10-Q

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 September 30, 2006

[  ] 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.)

        7501 Miller Drive, Frederick, Colorado 80530       

(Address of principal executive offices) (Zip code),

                              (303) 278-2002                                

(Registrant’s telephone number, including area code)

________________________________________________________

(Former name, former address and former fiscal year, if changed since last report.)

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

Yes   X    No       

Indicate by check mark whether the registrant 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                                               Accelerated filer     X                                      Non-accelerated filer         

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 October 26, 2006 was 25,280,286.

TABLE OF CONTENTS

Part  I	Financial Information
	Item 1	Financial Statements (unaudited)
			Consolidated balance sheets as of September 30, 2006 and March 31, 2006
			Consolidated statements of operations for the quarters and six month periods ended
				September 30, 2006 and 2005
			Consolidated statements of cash flows for the six months ended September 30,
				2006 and 2005
			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 4	Submission of Matters to a Vote of Security Holders
	Item 5	Other Information
	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)

						September 30, 2006		March 31, 2006
Assets
Current assets:
		Cash and cash equivalents					$  2,093,668	4,076,806
		Short-term investments					6,749,759	6,009,394
		Accounts receivable					1,176,117	512,409
		Costs and estimated earnings in excess of billings on
			uncompleted contracts				151,318	450,044
		Inventories					842,592	467,485
		Prepaid expenses and other current assets					240,405	118,439
					Total current assets		11,253,859	11,634,577
Property and equipment, at cost:
		Land					181,580	181,580
		Building					2,303,919	2,297,467
		Machinery and equipment					3,121,239	2,808,324
							5,606,738	5,287,371
		Less accumulated depreciation					(2,840,499)	(2,683,295)
					Net property and equipment		2,766,239	2,604,076
Patent and trademark costs, net of accumulated
	amortization of $594,930 and $545,468						509,092	552,382
Other assets							5,053	5,053
				Total assets			$ 14,534,243	14,796,088
								(Continued)
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited), Continued

						September 30, 2006		March 31, 2006
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable						$      366,144	534,428
	Other current liabilities						217,525	309,097
	Current portion of long-term debt						95,354	92,013
	Short-term deferred compensation under executive employment
			agreements				132,155	-
	Liabilities and commitments of discontinued operations						25,946	62,004
	Billings in excess of costs and estimated earnings on
		uncompleted contracts					372,094	221,626
					Total current liabilities		1,209,218	1,219,168
Long-term debt, less current portion							573,340	621,685
Long-term deferred compensation under executive employment agreements							152,231	210,861
							725,571	832,546
					Total liabilities		1,934,789	2,051,714
Commitments and contingencies
Stockholders’ equity:
	Common stock, $.01 par value, 50,000,000 shares authorized;
				25,143,051 and 24,776,042 shares issued and outstanding			251,431	247,760
	Additional paid-in capital						70,812,236	69,293,461
	Accumulated deficit						(58,464,213)	(56,796,847)
					Total stockholders’ equity		12,599,454	12,744,374
					Total liabilities and stockholders’ equity		$ 14,534,243	14,796,088
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

					Quarter Ended September 30,			Six Months Ended September 30,
					2006	2005		2006	2005
Revenue:
	Contract services				$    679,126	470,276	1,503,480		937,864
	Product sales				935,092	413,724	1,412,070		1,099,341
					1,614,218	884,000	2,915,550		2,037,205
Operating costs and expenses:
	Costs of contract services				613,130	471,758	1,268,255		1,134,314
	Costs of product sales				879,248	327,198	1,403,324		930,884
	Research and development				79,330	103,532	174,481		133,852
	Production engineering				232,517	172,876	480,889		339,566
	Selling, general and administrative				780,322	418,608	1,452,839		867,053
	Impairment of long-lived assets				-	-	-		1,455
					2,584,547	1,493,972	4,779,788		3,407,124
			Loss from continuing operations before other
				income (expense)	(970,329)	(609,972)	(1,864,238)		(1,369,919)
Other income (expense):
	Interest income				117,559	81,833	238,211		137,998
	Interest expense				(12,160)	(15,824)	(24,587)		(32,416)
	Other				-	525	-		525
					105,399	66,534	213,624		106,107
			Loss from continuing operations		(864,930)	(543,438)	(1,650,614)		(1,263,812)
Discontinued operations – loss from operations of
	discontinued electronic products segment				(14,640)	(33,270)	(16,752)		(43,701)
			Net loss		$   (879,570)	(576,708)	(1,667,366)		(1,307,513)
		Net loss per common share - basic and diluted
			Continuing operations		$  (.04)	(.02)	(.07)		(.05)
			Discontinued operations		-	-	-		-
					$  (.04)	(.02)	(.07)		(.05)
Weighted average number of shares of common
	stock outstanding - basic and diluted				25,137,888	24,552,704	25,082,358		23,876,669
See accompanying notes to consolidated financial statements.

