under the retirement and voluntary termination provisions of executive employment agreements. The value of the Level 3 liability in the foregoing table was determined under the income approach, using inputs that are both unobservable and significant to the value of the obligation including changes in the Company's credit worthiness and changes in interest rates.

A summary of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) follows:

			Fair Value Measurements Using Significant
			Unobservable Inputs (Level 3)
			Deferred Compensation On Executive Employment Agreements
			Quarter Ended December 31,		Nine Months Ended December 31,
			2010	2009	2010	2009
Balance at beginning of the period			$ 1,261,085	1,092,362	1,155,416	1,073,549
	Total gains or losses (realized and
	unrealized):
		Included in earnings	27,643	49,128	133,312	67,941
		Included in other comprehensive
		income	-	-	-	-
	Purchases, sales, issuances, and
	settlements, net		-	-	-	-
	Transfers in (out) of Level 3		-	-	-	-
Balance at the end of the period			$  1,288,728	1,141,490	1,288,728	1,141,490
Loss for the period included in earnings
attributable to the Level 3 liability still held
at the end of the period			$       27,643	49,128	133,312	67,941

15. Segments

At December 31, 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 and nine month periods ended December 31, 2010, and were 82 percent and 18 percent for the quarter and nine month periods ended December 31, 2009, respectively.

Intersegment sales or transfers, which were eliminated upon consolidation, were $75,944 and $281,453, and $717,274 and $670,905 for the quarters and nine month periods ended December 31, 2010 and 2009, respectively.

The technology and power products segments lease office, production and laboratory space in a building owned by a wholly-owned subsidiary of the Company whose operations are included as part of the Power Products Segment based on a negotiated rate for the square footage occupied. Intercompany lease payments, were $212,404 and $45,900, and $469,908 and $137,700, for the quarters and nine month periods ended December 31, 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 December 31, 2010:

			Power
	Technology		Products	Total
Revenue	$	1,533,024	557,450	2,090,474
Interest income	$	10,655	495	11,150
Interest expense	$	-	-	-
Depreciation and amortization	$	(120,528)	(107,172)	(227,700)
Segment loss	$	(525,198)	(407,322)	(932,520)
Total assets	$	30,295,083	11,329,136	41,624,219
Expenditures for long-lived segment assets	$	(343,156)	(1,286,010)	(1,629,166)

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 December 31, 2009:

			Power
	Technology		Products	Total
Revenue	$	1,388,174	619,040	2,007,214
Interest income	$	16,780	630	17,410
Interest expense	$	-	(1,793)	(1,793)
Depreciation and amortization	$	(107,370)	(52,787)	(160,157)
Segment loss	$	(1,747,314)	(237,155)	(1,984,469)
Total assets	$	31,698,779	11,095,197	42,793,976
Expenditures for long-lived segment assets	$	(364,854)	(7,849,163)	(8,214,017)

The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the nine month period ended December 31, 2010:

			Power
	Technology		Products	Total
Revenue	$	4,579,053	2,094,303	6,673,356
Interest income	$	69,306	1,497	70,803
Interest expense	$	-	-	-
Depreciation and amortization	$	(343,386)	(272,919)	(616,305)
Segment loss	$	(570,334)	(1,226,849)	(1,797,183)
Total assets	$	30,295,083	11,329,136	41,624,219
Expenditures for long-lived segment assets	$	(1,014,258)	(5,062,449)	(6,076,707)

The following table summarizes significant financial statement information, after deducting intersegment eliminations of each of the reportable segments as of and for the nine month period ended December 31, 2009:

			Power
	Technology		Products	Total
Revenue	$	4,757,387	1,649,688	6,407,075
Interest income	$	41,964	2,218	44,182
Interest expense	$	-	(15,697)	(15,697)
Depreciation and amortization	$	(288,260)	(158,533)	(446,793)
Impairment of inventories	$	(3,620)	-	(3,620)
Segment loss	$	(2,779,124)	(330,498)	(3,109,622)
Total assets	$	31,698,779	11,095,197	42,793,976
Expenditures for long-lived segment assets	$	(506,439)	(7,871,670)	(8,378,109)

16. Commitments and Contingencies

Employment Agreements

We have entered into employment agreements with three of our officers which expire on August 22, 2012. We have also entered into an employment agreement with our chief executive officer which expires on August 31, 2015. The aggregate future base salary payable to these four executive officers under the employment agreements, over their remaining terms is $2,915,500. In addition, we have recorded a liability of $1,288,728 and $1,155,416 at December 31, 2010 and March 31, 2010, respectively, representing a severance payment payable on June 1, 2011 of $739,200 to our former chief executive officer who retired on November 30, 2010, and the potential future compensation payable under the retirement and voluntary termination provisions of the employment agreements of the Company's current officers.

Lease Commitments

At December 31, 2010 there were no operating leases with initial non-cancelable terms in excess of one year.

