UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

  [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Year Ended March 31, 2002

Commission file number 1-10869

UQM TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

425 Corporate Circle, Golden, Colorado       80401    

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (303) 278-2002

Securities registered pursuant to Section 12(b) of the Act:

Common stock, $.01 par value

Name of each exchange on which registered:

American Stock Exchange

Pacific Stock Exchange

Chicago Stock Exchange

Frankfurt Stock Exchange

Berlin Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X   No   .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  X 

The aggregate market value of the voting stock held by nonaffiliates of the registrant (18,332,525 shares) computed by reference to the closing price of such stock on the American Stock Exchange, as of June 21, 2002:

$69,663,595

The number of shares outstanding (including shares held by affiliates) of each of the registrant's classes of common stock, as of June 21, 2002:

18,842,888 shares of the

registrant's common stock,

$.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

In Part III certain information is incorporated by reference from the Company's definitive Proxy Statement for the August 21, 2002 Annual Meeting of Shareholders.

 

TABLE OF CONTENTS

ITEM 1. BUSINESS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 5. MARKET PRICE OF COMMON STOCK

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGE IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS

ITEM 11 EXECUTIVE COMPENSATION

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

SIGNATURES

ITEM 1. BUSINESS

This Report contains forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the Risk Factors section at the end of this Item 1.

General

UQM Technologies, Inc., ("UQM" or the "Company") is a developer and manufacturer of energy efficient, power dense, electric motors, generators and power electronic inverters. The primary focus of the Company is incorporating its advanced technology into products aimed at existing commercial markets for electrically propelled vehicles such as wheelchairs, golf carts and industrial utility vehicles as well as emerging markets expected to experience rapid growth including power systems for clean electric, hybrid electric and fuel cell electric on-road and off-road vehicles, under-the-hood power accessories configured to operate at 42 volts and environmentally friendly, distributed power generators. The Company operates its business in three segments: 1) technology - which encompasses the further advancement and application of the Company's proprietary motors, generator, power electronics and software; 2) mechanical products – which encompasses the manufacture of motors and generators; and 3) electronic products which encompasses the manufacture of electronic printed circuit assemblies, wire harnesses and complete electronic boxes. The Company's $0.01 par value common stock trades on the American, Chicago, Pacific, Frankfurt and Berlin stock exchanges under the symbol "UQM".

The Company's revenue is derived from two principle sources: 1) funded contract research and development services performed for strategic partners, customers and the U.S. government directed toward either the advancement of the Company's proprietary technology portfolio or the application of proprietary technology to customer's products; and 2) the manufacture and sale of products engineered by the Company and the contract manufacture of products designed by others.

The Company's objective is to leverage its technology base and name recognition to develop and manufacture products for its customers that are superior in performance at competitive prices. To this end, the Company has initially focused its attention on four market areas that have significant growth potential: 1) electric propulsion systems, generators and power electronic inverters for electric, hybrid electric and fuel cell electric vehicles. Virtually every automobile and truck manufacturers worldwide are developing such vehicles. In the case of hybrid electric powerplants, additional customers include Tier I and Tier II automotive suppliers who hope to provide complete hybrid electric systems to their automotive customers; 2) electric propulsion systems and electronic inverters for small vehicles, such as electric wheelchairs, golf carts, small industrial vehicles, lawn and grounds care equipment and the like; 3) under-the-hood power accessories, such as electric air conditioning compressors and electric power steering which are expected to replace existing belt-driven parasitic components now in use as part of the automotive industry's adoption of a new 42 volt standard and fuel cell components such as air compressor drive motors and electronic inverters to manage the operation of the fuel cell, its power generation and the conversion of DC power output of the fuel cell to AC for home use; and 4) distributed power generation products such as wind generators, engine generators and electronic power inverters for both residential and commercial customers that need standby or backup power, remote stand-alone power, as well as, grid-connected power. Fundamental to this strategy is the continual advancement of the Company's proprietary motor, generator, power electronic inverter and software technology portfolio and the maintenance of a high quality and competitive manufacturing capability for products developed by the Company. Substantially all of the Company's research and development activities are the results of projects contracted for and funded by its customers, and in most cases, the Company maintains all or substantially all of the intellectual property rights in technology enhancements.

The Company has three principal operating units: 1) UQM Technologies, Inc., located in Golden, Colorado, which includes the Corporate Headquarters and Engineering and Product Development Center; 2) wholly owned subsidiary UQM Power Products, Inc., ("UQM Power") located in Frederick, Colorado, which manufactures permanent magnet electric motors and generators; and 3) wholly owned subsidiary UQM Electronics, Inc. ("UQM Electronics"), located in St. Charles, Missouri which manufactures electronic printed circuit board assemblies, cable harness assemblies and complete electronic boxes.