UQM TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

										Six Months Ended September 30,
										2006		2005
Cash flows from operating activities of continuing operations:
	Net loss										$(1,667,366)		(1,307,513)
	Loss from discontinued operations										16,752		43,701
	Loss from continuing operations										(1,650,614)		(1,263,812)
	Adjustments to reconcile loss from continuing operations to net cash
			used in operating activities of continuing operations:
				Depreciation and amortization							206,666		177,273
				Impairment of long-lived assets							-		1,455
				Change in operating assets and liabilities:
					Accounts receivable and costs and estimated earnings in
						excess of billings on uncompleted contracts					(364,982)		139,704
					Inventories						(375,107)		102,089
					Prepaid expenses and other current assets						(121,966)		(161,175)
					Non-cash compensation expense from employee and
						director stock option and common stock grants					474,384		-
					Accounts payable and other current liabilities						(259,856)		(289,584)
					Billings in excess of costs and estimated earnings on
						uncompleted contracts					150,468		72,098
					Deferred compensation under
						executive employment agreements					73,525		-
									Net cash used in operating activities		(1,867,482)		(1,221,952)
Cash flows from investing activities of continuing operations:
	Purchases of short-term investments, net										(740,365)		(4,299,268)
	Acquisition of property and equipment										(319,367)		(66,419)
	Increase in patent and trademark costs										(6,172)		(14,382)
								Net cash used in investing activities			(1,065,904)		(4,380,069)
Cash flows from financing activities of continuing operations:
	Repayment of debt										(45,004)		(66,251)
	Issuance of common stock in private placement, net of placement
		costs									-		3,885,858
	Issuance of common stock upon exercise of stock options										614,072		86,619
	Issuance of common stock upon exercise of warrants										427,795		126,781
	Issuance of common stock under employee stock purchase plan										6,195		4,139
							Net cash provided by financing activities				1,003,058		4,037,146
Net cash used in continuing operations											(1,930,328)		(1,564,875)
Discontinued operations - net cash used in operating activities											(52,810)		(113,638)
Decrease in cash and cash equivalents											(1,983,138)		(1,678,513)
Cash and cash equivalents at beginning of period											4,076,806		5,788,232
Cash and cash equivalents at end of period											$ 2,093,668		4,109,719
Supplemental cash flow information:
	Interest paid in cash during the period										$      24,866		32,868

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, 2006.

( 2)  Stock-Based Compensation

Stock Option Plans

As of September 30, 2006 we had 1,276,527 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 any eligible employee during the term of the Plan 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 September 30, 2006, we had 375,221 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. As of September 30, 2006 we had 115,957 shares of common stock available for issuance under the Stock Purchase Plan. During the quarter ended September 30, 2006, no shares of common stock were issued under the Stock Purchase Plan.

Stock Bonus Plan

We have a Stock Bonus Plan ("Stock Plan") administered by the Board of Directors. As of September 30, 2006 there were 406,049 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 149,735 shares granted under the Stock Plan with a fair value of $479,152 during the quarter and six months ended September 30, 2006, of which 70,125 shares vest over a six month period, and 79,610 shares vest over a three year period.

Effective April 1, 2006, we adopted the provisions of SFAS No.123(R). SFAS No. 123(R) requires share based awards such as stock options and restricted stock to be accounted for under the fair value method. Accordingly, share-based compensation is measured at the grant date, based on the estimated fair value of the award. We previously accounted for awards granted under our equity incentive plans using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," as amended. Accordingly, no share-based compensation arising from the issuance of stock options to employees and directors was recognized in the financial statements prior to April 1, 2006.

Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost we have recognized beginning April 1, 2006 includes (a) compensation cost for all employee and director stock option awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). 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 American Stock Exchange) on the date of grant.

We use the Black-Scholes-Merton option pricing model for estimating the grant date fair value of stock options issued. Such fair value estimates form the basis for recording share based compensation recognized after April 1, 2006 as a result of the adoption of SFAS No. 123(R) as well as the pro forma disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R).

Total share-based compensation expense for the quarter and six months ended September 30, 2006 was $313,409 and $474,384, respectively. The following table shows the classification of these expenses:

	Quarter Ended	Six Months Ended
	September 30, 2006	September 30, 2006
Cost of contract services	$    37,003	73,346
Cost of product sales	12,963	20,773
Research and development	5,086	11,228
Production engineering	29,460	54,658
Selling, general and administrative	228,897	314,379
	$  313,409	474,384

Share-based compensation capitalized in inventories was insignificant as of September 30, 2006.

In accordance with SFAS No. 123(R), 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 after April 1, 2006 is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments in the quarter and six months ended September 30, 2006 was insignificant.

All options granted under the Non-Employee Director Stock Option Plan are vested. A summary of the status of non-vested shares under the Equity Incentive Plan as of September 30, 2006 and changes during the quarter and six months ended September 30, 2006 is presented below:

		Weighted-Average Grant
	Shares Under Option	Date Fair Value
Non-vested at March 31, 2006	926,197	$ 1.61
Granted	-	$    -
Vested	(10,000)	$ 2.10
Forfeited	(14,481)	$ 1.17
Non-vested at June 30, 2006	901,716	$ 1.61
Granted	119,605	$ 1.53
Vested	-	$    -
Forfeited	(48,276)	$ 1.59
Non-vested at September 30, 2006	973,045	$ 1.60

As of September 30, 2006, there was $794,140 of total unrecognized compensation costs related to stock options granted under our stock option plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 16 months. There were no stock options that vested during the quarter ended September 30, 2006. The total fair value of stock options that vested during the six months ended September 30, 2006 was $21,000.

There were no non-vested shares outstanding under the Stock Bonus Plan as of March 31, 2006 and June 30, 2006.

A summary of the non-vested shares under the Stock Bonus Plan as of September 30, 2006 and changes during the quarter ended September 30, 2006 is presented below:

		Weighted-Average Grant
	Shares Under Contract	Date Fair Value
Non-Vested at June 30, 2006	-	$    -
Granted	149,735	$ 3.20
Vested	(12,500)	$ 3.20
Forfeited	(1,200)	$ 3.20
Non-Vested at September 30, 2006	136,035	$ 3.20

As of September 30, 2006 there was $310,179 of total unrecognized compensation costs related to common stock granted under our Stock Bonus Plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 15 months. The total fair value of common stock granted under the Stock Bonus Plan that vested during the quarter and six months ended September 30, 2006 was $40,000.

Pro forma information required under SFAS No. 123 for the quarter and six months ended September 30, 2005 as if we had applied the fair value recognition provisions of SFAS No. 123 to options granted under our stock option plans, was as follows:

		Quarter Ended	Six Months Ended
		September 30, 2005	September 30, 2005
Net loss, as reported		$ (576,708)	(1,307,513)
Less: total share-based employee compensation determined
	under the fair value method for all awards, net of tax	(126,548)	(258,152)
Pro forma net loss		$  (703,256)	(1,565,665)
Reported basic and diluted net loss per common share		$  (.02)	(.05)
Pro forma basic and diluted net loss per common share		$  (.03)	(.07)

During the quarter and six months ended September 30, 2006 options to acquire 143,344 shares of common stock were granted under our Equity Incentive and Non-Employee Director Stock Option Plans. The weighted average estimated values of employee and director stock option grants, as well as the weighted average assumptions that were used in calculating such values during the quarters ended September 30, 2006 and 2005 and the six months ended September 30, 2006 and 2005, were based on estimates at the date of grant as follows:

		Quarter Ended September 30,		Six Months Ended September 30,
		2006	2005	2006	2005
Weighted average estimated fair
	value of grant	$ 1.45 Per option	$ 1.24 Per option	$ 1.45 Per option		$ 1.80 Per option
Expected life (in years)		3.4 years	4.0 years	3.4 years			5.0 years
Risk free interest rate		4.9 %	4.0 %	4.9 %			4.2 %
Expected volatility		59.5 %	48.9 %	59.5 %			49.0 %
Expected dividend yield		0.0 %	0.0 %	0.0 %			0.0 %

Expected volatility is based on historical volatility. The expected life of options granted is based on the simplified calculation of expected life, described in the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin 107 whereby the simple average of the vesting period and contractual term is utilized as the expected life.

Additional information with respect to stock option activity under our stock option plans is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at March 31, 2006	3,006,329	$ 4.28
Granted	-	$    -
Exercised	(186,814)	$ 3.29		$ 306,117
Forfeited	(9,037)	$ 2.26
Outstanding at June 30, 2006	2,810,478	$ 4.35	6.1 years	$ 518,535
Granted	119,605	$ 3.20
Exercised	-	$   -
Forfeited	(99,758)	$ 5.61
Outstanding at September 30, 2006	2,830,325	$ 4.26	6.0 years	$ 330,706
Exercisable at September 30, 2006	1,857,280	$ 4.86	4.6 years	$ 159,507
Vested and expected to vest at September 30, 2006	2,747,365	$ 4.28	5.9 years	$ 326,045

The total intrinsic value of options exercised under our Stock Option Plans during the quarter and six months ended September 30, 2005 was $31,365.

Additional information with respect to stock option activity under our Non-Employee Director Stock Option Plan is as follows:

			Weighted
		Weighted	Average
	Shares	Average	Remaining	Aggregate
	Under	Exercise	Contractual	Intrinsic
	Option	Price	Life	Value
Outstanding at March 31, 2006	59,281	$ 2.90	1.2 years	$ 16,666
Granted	-	$    -
Exercised	-	$    -
Forfeited	-	$    -
Outstanding at June 30, 2006	59,281	$ 2.90	1.2 years	$ 16,666
Granted	23,739	$ 3.20
Exercised	-	$    -
Forfeited	-	$    -
Outstanding at September 30, 2006	83,020	$ 2.99	1.6 years	$ 12,222
Exercisable at September 30, 2006	83,020	$ 2.99	1.6 years	$ 12,222
Vested and expected to vest at September 30, 2006	83,020	$ 2.99	1.6 years	$ 12,222

The total intrinsic value of options exercised under our non-employee director stock option plan during the quarter and six months ended September 30, 2005 was $22,253.

Cash received by us upon the exercise of stock options for the six months ended September 30, 2006 and 2005 was $614,072 and $86,619 respectively. The source of shares of common stock issuable upon the exercise of stock options is from authorized and previously unissued common shares.

( 3) 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 are held in our name at two major financial institutions who hold custody of the investments. All of our investments are held-to-maturity investments that we have the positive intent and ability to hold until maturity. These securities are recorded at amortized cost. Investments with an original maturity of less than one year from the balance sheet date are classified as short-term. The amortized cost and unrealized gain or loss of our short-term investments at September 30, 2006 were:

		Unrealized
	Amortized Cost	Gain (Loss)
U.S. government and government agency securities	$ 4,740,068	(65,126)
Commercial paper, corporate and foreign bonds	1,480,285	(27,796)
Certificates of deposit	529,406	-
	$ 6,749,759	(92,922)

As of September 30, 2006, held-to-maturity securities with a time to maturity of three to six months and six months to one year were $416,235 and $6,333,524, respectively.

( 4) At September 30, 2006, the estimated period to complete contracts in process ranged from one to ten months and we expect to collect substantially all related accounts receivable arising therefrom within sixty days of billing. The following summarizes contracts in process:

			September 30, 2006	March 31, 2006
Costs incurred on uncompleted contracts			$  2,027,197	2,474,025
Estimated earnings			340,733	221,382
			2,367,930	2,695,407
Less billings to date			(2,588,706)	(2,466,989)
			$    (220,776)	228,418
Included in the accompanying balance sheets as follows:
	Costs and estimated earnings in excess of billings on
		uncompleted contracts	$     151,318	450,044
	Billings in excess of costs and estimated earnings on
		uncompleted contracts	(372,094)	(221,626)
			$    (220,776)	228,418

( 5)  Inventories at September 30, 2006 and March 31, 2006 consist of:

	September 30, 2006	March 31, 2006
Raw materials	$     630,130	376,179
Work-in-process	180,795	47,551
Finished products	31,667	43,755
	$     842,592	467,485

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.