Litigation

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements appear in a number of places in this Report and include statements regarding our plans, beliefs or current expectations; including those plans, beliefs and expectations of our officers and directors with respect to, among other things, orders to be received under our supply agreement with CODA Automotive, our ability to successfully expand our manufacturing facilities and the continued growth of the electric-powered vehicle industry. Important Risk Factors that could cause actual results to differ from those contained in the forward-looking statements are listed below in Part II, Item 1A. Risk Factors.

Introduction

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

Demand for our electric propulsion system and generator products remained strong during the quarter and we expect this trend to continue 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. The trend towards additional electrification of passenger automobiles, medium duty truck and transit buses is being driven by a variety of factors including fuel economy and emissions regulations around the world, competition among vehicle manufacturers for technology leadership and government incentives for both producers and consumers of "clean" vehicles.

We have a ten year Supply Agreement with CODA Automotive to supply UQM® PowerPhase® electric propulsion systems for the CODA all-electric four-door sedan. The CODA sedan is expected to be introduced in the California market in the fall of 2011 and in Hawaii in 2012. The Supply Agreement provides a framework for our supply of CODA's propulsion systems needs, however, a binding purchase obligation is created only for certain firm deliveries under a blanket purchase order as provided for in the Supply Agreement. CODA has stated previously that it hopes to sell 14,000 vehicles in the twelve month period following the introduction of its vehicle 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. We are currently delivering pre-production units and have received a production purchase order from CODA for initial production deliveries, although the firm delivery schedule necessary to make a portion of the purchase order noncancellable has not yet been received.

The CODA all-electric sedan is propelled by a 100 kW UQM® PowerPhase® electric propulsion system. In September, 2010, CODA began accepting refundable purchase deposits of $499 and announced that the CODA passenger sedan would be priced at $44,900 before application of federal and California tax credits of up to $7,500 and $5,000, respectively, which could potentially reduce the net purchase cost of the vehicle to as low as $32,400. Hawaii offers a tax credit of $4,500 per vehicle.

We have begun deliveries to Saab on an initial order for over fifty PowerPhase® electric propulsion systems as part of their fleet build and vehicle development activities. Deliveries are scheduled to occur through the first eight months of calendar 2011. Automobile companies typically build test fleets to evaluate new vehicles that are under development prior to their production launch.

During the quarter we also continued deliveries to Proterra, Inc., a manufacturer of all-electric composite transit buses pursuant to a Supply Agreement completed in September 2010. The Proterra bus is powered by a UQM® PowerPhase® 150 electric propulsion system.

Qualified reimbursements under our $45.1 million Grant from the DOE under the American Recovery and Reinvestment Act during the quarter and nine month period ended December 31, 2010 totaled $1,246,190 and $6,339,263, respectively. The DOE Grant is designed to accelerate the manufacturing and deployment of electric vehicles, batteries and components in the United States. The Grant requires a 50 percent cost-share by the Company. 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 and other customers are qualified for reimbursement under the DOE Grant.

During the nine months ended December 31, 2010 the Grant was amended to remove certain conditions related to the qualification of our accounting system and the mutual agreement on updated total costs eligible for reimbursement under the Grant. As a result of this amendment, certain engineering costs incurred from August 5, 2009 through March 31, 2010 totaling $1.5 million became eligible for reimbursement and have been recognized together with certain engineering costs incurred after April 1, 2010 totaling $1.6 million during the nine month period ended December 31, 2010. Reimbursements under the DOE Grant for capital assets are recorded at 50 percent of the cost basis of the asset. As of December 31, 2010 we had recorded reimbursements under the DOE Grant for capital assets and product qualification and testing costs of $10,409,082.

During the quarter we completed the qualification of our high volume production lines in preparation for the upcoming launch of volume production operations for CODA Automotive. The production lines are located in our recently occupied 129,304 square foot headquarters and manufacturing facility located on a 30 acre site in Longmont, Colorado. Approximately 15 acres of the site is available for future facility expansion. We expect our working capital requirements to increase coincident with and following the launch of deliveries under the CODA Supply Agreement later this calendar year potentially increasing to more than $10 million depending on the timing and volume of deliveries.

We are continuing to experience solid 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.

On November 30, 2010, the then Chairman and Chief Executive Officer of the Company, William G. Rankin retired. Eric R. Ridenour, who joined the Company on September 1, 2010 as President and Chief Operating Officer, was appointed Chief Executive Officer upon Mr. Rankin's retirement. Mr. Rankin will continue as the Chairman of the Company's Board of Directors. Mr. Ridenour, a 26 year veteran of the automobile industry, began his career as a powertrain engineer with General Motors Corporation. During his 21 years with the Chrysler Group, Mr. Ridenour served in a series of progressively responsible positions including Director of Advanced Vehicle Engineering, Vice President of Product Planning, Vice President of the Premium Vehicle Product Team, Executive Vice President of Product Development and Quality, and from 2005 through 2007, as Chief Operating Officer and Member of the Board of Management at DaimlerChrysler AG. Mr. Ridenour holds a Bachelor of Science Degree in Mechanical Engineering and a Masters of Business Administration, both from the University of Michigan. In his role as Chief Operating Officer at Chrysler, Mr. Ridenour was responsible for a $10 billion operating budget and a workforce of 65,000 employees.