The Company also holds minority ownership positions in Taiwan UQM Electric Co., Ltd. ("Taiwan UQM"), EV Global Motors Company ("EV Global"), and Windemere Eco Development Limited ("WED") and Aeromax Corporation ("Aero"). The carrying value of all of these investments on the Company's balance sheet has been reduced to zero because they were impaired under generally accepted accounting principles. Taiwan UQM is a joint venture with Kwang Yang Motor Company, Ltd. ("KYMCO") and Turn-Luckily Technology Co., Ltd. Taiwan UQM, located in Taipei, Taiwan, is a licensee of the Company and manufacturer of starter motors and alternators for gasoline scooters and electric propulsion systems for an all electric scooter. The Company holds a 38.25 percent ownership interest in Taiwan UQM. EV Global, based in Los Angeles, is a developer and distributor of electric bicycles. WED is an environmentally sensitive development of Windemere Island in the Bahamas. Aeromax Corporation is a developer and manufacturer of wind turbine generators and associated products for residential use.

Net loss for the fiscal year was $8,592,655 or $0.49 per common share, including the write-down of goodwill of $4,348,633 or $0.25 per common share and loss from discontinued operations of $2,321,100 or $0.13 per common share, versus a net loss last year of $3,140,122 or $0.18 per common share. Excluding the write-down of goodwill, continuing operations for the fiscal year ended March 31, 2002, resulted in a loss of $1,922,922 or $0.11 per common share on total revenue of $21,395,240 versus a loss from continuing operations of $2,042,538 or $0.12 per common share on total revenue of $25,294,650 last fiscal year. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the fiscal year, including the write-down of goodwill of $4,348,633 or $0.25 per common share and loss from discontinued operations of $2,321,100 or $0.13 per common share, was $6,068,821 or $0.35 per common share. EBITDA from continuing operations for the year, excluding the write-down of goodwill, was $55,078 or nil per common share versus EBITDA from continuing operations of $(304,509) or $(0.02) per common share last year.

EBITDA is a broadly used financial term which many investment professionals use as an approximation of the operating cash flow generated by a business. Management believes that this information may be useful to investors in the Company due to the amount of noncash depreciation and amortization charges reported by the Company. Investors are cautioned, however, that EBITDA is not a replacement or substitute for net earnings or loss determined by the application of generally accepted accounting principles and our calculation of EBITDA may not be comparable to similarly titled disclosures made by other companies.

In April 2002, subsequent to the end of the fiscal year, the Company completed a secondary offering of 1,160,095 shares of its common stock and two year warrants to purchase an additional 232,019 shares of common stock at an exercise price of $5.73 per common share to institutional and other investors in Europe and the United States. The transaction was priced based on the average closing price of the common stock on the American Stock Exchange for the five trading days immediately preceding the transaction date. Net cash proceeds to the Company were $4,433,114, a  portion of which was  applied to the  reduction of  debt. I-Bankers Securities, Inc. served as underwriter for the offering.

Technology Segment

The technology segment of the Company encompasses the operations of the Engineering and Product Development Center and the administrative and management functions performed by the Corporate Headquarters staff and senior executives. The Company's Engineering and Product Development Center occupies a 25,000 square foot facility located in Golden, Colorado equipped with research and development laboratories, prototype build and test facilities for electric motors, generators, power electronic inverters, software, and vehicle integration activities. The technology segment conducts sponsored and internally-funded engineering activities directed toward the development of new products and the engineering of motors, generators, and power electronic inverters to meet the requirements of customers' specific product applications and is the source of engineering services for both the mechanical and electronic product segments. During fiscal year 2002, the technology segment revenue rose 10.9 percent to $3,747,725 consisting of $2,999,342 of contract services revenue and $748,383 of revenue from the sale of low volume motor and inverter products compared to technology segment revenue of $3,378,396 consisting of contract services revenue of $2,283,292 and revenue from the sale of low volume motor and inverter products of $1,095,104 last fiscal year. Net earnings for the technology segment in fiscal year 2002 were $32,078, compared to a net loss of $921,583 last fiscal year. Technology segment EBITDA for the fiscal year ended March 31, 2002 was $353,544 versus $(477,444) last fiscal year.

Mechanical Products Segment

The mechanical products segment of the Company encompasses the operations of the Company's wholly-owned subsidiary, UQM Power Products, Inc. UQM Power occupies a 25,000 square foot manufacturing plant located in Frederick, Colorado. Prior to September, 2001, UQM Power Products, Inc. operations consisted of the volume manufacture of motors and the contract manufacture of gears and gear assemblies. Due to continuing weak demand in the markets served by the Company, the gear market generally, and industry trends toward greater sourcing of customer gear requirements overseas, the Company announced its intention to divest its non-core contract gear manufacturing business. As a result, in the second quarter of fiscal year 2002 the Company recorded a charge for discontinued operations of $1,676,450 reflecting management's estimate of the difference between the expected liquidation value of the business and its carrying value and the expected future operating losses to be incurred during the winding down of operations. In addition, losses for the six months ended September 30, 2002 of $644,650 attributable to gearing operations were reclassified and separately presented on the Company's financial statements.

Motor manufacturing operations consist of the high volume manufacture of the Company's proprietary permanent magnet motors. During fiscal year 2002, the motor manufacturing operations revenue rose 42.6 percent to $4,001,270 from the prior year's revenue of $2,805,300. Net earnings from motor manufacturing operations for the year were $23,160 compared to net earnings last fiscal year of $219,325. The decrease in earnings is attributable to increased allocations of general corporate overhead and facility costs following the announced divestiture of gearing operations. EBITDA for the fiscal year ended March 31, 2002 was $221,943 compared to $337,590 last year.