( 6) Other current liabilities at September 30, 2006 and March 31, 2006 consist of:

	September 30, 2006		March 31, 2006
Accrued legal and accounting fees	$     3,000	88,300
Accrued payroll and employee benefits	102,941	92,471
Accrued personal property and real estate taxes	43,010	43,825
Accrued warranty costs	55,318	39,480
Accrued royalties	11,176	10,630
Other	2,080	34,391
	$ 217,525	309,097

( 7)  Stockholders’ Equity:

 Changes in the components of shareholders’ equity during the six months ended September 30, 2006 were as follows:

		Number of		Additional		Total
		common	Common	paid-in	Accumulated	stockholders’
		shares	stock	capital	deficit	equity
Balances at March 31, 2006		24,776,042	$ 247,760	69,293,461	(56,796,847)	12,744,374
Issuance of common stock
	upon exercise of options	186,814	1,868	612,204	-	614,072
Issuance of common stock under
	the stock bonus plan	12,500	125	39,875	-	40,000
Issuance of common stock
	upon exercise of warrants	165,812	1,659	426,136	-	427,795
Issuance of common stock under
	employee stock purchase plan	1,883	19	6,176	-	6,195
Compensation expense from
	employee and director stock
	option and common stock grants	-	-	434,384	-	434,384
Net loss		-	-	-	(1,667,366)	(1,667,366)
Balances at September 30, 2006		25,143,051	$ 251,431	70,812,236	(58,464,213)	12,599,454

We issued four-year warrants to acquire 360,000 shares of our common stock at an exercise price of $2.58 per share to the placement agent for our November 2004 follow-on offering. Warrants to acquire 85,267 shares of common stock remain outstanding at September 30, 2006. We also issued four-year warrants to acquire 72,000 shares of our common stock at an exercise price of $3.96 per share to the placement agent for our October 2003 follow-on offering. All of these warrants were outstanding as of September 30, 2006.

( 8) Significant Customers 

We have historically derived significant revenue from a few key customers. Revenue from Invacare Corporation totaled $78,933 and $139,845 and $149,380 and $532,380 for the quarters and six months ended September 30, 2006 and 2005, respectively, which was 5 percent and 5 percent and 17 and 26 percent of total revenue, respectively. Revenue from Lippert Components, Inc. totaled $262,192 and $583,504 for the quarter and six months ended September 30, 2006, which was 16 percent and 20 percent of total revenue, respectively. We had no revenue from Lippert Components, Inc. or the quarter and six months ended September 30, 2005.

These customers also represented 20 percent and 13 percent of total accounts receivable as of September 30, 2006 and March 31, 2006, respectively. Inventories purchased and processed for these customers’ products, consisting of raw materials, work-in-progress and finished goods totaled $253,567 and $63,474 as of September 30, 2006 and March 31, 2006, respectively.

Contract services revenue derived from contracts with agencies of the U.S. Government and from subcontracts with U.S. Government prime contractors totaled $531,676 and $1,096,811 and $277,622 and $582,926 for the quarters and six months ended September 30, 2006 and 2005, respectively. Accounts receivable from government-funded contracts represented 23 percent and 50 percent of total accounts receivable as of September 30, 2006 and March 31, 2006, respectively.

( 9) Discontinued Operations

In January 2004, we committed to a plan to exit our contract electronics manufacturing business whose results were reported as the electronic products segment. In May 2004, we completed the divestiture of equipment and inventory of this business. We are the primary obligor on a lease for the facility previously occupied by this divested business. The facility has been subleased at a rental rate below that provided for in the master lease. At September 30, 2006 liabilities and commitments of discontinued operations totaled $25,946, all of which was associated with the lease commitment.