Contract services revenue for the fiscal quarter and nine month period ended December 31, 2010 was $166,687 and $512,177, respectively, versus $223,081 and $1,067,475 for the comparable periods last fiscal year. Revenue for the quarter and nine month period was impacted by the application of otherwise billable engineering resources to production engineering activities and reduced levels of funded development programs. Gross profit margins on contract services for the quarter increased to 42 percent versus 36 percent for the comparable quarter last year. The increase is due primarily to lower material purchases in the current quarter's projects versus the projects underway in the same quarter last fiscal year. Gross profit margins on contract services decreased for the nine month period to 13 percent versus 32 percent for the comparable nine month period last fiscal year due primarily to the modification of indirect costs on government programs during the second quarter.

Product sales revenue for the fiscal quarter and nine month period ended December 31, 2010 rose 7.8 percent and 15.4 percent to $1,923,787 and $6,161,179, respectively, versus $1,784,133 and $5,339,600 for the comparable periods last fiscal year. The increases are due to continued strong demand for electric propulsion systems and generators and the delivery of pre-production units under the CODA Supply Agreement.

Gross profit margins on product sales for the quarter and nine month period ended December 31, 2010 were 19 percent and 25 percent versus 32 percent and 32 percent for the comparable quarter and nine month period last fiscal year. The decrease in gross profit margins for the quarter and nine month period are due to deliveries of pre-production units which typically have lower gross profit margins than other low volume product sales.

Production engineering expenditures, before reimbursements from the DOE Grant decreased to $874,054 for the quarter and increased to $2,534,370 for the nine month period ended December 31, 2010 versus $1,077,821 and $2,092,137, respectively, for the comparable periods last fiscal year. The decrease in the current quarter is attributable to lower qualification part costs, offset by an expansion of the group and it's activities in preparation for the launch of higher volume manufacturing operations. The increase in the current nine month period is attributable to increased staffing levels in the production engineering group and the transfer of engineering resources from the contract services group in support of our production launch activities for CODA and our other customers' production engineering requirements. Accrued cost reimbursements under the DOE Grant were $546,803 and $3,098,747 for the quarter and nine month period ended December 31, 2010 versus zero for the comparable periods last fiscal year. Reimbursements for the nine month period ended December 31, 2010 included reimbursements arising from costs incurred during the prior fiscal year of $1,546,446 which were recognized during the second fiscal quarter this year upon satisfaction of a condition contained in the DOE Grant.

Selling, general and administrative expenses for the fiscal quarter and nine month period ended December 31, 2010 were $1,045,845 and $4,045,663 versus $1,425,835 and $2,668,682, respectively, for the comparable periods last year. The decrease in the current quarter is primarily attributable to lower levels of compensation expense arising from a change in the period of grant versus that for last year. The increase in the current nine month period versus the comparable period last year was attributable to higher levels of annual cash and non-cash incentive compensation grants, higher levels of marketing expenses, costs arising from the recruitment and relocation of a new chief executive officer, and moving expenses incurred with our relocation to a new facility.

Other income was $265,269 for the nine month period ended December 31, 2010, reflecting a cash recovery upon completion of a former customer's bankruptcy proceedings.

Net loss for the quarter ended December 31, 2010 decreased to $932,520, or $0.03 per common share, on total revenue of $2,090,474 versus a net loss of $1,984,469 or $0.06 per common share on total revenue of $2,007,214 for the comparable quarter last fiscal year. The reduction in net loss is primarily attributable to reimbursements of product qualification and testing costs under the DOE Grant and the timing of incentive compensation awards which were recorded in the second quarter this fiscal year versus during the third fiscal quarter last year. Net loss for the nine month period ended December 31, 2010 declined to $1,797,183, or $0.05 per common share on total revenue of $6,673,356, versus a net loss of $3,109,622, or $0.11 per common share on total revenue of $6,407,075, for the comparable period last year. The reduction in net loss is primarily attributable to reimbursements of product qualification and testing costs under the DOE Grant and lower levels of internally-funded research and development expenditures.

Liquidity for the quarter and nine month period ended December 31, 2010 was sufficient to meet our operating requirements. At December 31, 2010 we had cash and short-term investments totaling $24,762,309. Net cash used in operating activities for the nine month period ended December 31, 2010 were $2,235,943 versus $1,204,494 for the same period last fiscal year. The increase in cash used for the nine month period is primarily attributable to increased levels of accounts receivable, inventory and prepaid expenses.