Electronic Products Segment

The electronic products segment of the Company encompasses the operations of the Company's wholly-owned subsidiary UQM Electronics, Inc. and includes the manufacture of thru-hole and surface mount electronic printed circuit board assemblies, wire harness assemblies, value-added component assemblies incorporating either printed circuit board assemblies, wire harness assemblies or both, and complete turn-key electronic product builds. In addition, UQM Electronics is a wholesale distributor of over 20 lines of passive electronic components. UQM Electronics conducts its operations from a 31,000 square foot manufacturing plant located in St. Charles, Missouri. During fiscal year 2002, segment operations were adversely impacted by a broad and significant business downturn in the contract electronics manufacturing sector, generally, including a substantial decline in consumer demand for electronic products resulting in a decline in segment revenue of 28.6 percent to $13,646,245 and a substantial increase in segment losses, including a charge for the write-off of goodwill of $4,348,633, to $6,326,793 versus a net loss last fiscal year of $1,340,280. Segment EBITDA for the fiscal year ended March 31, 2002, excluding the write-off of goodwill, was $(520,409) compared to EBITDA of $(164,655) last fiscal year. Segment EBITDA for the fiscal year ended March 31, 2002, including the write-off of goodwill, was $(4,869,042) compared to EBITDA of $(164,655) last fiscal year.

Technology

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

The typical architecture (Figure 1) of a UQM(R) motor consists of a stator winding employing a high pole count configuration, which allows for high copper utilization (minimizing energy loss and cost) and a hollow rotor upon which powerful rare earth magnets are mounted on the outer

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

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

Substantially all of the Company's research and development activities are the results of projects contracted for and funded by customers, with the Company typically retaining intellectual property rights in the resulting technology developed. Customer funded development activities are recorded as contract services revenue and the associated development costs are shown as cost of contract services in the Company's financial statements. For the year ended March 31, 2002, revenues from customer funded research and development activities were $2,999,342 and internally-funded research and development expenditures were $98,940.

Competition

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

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

The Company believes its principal competitors include Honda, Toyota, Hitachi, Matsushita, Siemens, Delphi, Ballard Power Systems and Visteon.

The mechanical products segment competes primarily in the automotive, heavy equipment, military, aerospace and medical products industries. Each of these industries is extremely competitive. The Company will face substantial competition on a continuing basis from numerous competitors, many of whom possess longer operating histories, significantly greater financial resources, marketing, distribution and manufacturing capability. The Company believes its principal competitors include Advanced DC, Owosso Corporation, Emerson Electric, General Electric, Rockwell International, Baldor and ABB.

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

Patents

The Company holds U.S. Patent No. 5,004,944, issued on April 2, 1991,entitled "Lightweight high power electromagnetic transducer". Corresponding applications were filed in foreign countries, and most of these foreign applications have issued as patents. U.S. Patent 5,311,092, issued on May 10, 1994, and is a related patent directed to additional subject matter regarding lightweight, high power electromagnetic transducers. U.S. Patent No. 5,319,8444, issued June 14, 1994, and is a continuation-in-part of U.S. Patent No. 5,004,944. U.S. Patent No. 5,319,844 claims various methods of producing armatures for electromagnetic transducers.

In April 1992, the Company was issued U.S. Patent No. 5,107,151 entitled "Switching circuit employing electronic devices in series with an inductor to avoid commutation breakdown and extending the current range of switching circuits by using IGBT devices in place of MOSFETs". This patent is directed to certain proprietary aspects of electronic control circuitry. Corresponding applications were filed in foreign countries, and many of these foreign applications have issued as patents.

The Company was granted U.S. Patent No. 5,382,859, issued January 17, 1995, entitled "Stator and method of constructing same for high power density electric motors and generators". The Company also holds U.S. Patent No. 5,592,731, issued on January 15, 1997 and entitled "Method of constructing a stator". These patents relate to the Company's enhancement to its motor technology. Corresponding applications were filed in foreign countries, and many of these foreign applications have issued as patents.

The Company was granted U.S. Patent No. 5,677,605, issued October 14, 1997 entitled "Brushless DC motor using phase timing advancement". This patent describes a low cost method of controlling the drive current to a motor, which can achieve operating characteristics ideal for vehicle traction drives. Corresponding applications were filed in foreign countries, and most of these foreign applications have issued as patents.

The Company was granted U.S. Patent No. 5,982,063, issued November 9, 1999, entitled "Electric motor with internal brake". This patent relates to current developments in electric wheelchair drives. Corresponding applications were filed in foreign countries, some of which have issued.

In July 1998, the Company filed a new U.S. patent application titled "Accurate Rotor Position Sensor and Method Using Magnet Ring and Linear Output Hall Effect Sensors" which is pending. Corresponding applications are pending in foreign countries.

In January of 2002, the Company filed a new application for a rotor cooling apparatus. The application is pending. The deadline for filing foreign applications has not passed. Accordingly, no decision on foreign applications has been made.