The operating results of this business for the quarters ended September 30, 2006 and 2005 have been reported separately as discontinued operations. Loss from discontinued operations does not include allocations of general corporate overheads, which have been allocated to other business segments. Operating results of all prior periods presented have been adjusted to reflect the contract electronics manufacturing business as discontinued operations.

(10) Loss Per Common Share

Statement of Financial Accounting Standards No. 128, Earnings per Share, requires presentation of both basic earnings per share and diluted earnings per 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 September 30, 2006 and 2005, options to purchase 2,913,345 and 2,941,830 shares of common stock, respectively, and warrants to purchase 157,267, and 498,869 shares of common stock, respectively, were outstanding. For the quarters and six months ended September 30, 2006 and 2005, respectively, options and warrants for 1,873,798 and 1,578,262, and 1,600,541 and 1,600,541 shares, respectively, were not included in the computation of diluted loss per share because the option or warrant 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 213,000 shares and 458,126 shares, and 516,541 shares and 446,155 shares, of common stock for the quarters and six months ended September 30, 2006 and 2005, respectively, were potentially includable in the calculation of diluted loss per share but were not included, because to do so would be antidilutive.

(11)  Segments

At September 30, 2006, we had 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. As discussed in note 9, we discontinued our electronic products segment in fiscal year 2004, and accordingly, the financial results of this operation are no longer reported in continuing operations in all periods presented. Salaries of the executive officers and corporate general and administrative expense are allocated to our segments annually based on a variety of factors including revenue level of the segment and administrative time devoted to each segment by senior management. The percentages allocated to the technology segment and power products segment were 52 percent and 48 percent for the quarter and six months ended September 30, 2006, and were 74 percent and 26 percent for the quarter and six months ended September 30, 2005, respectively.

Intersegment sales or transfers, which were eliminated upon consolidation, were $10,208 and $38,280, and $38,310 and $48,210 for the quarters and six months ended September 30, 2006 and 2005, respectively.

The technology segment leases office, production and laboratory space in a building owned by the power products segment based on a negotiated rate for the square footage occupied. Intercompany lease payments were $46,041 and $92,082 for the quarters and six months ended September 30, 2006 and 2005, respectively, and were eliminated upon consolidation.

The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the quarter ended September 30, 2006:

			Power
	Technology		Products	Total
Revenue	$	1,130,528	483,690	1,614,218
Interest income	116,830		729	117,559
Interest expense	-		(12,160)	(12,160)
Depreciation and amortization	(67,538)		(41,164)	(108,702)
Segment loss from continuing operations	(695,161)		(169,769)	(864,930)
Assets of continuing operations	11,365,226		3,169,017	14,534,243
Expenditures for long-lived segment assets	$	(31,787)	(48,094)	(79,881)

The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the quarter ended September 30, 2005:

			Power
	Technology		Products	Total
Revenue	$	717,844	166,156	884,000
Interest income	79,395		2,438	81,833
Interest expense	-		(15,824)	(15,824)
Depreciation and amortization	(60,895)		(27,596)	(88,491)
Segment loss from continuing operations	(508,969)		(34,469)	(543,438)
Assets of continuing operations	12,851,752		2,750,098	15,601,850
Expenditures for long-lived segment assets	$	(53,642)	16,138	(37,504)

The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the six months ended September 30, 2006:

			Power
	Technology		Products	Total
Revenue	$	2,010,160	905,390	2,915,550
Interest income	235,919		2,292	238,211
Interest expense	-		(24,587)	(24,587)
Depreciation and amortization	(134,667)		(71,999)	(206,666)
Segment loss from continuing operations	(1,301,208)		(349,406)	(1,650,614)
Assets of continuing operations	11,365,226		3,169,017	14,534,243
Expenditures for long-lived segment assets	$	(117,020)	(208,519)	(325,539)

The following table summarizes significant financial statement information for continuing operations of each of the reportable segments as of and for the six months ended September 30, 2005:

			Power
	Technology		Products	Total
Revenue	$	1,442,988	594,217	2,037,205
Interest income	133,151		4,847	137,998
Interest expense	-		(32,416)	(32,416)
Depreciation and amortization	(121,169)		(56,104)	(177,273)
Segment loss from continuing operations	(1,257,557)		(6,255)	(1,263,812)
Assets of continuing operations	12,851,752		2,750,098	15,601,850
Expenditures for long-lived segment assets	$	(70,620)	(10,181)	(80,801)