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 secure additional capital to fund the higher than currently anticipated growth in our business.

Financial Condition

Cash and cash equivalents and short-term investments at December 31, 2010 were $24,762,309 and working capital (the excess of current assets over current liabilities) was $27,854,560 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 investments in property and equipment, operating losses, higher levels of accounts receivable and inventories, and lower levels of accounts payable.

Accounts receivable increased $1,691,785 to $3,387,423 at December 31, 2010 from $1,695,638 at March 31, 2010. The increase is primarily due to higher levels of billings under our DOE Grant and increased average days outstanding on commercial accounts. Substantially all of our customers are large well-established companies of high credit quality. Our sales are conducted through acceptance of customer purchase orders or in some cases through supply agreements. For credit qualified customers our standard terms are net 30 days. For international customers and customers without an adequate credit rating our typical terms are irrevocable letter of credit or cash payment in advance of delivery. No allowance for bad debts was deemed necessary at December 31, 2010 or March 31, 2010.

Costs and estimated earnings on uncompleted contracts decreased $383,544 to $297,202 at December 31, 2010 versus $680,746 at March 31, 2010. The decrease is due to more favorable billing terms on certain contracts in process at December 31, 2010 versus March 31, 2010. Estimated earnings on contracts in process decreased to $523,410 or 11.2 percent of contracts in process of $4,687,823 at December 31, 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 decrease is attributable to lower expected margin on certain contracts in process at December 31, 2010.

Inventories increased $592,822 to $1,884,148 at December 31, 2010 principally due to higher levels of raw material inventories, partially offset by lower levels of work-in-process inventories. Raw material inventories increased $1,065,739, reflecting higher levels of inventory on hand for the CODA production program at December 31, 2010. Work-in-process and finished goods inventory decreased $466,750 and $6,167, respectively, reflecting increased shipments of low volume propulsion systems from inventories on hand.

Prepaid expenses and other current assets increased to $397,880 at December 31, 2010 from $140,285 at March 31, 2010 primarily due to prepayments on raw material inventories.

We invested $1,627,878 and $6,069,182 for the acquisition of property and equipment, before reimbursements recorded from the DOE Grant, during the quarter and nine months ended December 31, 2010 compared to $8,198,768 and $8,355,004 during the comparable quarter and nine months last fiscal year. The decrease in capital expenditures is primarily attributable to the purchase of a new headquarters and production facility during the third quarter last fiscal year. Cash reimbursements for capital equipment under the DOE Grant for the nine months ended December 31, 2010 were $3,004,234, of which $524,208 were reimbursements for costs incurred in the previous fiscal year.

Patent costs decreased to $271,179 at December 31, 2010 versus $297,623 at March 31, 2010 primarily due to the systematic amortization of patent issuance costs. Similarly, trademark costs decreased to $119,453 at December 31, 2010 versus $122,818 at March 31, 2010 primarily due to the systematic amortization of trademark costs.

Accounts payable decreased $282,527 to $1,139,252 at December 31, 2010 from $1,421,779 at March 31, 2010, primarily due to a reduction in the level of account payables arising from the renovation of our new facility occupied during the second quarter.

Other current liabilities decreased to $953,532 at December 31, 2010 from $1,049,243 at March 31, 2010. The decrease is primarily attributable to lower levels of customer deposits at December 31, 2010.

Billings in excess of costs and estimated earnings on uncompleted contracts decreased to $42,418 at December 31, 2010 from $51,552 at March 31, 2010 reflecting decreased billings on certain engineering contracts in process at December 31, 2010 in advance of the performance of the associated work versus March 31, 2010.

Short-term deferred compensation under executive employment agreements increased $306,646 to $739,200 at December 31, 2010 from $432,554 at March 31, 2010 reflecting retirement payments to the company's CEO who retired during the third quarter. Retirement payments under the employment agreement are payable on June 1, 2011.

Common stock and additional paid-in capital were $361,728 and $113,201,855, respectively, at December 31, 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 annual non-cash share based payments granted during the third quarter of fiscal 2011.

Results of Operations

Quarter Ended December 31, 2010

Operations for the third quarter ended December 31, 2010, resulted in a net loss of $932,520, or $0.03 per common share, compared to a net loss of $1,984,469, or $0.06 per common share for the comparable period last year. The reduction in net loss is primarily attributable to reimbursements of product qualification and testing costs under the DOE Grant and lower levels of non-cash equity based compensation and cash compensation expense arising from a change in the period of grant versus that for the last fiscal year.

Revenue from contract services decreased to $166,687 at December 31, 2010 versus $223,081 for the comparable quarter last year. The decrease is primarily due to the application of engineering resources from the contract services group to support production engineering and low volume production.