The Company's future success depends, in part, on the diligent prosecution of its issued and pending motor and electronic patents, as well as the filing and prosecution of patents on future technological advances, if any. There can be no assurance that the Company will possess the financial resources necessary to prosecute and maintain existing applications or to pursue additional patents. If the Company is not able to prosecute and maintain its existing patent applications, they will lapse. There can be no assurance that the Company's patents will not be circumvented, invalidated or infringed, or that the Company will possess the financial resources to enforce its existing patents and patent applications in the event of an infringement. Further, new technology may be developed by third parties or may already exist unknown to the Company causing the Company's proprietary technology to be obsolete.

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

Trademarks

The Company owns three U.S. Trademark Registrations for "UNIQ" (International Class 7 for power transducers, and Class 12 for utility land vehicles and Class 16 for Publications). The Class 7 and Class 12 trademarks are subject to renewal in August 2006; and the Class 16 trademark is subject to renewal in February 2007.

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

The Company has registered "POWERPHASE" as a trademark (International Class 12 for motors for electric and hybrid-electric land vehicles namely, modular brushless permanent magnet electric motor traction drives). Corresponding applications for trademark registration were filed in 11 countries. The trademark was registered in the European community on March 21, 1997. Trademark registrations have been granted in Mexico, Canada, China, Israel, Japan, Singapore, South Korea, Taiwan and Thailand.

 Backlog

The Company's technology segment had unperformed service contracts from customers which will provide payments to the Company upon completion aggregating approximately $1.1 million and an order backlog for prototype motors and controls of approximately $.03 million at May 31, 2002. All such service contracts are subject to amendment, modification or cancellation. The Company expects to complete all unperformed service contracts over the next 11 months and ship motor and controller backlog products over the next 2 months.

The Company's mechanical products segment had an order backlog of approximately $3.4 million at May 31, 2002. The Company expects to ship all backlog products within the next eight months.

The Company's electronic products segment had an order backlog of approximately $4.4 million at May 31, 2002. The Company expects to ship all backlog products within the next twelve months.

Customers and Suppliers

The Company has three significant customers, two of which are customers of its electronic products segment, Tyco International, Ltd., and Handera, Inc. which accounted for revenue of $5,397,571 and $1,066,190, respectively representing 25.2 percent and 5.0 percent of consolidated revenue, respectively, and one of which is a customer of its mechanical products segment, Invacare Corporation, which accounted for revenue of $4,001,270 representing 18.7 percent of consolidated revenue. These customers, in total, represented 48 percent of total accounts receivable and 42 percent of inventories at March 31, 2002.

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

U.S. Government Contracts

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

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

For the year ended March 31, 2000, $910,770, or approximately 4.8 percent of consolidated revenue was derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors.

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

Employee and Labor Relations

As of May 31, 2002, the Company had 137 full-time employees. The Company has entered into employment contracts with two of its executive officers which expire December 31, 2002. None of the Company's employees are covered by a collective bargaining agreement. The Company's management believes that its relationship with its employees has been generally satisfactory.

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

Risk Factors

You should carefully consider the following factors and other information in this document and the information incorporated by reference before investing in our securities.

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

The current economic downturn has resulted in a reduction in our contract manufacturing service revenue and future reductions could further adversely affect our financial condition, results of operations and liquidity.

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

Most of our net sales come from three customers, one of which we are losing. Reductions in purchases by either of the remaining two significant customers could further negatively impact our financial condition, results of operations and liquidity.

A significant portion of our total revenue has historically been concentrated among three large customers, Tyco International, HandEra, Inc. and Invacare Corporation. HandEra has informed us that following the sale of the remaining units it has ordered from us, HandEra will no longer offer for sale the product we have been manufacturing for HandEra. We are in the process of completing shipments to HandEra under an existing binding purchase order and expect to have additional revenue of approximately $650,000 subsequent to March 31, 2002 upon shipment of the product covered by the purchase order. Revenue from HandEra for the fiscal year ended March 31, 2002 declined substantially to $1,066,190 from the comparable prior year amount of $6,427,983. The loss of either of the two remaining significant customers or a significant reduction in revenue from these customers could cause us to experience a material adverse change in our financial condition, results of operations and liquidity.

The failure by our customers to adapt their products to rapidly changing competitive conditions could harm our business.

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

Our operating losses and working capital requirements could consume our current cash balances.

We had a net loss of $8,592,655 during fiscal year 2002. Cash balances stood at $1,411,509 at March 31, 2002.  If our losses continue at this level, they could consume some or all of our current cash balances. During several fiscal years prior to fiscal year 2002, we experienced substantial growth in our revenue, which increased our working capital requirements. Should future growth resume at a similar rate or an accelerated rate, the working capital requirements to fund our operations and pursue acquisition opportunities may consume our existing cash balances.

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

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

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

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 you that additional patents will be issued to us or, if they are issued, as to the scope of their protection. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we cannot assure you 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 and wheelchairs could subject us to product liability claims, 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.

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

ITEM 2. PROPERTIES

The Company owns or leases its offices and manufacturing facilities and believes these facilities to be well maintained, adequately insured and suitable for their present and intended uses. Information concerning facilities of the Company as of May 31, 2002, is set forth in the table below:

(1) The Company sold its fifty percent member interest in a limited liability company which owns this facility in January 2001.