Product sales revenue for the third quarter rose 7.8 percent to $1,923,787 versus $1,784,133 for the comparable period last fiscal year. The increase is due to continued strong demand for electric propulsion systems and generators and the delivery of pre-production units under the CODA Supply Agreement. Power products segment revenue for the quarter ended December 31, 2010 decreased to $557,450 from $619,040 for the comparable quarter last fiscal year due to decreased levels of actuator motor shipments, offset by higher levels of DC-to-DC converter shipments. Technology segment product revenue for the quarter ended December 31, 2010 increased to $1,366,337, compared to $1,165,093 for the quarter ended December 31, 2009 due to increased shipments of prototype propulsion motors and controllers.

Gross profit margins for the quarter ended December 31, 2010 decreased to 21 percent compared to 32 percent for the quarter ended December 31, 2009. Gross profit margin on contract services was 42 percent for the third quarter this fiscal year compared to 36 percent for the quarter ended December 31, 2009, the improvement is primarily attributable to lower project material purchases this quarter versus the comparable quarter last fiscal year. Gross profit margin on product sales for the third quarter this year decreased to 19 percent compared to 32 percent for the third quarter last year. The decrease is primarily due to the delivery of pre-production units to CODA, which generally have a lower gross profit margin than sales of other low volume products and higher overhead costs associated with our new larger facility in Longmont, Colorado.

Research and development expenditures for the quarter ended December 31, 2010 decreased to $10,537 compared to $138,821 for the quarter ended December 31, 2009 reflecting reduced levels of cost-sharing on government research programs and lower levels of on-going internally-funded software research activities.

Production engineering costs were $874,054 for the third quarter versus $1,077,821 for the third quarter last fiscal year. The decrease is attributable to lower qualification part costs, offset by an expansion of the group and its activities in preparation for the launch of higher volume manufacturing operations.

Reimbursement of costs under the DOE Grant were $546,803 for the quarter ended December 31, 2010 versus zero for the comparable period last fiscal year, representing reimbursable product qualification and testing costs under our DOE Grant.

Selling, general and administrative expense for the quarter ended December 31, 2010 was $1,045,845 compared to $1,425,835 for the same quarter last year. The decrease is primarily attributable to lower levels of compensation expense arising from a change in the period of grant versus that for the last fiscal year.

Interest income decreased to $11,150 for the quarter ended December 31, 2010 versus $17,410 for the same period last fiscal year. The decrease is attributable to lower invested balances and lower yields on invested cash balances.

Nine Months Ended December 31, 2010

Operations for the nine month period ended December 31, 2010, resulted in a net loss of $1,797,183, or $0.05 per common share, compared to a net loss of $3,109,622, or $0.11 per common share for the comparable period last year. The reduction in net loss is primarily attributable to reimbursements of product qualification and testing costs under the DOE Grant, partially offset by higher levels of annual cash and non-cash incentive compensation grants, higher levels of marketing expenses, costs arising from the recruitment and relocation of a new Chief Executive Officer, and moving expenses incurred during the nine month period associated with our relocation to a new facility.

Revenue from contract services decreased to $512,177 for the nine month period ended December 31, 2010 versus $1,067,475 for the comparable period last year. Revenue for the nine month period was impacted by adjustments to indirect costs on a cost-plus government contract, the application of engineering resources to production engineering activities and reduced levels of funded development programs.

Product sales for the nine month period ended December 31, 2010 increased to $6,161,179, compared to $5,339,600 for the comparable period last year. Power products segment revenue for the nine month period ended December 31, 2010 increased to $2,094,303 from $1,649,688 for the comparable period last fiscal year due to increased shipments of pre-production CODA systems and shipments under our supply agreement with Electric Vehicles International. Technology segment product revenue for the nine month period ended December 31, 2010 increased to $4,066,876, compared to $3,689,912 for the comparable period last year due to increased shipments of prototype propulsion motors and controllers.

Gross profit margins for the nine month period ended December 31, 2010 decreased to 24 percent compared to 32 percent for the comparable nine month period last fiscal year. The decrease is primarily due to the delivery of pre-production units to CODA, which generally have a lower gross profit margin than sales of other low volume products and higher overhead costs associated with our new larger facility in Longmont, Colorado. Gross profit margin on contract services decreased for the nine month period to 13 percent versus 32 percent for the comparable nine month period last fiscal year primarily due to adjustments to indirect costs on a cost-plus government contract during the second fiscal quarter. Gross profit margin on product sales for the nine month period ended December 31, 2010 decreased to 25 percent compared to a 32 percent for the comparable period last year. The decrease is due to deliveries of pre-production units during the period which typically have lower gross profit margins than other low volume product sales and higher overhead costs associated with our new larger facility in Longmont, Colorado.

Research and development expenditures for the nine month period ended December 31, 2010 decreased to $282,484 compared to $452,656 for the same period last year. The decrease is primarily due to reduced levels of internally funded programs.

Production engineering costs were $2,534,370 for the nine month period ended December 31, 2010 versus $2,092,137 for the comparable nine month period last year. The increase is attributable to higher qualification part costs and the addition of engineering resources to our production engineering group.

Reimbursements of production engineering costs under DOE Grant was $3,098,747 for the nine months ended December 31, 2010 versus zero for the comparable period last year representing reimbursable product qualification and testing costs. Reimbursements for the nine month period ended December 31, 2010 included reimbursements arising from costs incurred during the prior fiscal year of $1,546,446 which were recognized during the second fiscal quarter this year upon satisfaction of a condition contained in the DOE Grant.

Selling, general and administrative expense for the nine month period ended December 31, 2010 was $4,045,663 compared to $2,668,682 for the same period last year. The increase is attributable to higher levels of annual cash and non-cash incentive compensation grants, higher levels of marketing expenses, costs arising from the recruitment and relocation of a new Chief Executive Officer, and moving expenses incurred during the nine month period associated with our relocation to a new facility.

Interest income increased to $70,803 for the nine month period ended December 31, 2010 versus $44,182 for the comparable period last year. The increase is attributable to higher levels of invested cash balances during the nine month period this year versus the same period last fiscal year.

Other income was $265,269 for the nine month period ended December 31, 2010, reflecting a cash recovery upon completion of a former customer's bankruptcy proceedings.

Liquidity and Capital Resources

Our cash balances and liquidity throughout the quarter and nine month period ended December 31, 2010 were adequate to meet operating needs. At December 31, 2010, we had working capital (the excess of current assets over current liabilities) of $27,854,560 compared to $31,001,650 at March 31, 2010.

For the nine month period ended December 31, 2010, net cash used in operating activities was $2,235,943 compared to net cash used in operating activities of $1,204,494 for the comparable nine month period last fiscal year. The increase in cash used for the nine month period this fiscal year is primarily attributable to increased levels of accounts receivable, inventory and prepaid expenses.

Our sales are conducted through acceptance of customer purchase orders or in some cases through supply agreements. In cases where credit is granted to customers, our standard terms are net 30 days. Significant increases in revenue or a change in our credit policies to offer extended payment terms could potentially result in material increases in our working capital requirements. In addition, judgments regarding customers credit quality and their ability to meet their financial obligations to us could be incorrect, resulting in bad debts which could have a material adverse effect on our financial results and liquidity.

Net cash used in investing activities for the third quarter was $2,554,396 compared to cash used in investing activities of $17,647,988 for the comparable nine month period last fiscal year. The change in cash used by investing activities for the nine months ended December 31, 2010 was primarily due to increased levels of short-term investment maturities, lower levels of capital expenditures associated with the establishment of high volume manufacturing capability and capacity for the CODA vehicle launch later this calendar year, partially offset by increased levels of short-term investment purchases.

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 greater financial resources during the remainder of fiscal 2011 and during fiscal 2012 on the commercialization of our products, including a significant increase in human resources and increased expenditures for equipment tooling. These capital requirements may be substantially reduced by reimbursements from the Company's Grant from the DOE which reimburses 50 percent of qualified capital costs. Working capital requirements related to our supply agreement with CODA could exceed $10 million if CODA achieves their twelve-month production target of 14,000 vehicles following introduction of the CODA all-electric passenger vehicle. 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 at December 31, 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 Grant requires us to provide matching funds of 50 percent on all qualifying expenditures under the Grant. As of December 31, 2010 we have received credit from the DOE for matching funds of $32 million, and we have an obligation under our DOE Grant to demonstrate our ability to provide additional matching funds of $13.1 million on or before July 13, 2011. We do not currently have sufficient funds to meet 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 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.

Contractual Obligations

The following table presents information about our contractual obligations and commitments as of December 31, 2010:

		Payments due by Period
		Total	Less Than     1 Year	2 - 3 Years	4 - 5 Years	More than    5 Years
Purchase obligations		$  3,956,569	3,956,569	-	-	-
Executive employment agreements (1)		1,288,728	739,200	476,088	-	73,440
Total		$  5,245,297	4,695,769	476,088	-	73,440
(1)	Includes severance pay obligations under executive employment agreements, but not annual cash compensation under the agreements.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that 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 the 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, the fair value of financial and long-lived assets and in the establishment of provisional billing rates on certain government contracts. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in preparation of the consolidated financial statements.

Accounts Receivable

Our trade accounts receivable are subject to credit risks associated with the financial condition of our customers and their liquidity. We evaluate all customers periodically to assess their financial condition and liquidity and set appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customer's particular business. Because substantially all of our customers are large well-established companies with excellent credit worthiness, we have not established a reserve at December 31, 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 December 31, 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.