The Company has filed a lawsuit against a former customer of its Electronics Segment seeking payment for inventory purchased on behalf of the customer. The Company is seeking damages of approximately $360,000 plus attorneys fees and other costs.

There were no matters submitted to a vote of security holders of the Company during the quarter ended March 31, 2002.

Cash and cash equivalents at March 31, 2002 was $1,411,509 and working capital (the excess of current assets over current liabilities) was $3,184,735 compared with $2,399,006 and $4,737,780,respectively, at March 31, 2001. In April 2002, subsequent to the end of the fiscal year, the Company completed a secondary offering of 1,160,095 shares of its common stock and two year warrants to purchase an additional 232,019 shares of common stock at an exercise price of $5.73 per common share to institutional and other investors in Europe and the United States. The transaction was priced based on the average closing price of the common stock on the American Stock Exchange for the five trading days immediately preceding the transaction date. Net cash proceeds to the Company were  $4,433,114, a  portion of which  was applied to the  reduction of debt. I-Bankers Securities, Inc. served as underwriter for the offering.

Accounts receivable declined $1,236,487 to $2,662,554 at March 31, 2002 from $3,899,041 at March 31, 2001. The decrease is primarily attributable to accelerated collections from a significant customer and lower revenue levels during the fiscal year ended March 31, 2002.

Costs and estimated earnings in excess of billings on uncompleted contracts decreased $129,796 to $442,213 at March 31, 2002 from $572,009 at March 31, 2001. The decrease is attributable to the performance of work on engineering contracts at a rate faster than the associated billing arrangements. Estimated earnings on contracts in process rose to $1,025,313 at March 31, 2002 on costs incurred on contracts in process of $2,486,598 compared to estimated earnings on contracts in process of $720,333 on costs incurred on contracts in process of $1,974,471 at March 31, 2001. The increase in estimated earnings on contracts in process is attributable to an expanded amount of work and improved pricing.

Inventories declined $2,019,924 to $4,636,312 at March 31, 2002 from $6,656,236 at March 31, 2001, principally due to a decline in raw materials and finished products inventories of $1,665,437 and $880,554, respectively, partially offset by an increase in work-in-process inventories of $526,067. The decline in raw materials inventory is attributable to increased levels of obsolescence reserves which accounted for $184,846 of the increase and reduced purchases due to lower levels of revenue. The increase in work in process inventories is attributable to the inclusion of "kitted" electronic components in the work in process numbers this year. The decline in finished products inventory is due to reduced finished goods inventories of hand-held computers at the electronic products segment.

Prepaid expense increased to $220,528 at March 31, 2002 from $184,405 at March 31, 2001 reflecting higher levels of prepaid patent maintenance costs versus the prior fiscal year.

Equipment of discontinued operations held for sale, net, reflects the estimated realizable value of property and equipment of the discontinued gear division held for sale.

Other current assets rose $78,869 to $130,934 at March 31, 2002 reflecting deferred costs associated with the Company's secondary offering of common stock and warrants completed subsequent to fiscal year end.

The Company invested $513,973 for the acquisition of property and equipment during fiscal year 2002 compared to $2,151,041 for the prior fiscal year. The decrease is attributable to higher levels of capital expenditures in the prior fiscal year arising from investments in manufacturing equipment at the Company's electronic products segment to improve manufacturing throughput and component placement density.

Goodwill, net of accumulated amortization, was nil at March 31, 2002 compared to $5,662,797 at March 31, 2001 reflecting the write-down of goodwill associated with the discontinuation of the Company's gear division operations which represented $1,012,658 of the decrease and the write-down of goodwill in the Company's electronic products segment which represented $4,348,633 of the decrease.

Accounts payable decreased $84,425 to $2,693,312 at March 31, 2002 from $2,777,737 at March 31, 2001. The decrease is primarily attributable to lower levels of inventory purchased from suppliers.

Other current liabilities declined $462,474 to $568,554 at March 31, 2002 from $1,031,028 at March 31, 2001. The decrease is attributable to lower accrued payroll costs arising from changes in the Company's paid time off policy and lower levels of other accrued liabilities.

In fiscal year 2001, a limited partnership in which the Company was a 50 percent owner sold its principal asset, the Company's headquarters building in Golden, Colorado, and was subsequently liquidated. As a result of this transaction, the Company recorded a deferred gain that is being recognized ratably over the remaining term on the Company's facility lease which expires September, 2002. At March 31, 2002 the remaining balance of the deferred gain was $322,139.

Current portion of long-term debt decreased $303,642 to $562,043 at March 31, 2002 from $865,685 at March 31, 2001 primarily due to the retirement of a portion of the Company's term debt during the fiscal year and the reclassification of the term debt of the discontinued gear division operations to term debt and accrued future losses of discontinued operations.

Revolving line-of-credit declined $1,783,000 to $2,254,000 at March 31, 2002 from $4,037,000 at March 31, 2001 due to cash generated from the reduction of trade accounts receivable and inventories during the fiscal year which was applied to reduce the Company's line-of-credit balance.