Cost-Sharing and Cost-Plus Type Contracts

Some of our business with the U.S. Government and prime contractors is performed under cost-sharing of cost-plus fixed-fee type contracts. These contracts provide for the reimbursement of costs, to the extent allocable and allowable under applicable government regulations. Typically, billings under these contracts are based on provisional rates, which are estimates of the actual costs expected to be incurred during the relevant period of performance. The final amounts qualified for reimbursement are determined in arrears, typically annually, based on the actual costs incurred during the relevant period of performance. The final costs eligible for reimbursement under these contracts may differ materially from the provisional rates. If actual costs incurred are less than the amounts estimated through provisional rates, we will be obligated to return any excess of provisional payments over final qualified costs, which could have a material adverse impact on our operating results and liquidity.

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.

In April 2010, the FASB issued a new standard on the milestone method of revenue recognition. This new standard provides guidance on the criteria that is necessary to apply the milestone method of revenue recognition. This new standard is required to be adopted in the first quarter of FY2012. We do not expect this new standard to significantly impact our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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 December 31, 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 December 31, 2010.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation

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

ITEM 1A. RISK FACTORS

Risk Factors

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 also contains 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 incurred significant net losses as shown in the following tables:

	Fiscal Year Ended March 31,
	2010	2009	2008
Net loss	$ 4,140,872	$ 4,402,019	$ 4,586,105

We have had accumulated deficits as follows:

December 31, 2010	$ 75,363,294
March 31, 2010	$ 73,566,111
March 31, 2009	$ 69,425,239

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 operating losses, anticipated capital expenditures and working capital requirements in the longer term may exceed our current cash balances.

Our net loss for the quarter and nine month period ended December 31, 2010 was $932,520 and $1,797,183 versus a net loss for the comparable quarter and nine months last fiscal year of $1,984,469 and $3,109,622. At December 31, 2010, our cash and short-term investments totaled $24,762,309. We expect our losses to continue through at least March 31, 2011 and potentially beyond. Our existing cash resources, together with funding expected from our ARRA grant should be sufficient to complete our business plan for at least the next eighteen months. Should those resources be insufficient, we may need to secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.

If we do not satisfy the terms of our U.S. Department of Energy grant, we may not receive all of the $45.1 million grant we were awarded.

On January 13, 2010, we finalized a $45.1 million Grant under the American Recovery and Reinvestment Act's Electric Drive Vehicle Battery and Component Manufacturing Initiative with the U.S. Department of Energy. The Grant 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 the Grant. 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 Grant, and could become ineligible for continued participation in the program. The payment of the incurred costs under the award has been limited to $32 million until we provide DOE with firm commitments for an additional $13.1 million representing our remaining 50 percent share of the total estimated cost of the project. If all such funds have not been secured by July 13, 2011, 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 contingency, the Grant may be terminated. In addition, the Grant 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 have executed a supply agreement with CODA that provides a framework for CODA's manufacturing partner to purchase from us 20,000 electric propulsion systems for use in automobiles to be manufactured by CODA during the initial two-year term of the agreement. Under the terms of this agreement, CODA's manufacturing partner, HaFei, will issue blanket purchase orders covering their annual purchase requirements and specifying the timing of delivery for such units, with the nearest 60-day delivery schedule considered to be "firm" and noncancellable. HaFei has not yet issued any purchase orders under the CODA supply agreement. If HaFei does not purchase at least 15,000 units under the CODA supply agreement, CODA may be required to make specific payments to us. For example, if CODA is unsuccessful in the development of its electric automobile, HaFei would not be obligated to purchase electric propulsion systems from us, but CODA would then be obligated to make the payments specified in the contract to us. While these specific payments would cover much of our costs in preparing to supply electric propulsion systems to CODA, the payments are substantially less than the amount we would receive for sales of systems under the supply agreement. In addition, CODA may not have adequate funds to make any such payments to us or may otherwise contest its obligation to pay, and as a result it is possible that we may never receive any such funds. CODA may also terminate the supply agreement for any number of reasons.

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, 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.

A large percentage of our revenue is typically derived from a small number of customers, and we expect this trend to continue and intensify as we begin production under the CODA supply agreement. CODA may become the source of a substantial portion of our revenue in at least the near-term. The magnitude of this revenue is dependent on CODA's ability to introduce and sell its passenger vehicle in commercial volumes.

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.

Our business relies on third parties, whose success we cannot predict.

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.

Neodymium, a rare earth mineral, is a key element used in the production of magnets that are a component of our electric propulsion systems. Neodymium is currently sourced primarily from China, and China recently indicated its intent to retain more of this mineral for the use of Chinese companies, rather than exporting it. To the extent that we buy magnets as a finished product from a Chinese supplier, these potential limitations on neodymium ore may not impact us. Although neodymium iron boron magnets are available from other sources, these alternative sources are currently more costly. Reduced availability of neodymium from China could adversely affect our ability to obtain magnets in sufficient quantities, or in a timely manner, to meet our production plans. In the event that China's actions cause us to seek alternate sources of supply for magnets, it could cause an increase in our production costs thereby reducing our profit margin on electric propulsion systems if we are unable to pass the increase in our production costs on to our customers.