Billings in excess of costs and estimated earnings on uncompleted contracts rose $184,920 to $382,739 at March 31, 2002 from $197,819 at March 31, 2001 reflecting billings to customers for certain sponsored development contracts in advance of the performance of the associated work.

Long-term debt declined $1,498,052 to $1,108,023 at March 31, 2002 reflecting principal repayments on the Company's term bank debt during the fiscal year and the reclassification of the term debt of the discontinued gear division to current liabilities in anticipation of its retirement in less than one year as gearing assets are sold.

Common stock and additional paid-in capital increased to $176,798 and $51,444,359 at March 31, 2002, respectively, compared to $174,233 and $50,626,120 at March 31, 2001. The increases in these accounts totaling $820,804 is attributable to cash received upon the exercise of stock options by employees, directors and consultants of $663,361; cash proceeds from the sale of common stock under the Company's Employee Stock Purchase Plan of $42,878, common stock issued for services of $9,558 and cash received for the extension of warrants of $105,007.

Continuing operations for the fiscal year ended March 31, 2002, resulted in a loss of $6,271,555, or $0.36 per common share compared to a loss from continuing operations of $2,042,538, or $0.12 per common share and $5,504,510 or $0.33 per common share for the fiscal years ended March 31, 2001 and 2000, respectively. EBITDA from continuing operations for fiscal year 2002 declined by $3,989,046 to $(4,293,555) versus EBITDA from continuing operations of $(304,509) last fiscal year and by $321,090 versus EBITDA from continuing operations of $(3,972,465) for the fiscal year ended March 31, 2000. Continuing operations for the fiscal year ended March 31, 2002, excluding a charge for the write-down of goodwill of $4,348,633, resulted in a loss of $1,922,922, or $0.11 per common share compared to a loss from continuing operations, excluding the write-down of investments and other assets of $291,818, of $1,750,720, or $0.10 per common share last fiscal year and a loss from continuing operations, excluding the write-down of investments and other assets of $4,104,628, of $1,399,882 or $0.08 per common share for the fiscal years ended March 31, 2000. EBITDA for fiscal year 2002, before the foregoing charges, rose $67,769 to $55,078 versus EBITDA of $(12,691) last fiscal year and declined by $77,085 versus EBITDA of $132,163 for the fiscal year ended March 31, 2000.

EBITDA is a broadly used financial term which many investment professionals use as an approximation of the operating cash flow generated by a business. Management believes that this information may be useful to investors in the Company due to the amount of non-cash depreciation and amortization charges reported by the Company. Investors are cautioned, however, that EBITDA is not a replacement or substitute for net earnings or loss determined by the application of generally accepted accounting principles and our calculation of EBITDA may not be comparable to similarly titled disclosures made by other companies.

Revenue from contract services increased 31 percent to $2,999,342 during fiscal year 2002 from $2,283,292 for the year ended March 31, 2001. Revenue from contract services increased $580,355 or 34 percent for the year ended March 31, 2001 compared to revenue for the year ended March 31, 2000. The increase in contract services revenue for both years is attributable to growing demand for development programs.

Consolidated gross profit margin for fiscal year 2002 was 9.9 percent compared to 10.5 and 18.5 percent for the comparable fiscal years ended March 31, 2001 and March 31, 2000, respectively. Gross profit on contract services was 31.5 percent this fiscal year compared to 15.4 and 23.7 percent for fiscal year 2001 and fiscal year 2000, respectively. The improvement in contract services margins for the current year versus fiscal years 2001 and 2000 is attributable to reduced levels of cost overruns on development programs and improved pricing. The decline in contract services margins in fiscal year 2001 versus fiscal year 2000 is attributable to cost overruns on certain programs in fiscal year 2001. Gross profit margins on product sales this fiscal year were 6.3 percent compared to 10.0 and 18.0 percent in fiscal year 2001 and fiscal year 2000, respectively. The decrease in margins on product sales for this year versus fiscal year 2001 and fiscal year 2000, is attributable to proportionally increased inventory impairment charges, decreased overhead absorption due to declining revenue levels and unfavorable product mix. The decrease in margins for fiscal year 2001 versus fiscal year 2000, is attributable to increased inventory impairment charges and unfavorable product mix in fiscal year 2001.

Research and development expenditures for the fiscal year ended March 31, 2002 declined to $98,940 compared to $103,231 and $378,954 for the fiscal years ended March 31, 2001 and 2000, respectively. The decrease in this year versus fiscal year 2001 and 2000 is generally attributable to lower levels of internally-funded development activities and cost-share type contracts.

General and administrative expense for the year was $3,729,064 compared to $3,786,669 and $3,613,335 for fiscal years ended March 31, 2001 and 2000, respectively. The decrease in general and administrative expenses for fiscal year 2002 versus fiscal year 2001 is attributable to professional fees associated with acquisition activities in fiscal year 2001. The increase for fiscal year 2001 versus fiscal year 2000 is due to higher levels of marketing expenditures and professional fees associated with acquisition activities in fiscal year 2001.

Write-down of investments and other assets in fiscal year 2001 of $291,818 is attributable to the retirement of obsolete electronic equipment and the impairment write-down of the Company's investment in Aeromax Corporation. Write-down of investments and other assets for the year ended March 31, 2000 represents write-downs of the Company's investments in EV Global, Unique Mobility Europa, Taiwan UQM Electric Company and a note receivable from Windemere Eco Development("WED"), all of which did not meet the Company's expectation of near term profitable operations.

Write-down of goodwill for fiscal year 2002 of $4,348,633 is attributable to the Company's assessment that the fair value of its electronic products segment exceeded its recorded value at March 31, 2002. The Company's electronics products segment is a contract manufacturer of electronic assemblies and wire harness assemblies for customers. Demand for electronic contract manufacturing services has declined substantially over the last year due to declines in consumer and business spending for electronic products and generally deteriorating economic conditions, and the prospects and timing for recovery are uncertain. The Company's electronic products segment has experienced order cancellations and delays leading to significant declines in revenue and substantial losses during the period. As a result of the foregoing factors and the application of the impairment test described in Note 1, the Company determined that goodwill associated with the purchase of its electronic products segment was impaired. Based on management assessment of the fair value of the net assets, in the fourth quarter the Company recorded a charge of $4,348,633 to impair all of the unamortized goodwill arising from the purchase of its electronic products segment.

Interest income rose to $64,067 for the year compared to $59,588 and $55,064 in fiscal years ended March 31, 2001 and 2000, respectively. The increase is generally attributable to higher levels of invested cash.

Interest expense increased to $372,084 for the year ended March 31, 2002 compared to $298,690 and $308,218 for the years ended March 31, 2001 and 2000, respectively. The increase in fiscal year 2002 versus fiscal year 2001 is attributable to higher interest rates on borrowings throughout fiscal year 2002 on the Company's lines-of-credit. The decrease in fiscal year 2001 versus fiscal year 2000 is attributable to the effect of lower interest rates, lower levels of term debt, partially offset by higher borrowing levels on the Company's lines–of-credit.

Equity in loss of joint ventures for fiscal year 2000 of $280,170 reflects the Company's recognition of its pro-rata share of the losses of Taiwan UQM, EV Global, Europa, and WED through the second quarter of fiscal year 2000 at which time the Company wrote off its investment in these entities and ceased recording its pro-rata shares of their operating losses.

Gain on sale of real estate was $379,997 in fiscal year 2002 compared to $19,286 and nil in fiscal year 2001 and 2000, respectively. The gain was generated from the sale of the Company's Golden facility in fiscal year 2001 by a partnership of which the Company held a 50 percent ownership stake and was deferred at the time of sale. The deferred gain is being recognized on a pro-rata basis over the remaining term of the Company's lease on the facility which expires in September, 2002.

In October, 2001 the Company announced its intention to exit its non-core contract gear manufacturing business. As a result, during the quarter ended September 30, 2001, the Company recorded a charge of $1,676,450 for the estimated loss on disposal of the gear division, which includes a provision of $663,792 for expected operating losses during the phase-out period. Additionally, the Company reclassified operating results of the gear division to loss from operations of discontinued gear division, and reclassified all capital equipment and associated term debt as current under the following balance sheet captions: equipment of discontinued operations held for sale, net and term debt and accrued future losses of discontinued operations, respectively. Loss from operations of the discontinued gear division for the fiscal year ended March 31, 2002 was $644,650, or $0.04 per common share compared to a loss of $1,097,584, or $0.06 per common share and $967,297 or $0.06 per common share for the fiscal years ended March 31, 2001 and 2000, respectively. Loss on disposal of gear division for the fiscal year ended March 31, 2002 was $1,676,450 or $0.09 per common share representing estimated losses on the disposition of assets of the discontinued gear division.

The Company's cash balances and liquidity throughout the fiscal year ended March 31, 2002 were adequate to meet operating needs. For the year ended March 31, 2002 net cash provided by operations was $1,946,936 compared to net cash used by operations of $3,457,194 for the year ended March 31, 2001. The increase in cash provided by operating activities is primarily attributable to lower levels of accounts receivable and inventory. Substantially all of the cash generated from operations together with cash proceeds from issuance of common stock upon the exercise of stock options and cash proceeds from the extension of certain warrants which amounted to $817,749, together with $987,497 of cash on hand was applied to the reduction of debt. Consequently, net repayment on the Company's revolving line-of-credit totaled $1,783,000 and term debt obligations were reduced by $849,064 during the fiscal year. For the year ended March 31, 2001 net cash used by operations was $3,457,194 representing a net loss of $2,042,538, the application of cash to fund higher levels of inventories and accounts receivable which increased $1,189,274 and $3,585,540, respectively, and was partially offset by higher levels of accounts payable and other accrued liabilities. Capital expenditures last fiscal year were $2,151,041. Cash used by operations and cash used for capital expenditures last fiscal year were funded from cash proceeds received from the sale of real estate, net of distributions to a minority interest, of $1,752,365, cash proceeds from the issuance of common stock of $1,121,274 and cash proceeds from borrowings, net of repayments, which amounted to $3,986,158. Cash used by operations for the fiscal year ended March 31, 2000 was $1,488,485 representing a net loss of $5,504,510, higher levels of accounts receivable and inventory and a reduction in the level of accounts payable and other current liabilities. Substantially all of the cash used by operations together with capital expenditures and the reduction in debt was funded using proceeds from the sale of common stock and the exercise of warrants and stock options which amounted to $5,405,395.