Some of our contracts can be cancelled with little or no notice and could restrict our ability to commercialize our technology.

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.

We face intense competition in our motor development and may be unable to compete successfully.

In developing electric motors for use in vehicles and other applications, we face competition from very large domestic and international companies, including the world's largest automobile manufacturers. Many of our competitors 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. These competitors also have much greater experience in and resources for marketing their products. For these reasons, potential customers may choose to purchase electric motors from our competitors rather than from us. In addition, the U.S. government has awarded substantial financial grants under the stimulus bill to several large companies who compete with us. To the extent that some of these competitors received awards under the stimulus bill in amounts greater than we have, could adversely impact our ability to compete.

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.

If our products do not achieve market acceptance, our business may not grow.

Although we believe our proprietary systems are suited for a wide-range of vehicle electrification applications, our business and financial plan relies heavily on the introduction of new products that have limited testing in the marketplace. We are currently making substantial investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, to ramp up our production capacity in order to capitalize on the anticipated expansion in demand for electric propulsion systems and generators in the automobile and light truck markets. Our sales of electric propulsion systems and generators in the automobile and light truck markets to date have consisted of limited quantities of evaluation and field test units. We are not certain that our existing products will achieve broad market acceptance, or that we will be able to develop new products or product enhancements that will achieve broad market acceptance.

Changes in environmental policies could hurt the market for our products.

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.

If we are unable to protect our patents and other proprietary technology, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our products. In addition, the cost of enforcing our proprietary rights may be expensive and result in increased losses.

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.

Use of our motors in vehicles could subject us to product liability claims or product recalls, and product liability insurance claims could cause an increase in our insurance rates or could exceed our insurance limits, which could impair our financial condition, results of operations and liquidity.

The automotive industry experiences significant product liability claims. As a supplier of electric propulsion systems or other products to vehicle OEMs, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our systems or components caused an accident. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the award of damages. The sale of systems and components for the transportation industry entails a high risk of these claims, which may increase as our production and sales increase. In addition, we may be required to participate in recalls involving these systems if any of our systems prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships.

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. Any product liability claim brought against us also could have a material adverse effect on our reputation.

We may be subject to warranty claims, and our provision for warranty costs may not be sufficient.

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.

The unpredictability and fluctuation of our quarterly results may adversely affect the trading price of our common stock.

Our revenues and results of operations have varied in the past, and may vary in the future, from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. The primary factors that may affect us include the following:

• the timing and size of sales of our products and services;

• loss of customers or the ability to attract new customers;

• changes in our pricing policies or the pricing policies of our competitors;

• increases in sales and marketing, product development or administration expenses;

• costs related to acquisitions of technology or businesses;

• our ability to attain and maintain quality levels for our products; and

• general economic factors.

Future or anticipated sales of our stock may impact our market price.

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.

We are subject to financial and reputational risks due to product recalls resulting from product quality and liability issues.

The risk of product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of powertrain systems. Our products and the products of third parties in which our products are a component are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur in the market for clean vehicles. At the same time, product quality and liability issues present significant risks. Product quality and liability issues may affect not only our own products but also the third-party products in which our motors, generators and electronic products are a component. Our efforts to maintain product quality may not be successful, and if they are not, we may incur expenses in connection with, for example, product recalls and lawsuits, and our brand image and reputation as a producer of high-quality products may suffer. Any product recall or lawsuit seeking significant monetary damages could have a material adverse effect on our business and financial condition. A product recall could generate substantial negative publicity about our products and business, interfere with our manufacturing plans and product delivery obligations as we seek to replace or repair affected products, and inhibit or prevent commercialization of other future product candidates. Although we do have product liability insurance, we do not have insurance to cover the costs associated with a product recall and the expenses we would incur in connection with a product recall could have a material adverse affect on our operating results.

If our products fail to perform as expected, we could lose existing and future business, and our ability to develop, market and sell our products could be harmed.

Our products are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes. Despite testing, our products have contained defects and errors in the past and may in the future contain manufacturing or design defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers for a period of time. These problems could result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, damaged customer relationships and harm to our reputation, any of which may adversely affect our business and our operating results.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K

Report regarding an amendment to the Bonus Stock Agreement between the Company and Eric R. Ridenour filed October 22, 2010.

	SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
			UQM Technologies, Inc.
			Registrant
Date:  February 1, 2011
		/s/ DONALD A. FRENCH
			Donald A. French
			Treasurer
			(Principal Financial and
			Accounting Officer)