UQM Power Products has a line-of-credit facility with a commercial bank in the amount of $400,000 which is scheduled for renewal in July, 2002. At March 31, 2002 no amount was drawn against this facility. All financing of UQM Power has been unconditionally guaranteed by UQM Technologies as the parent entity.

The Company believes that its existing cash balances and bank line-of-credit will be sufficient to meet its operating capital requirements for the foreseeable future, exclusive of acquisition financing requirements. Some of the Company's significant customers have experienced downturns in their businesses as a result of deteriorating general economic conditions and other factors. To the extent these customers experience financial difficulties sufficient to impair their ability to honor their financial commitments the Company could experience a material adverse change in its financial condition, results of operations and liquidity.

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

The Company's trade accounts receivable are subject to credit risks associated with the financial condition of its customers and their liquidity. The Company evaluates all customers periodically to assess their financial condition and liquidity and sets appropriate credit limits based on this analysis. As a result, the collectibility of accounts receivable may change due to changing general economic conditions and factors associated with each customers particular business. The Company has established a reserve for potentially uncollectible trade accounts receivable which is management's best estimate of the amount of trade accounts receivable that it believes may become uncollectible at a future date due to the foregoing factors. At March 31, 2002 the Company has recorded reserves for uncollectible trade accounts receivable of $33,054. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company's trade accounts receivable to decline materially, resulting in additional material losses.

The Company maintains raw material inventories of electronic components, motor parts and other materials to meet its expected manufacturing needs for proprietary products and for products manufactured to the design specifications of its customers. Some of these components may become obsolete, unuseable due to design changes, or become unuseable in the manufacturing activities of the Company due to customers inability to honor their obligation to purchase from the Company. Accordingly, the Company periodically assesses its raw material inventory for potential impairment of value based on then available information, expectations and estimates and establishes impairment reserves for estimates declines in the realizable value of its inventories. The actual realizable value of the Company's inventories may differ materially from these estimates based on future occurrences and any resulting change in the Company's estimates. At March 31, 2002 the Company has recorded inventory reserves of $554,998. It is reasonably possible, that future events or changes in circumstances could cause the realizable value of the Company's inventories to decline materially, resulting in additional material impairment losses.

The Company recognizes revenue on the development projects funded by its customers using the percentage-of-completion method. Under this method, contract services revenue is based on the percentage that costs incurred to date bear to management's best estimate of the total costs to be incurred to complete the project. Many of these contracts involve the application of the Company's technology to customers products and other applications to demanding specifications. Accordingly, management's best estimates could be 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 could cause unforseen delays and additional costs. Accordingly, it is reasonably possible that total costs to be incurred on any of the projects in process at March 31, 2002 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 and affected projects.

Discontinued Operations include management's best estimate of the amount to be realized on the sale of its contract gear manufacturing divisions assets, consisting primarily of manufacturing equipment, which have been estimated based on an independent appraisal. Management has also estimated the future losses of the gear division based on performance expectations during the winding down of manufacturing operations. Management's best estimate of the realizable sales value of the Company's gear manufacturing equipment could be adversely impacted by changes in economic conditions, changing valuations in the resale market for gear manufacturing equipment and a variety of other factors and future occurrences. Management's best estimate of the future losses during the winding down of gear manufacturing operations could be adversely impacted by labor disruptions, employee resignations, lower than expected labor productivity, customer order cancellations and a variety of other factors and future occurrences. Accordingly, the amount the Company will ultimately receive from the sale of these assets, and the level of losses incurred during the winding down of gear operations, could differ materially from the amounts estimated.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. The adoption of SFAS 141 will not have an effect on the Company's consolidated financial statements. SFAS No. 142 requires that, beginning on the first day of the Company's next fiscal year, goodwill no longer be amortized for any intangible assets determined to have an indefinite useful life and acquired in a business combination accounted for under the purchase method and completed prior to June 30, 2001. In addition, the Company will be required to assign goodwill to specific reporting units and then test it for impairment at least annually under a two step approach designed to compare the carrying value of each reporting unit to the fair value of the reporting unit. Upon implementation, the Company will be required to reassess its intangible assets, including goodwill recorded in connection with earlier acquisitions accounted for under the purchase method, including their useful lives. The Company plans to adopt SFAS No. 142 on April 1, 2002 and expects that the adoption of SFAS No. 142 will not have a material impact on its financial condition and results of operations.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company intends to adopt SFAS No. 143 on April 1, 2002 and expects that the adoption of SFAS No. 143 will not have a material impact on its financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The Company plans to adopt SFAS No. 144 on April 1, 2002 and expects that the adoption of SFAS 144 will not have a material impact on its financial condition and reports of operations.

We have audited the accompanying consolidated balance sheets of UQM Technologies, Inc. (formerly Unique Mobility, Inc.) and subsidiaries (Company) as of March 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UQM Technologies, Inc. and subsidiaries as of March 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

Denver, Colorado

May 17, 2002