(12) Commitments and Contingencies

Employment Agreements

We have entered into employment agreements with two of our officers, one of which expires on December 31, 2007 and one of which expires on December 31, 2010. The aggregate future compensation under these employment agreements, including future services payable on expected extensions thereof and potential retirement and severance payouts, is $2,146,650 at September 30, 2006. Of this amount, $132,155 and $152,231 has been recorded as short-term and long-term deferred compensation under executive employment agreements, respectively.

Lease Commitments

We have entered into operating lease agreements for facilities and equipment. These leases expire at various times through 2007.

In May 2004 we completed the divestiture of equipment and inventory of our contract electronic manufacturing business. We are the primary obligor on a lease for the facility previously occupied by this divested business. As of September 30, 2006 the future sublease payments total $99,500 over the remaining term of the sublease which is less than the amount due under our master lease over the remaining lease term. Accordingly, we have recorded a liability of $25,946 which is equal to the present value of the difference between our obligation under the master lease and the sublease payments to be received under the sublease.

At September 30, 2006, the future minimum lease payments under operating leases with initial noncancelable terms in excess of one year, excluding sublease payments, are $132,072. Future minimum lease payments, net of sublease payments of $99,500, are $32,572.

Rental expense under these leases for the quarter and six months ended September 30, 2006 was zero, versus $4,211 and $8,422 for the quarter and six months ended September 30, 2005, respectively.

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 there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.

(13) New Accounting Pronouncements

In June 2006, the FASB issued Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective for us during the fiscal year beginning April 1, 2007. We have not yet determined the impact of adopting this standard.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for us during the fiscal year beginning April 1, 2008. We have not yet determined the impact of adopting this standard.

In September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)."SFAS No. 158 requires an employer to recognize a plan’s overfunded or underfunded status in its balance sheets and recognize the changes in a plan’s funded status in comprehensive income in the year which the changes occur. These provisions of SFAS No. 158 are effective for our fiscal year ending March 31, 2007. In addition, SFAS No. 158 requires an employer to measure plan assets and obligations that determine its funded status as of the end of its fiscal year, with limited exceptions. This provision of SFAS No. 158 is effective for our fiscal year ending March 31, 2009. We have not yet determined the impact of adopting this standard.

In September, 2006 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." Historically, there have been two widely used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the "roll-over" and "iron-curtain" method. The "roll-over" method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may or may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The "iron curtain" method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that result from the correction of an error existing in previously issued financial statements. SAB 108 provides that prior year uncorrected immaterial misstatements be evaluated under both the "roll-over" and "iron-curtain" approaches. In the event a misstatement, is deemed material to the current period financial statements and the related financial statement disclosures under either approach, SAB 108 requires that the misstatement be corrected by either retroactively adjusting prior financial statements as if the dual approach had always been used, or by correcting it in the current period financial statements by presenting the cumulative effect of the prior period errors as an adjustment to the beginning balance of accumulated deficit and the related assets or liabilities for the current fiscal year. The provisions of SAB 108 are effective for fiscal years ending after November 15, 2006. We plan to adopt SAB 108 using the cumulative effect transition method in connection with the preparation of our annual financial statements for the fiscal year ending March 31, 2007. As a result, we expect to record a cumulative effect charge to accumulated deficit of approximately $210,000 and a corresponding increase to the liability for long-term deferred compensation under executive employment agreements to the beginning balances as of April 1, 2006. The accompanying financial statements do not include these adjustments.

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 the development of markets for our products; the adequacy of our cash balances and liquidity to meet future operating needs, and our ability to issue equity or debt securities. 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 5 Other Information.

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 for customers. During the fourth quarter last fiscal year we began deliveries of vehicle auxiliary motors to a new customer pursuant to an order for 30,000 units. On October 3, 2006, we announced an additional order from this customer totaling approximately $3 million. During the first quarter of this fiscal year we received an order totaling $1.9 million for an electronic product for hybrid electric vehicles. As a result of shipments against these orders and higher levels of low volume product shipments, product sales for the first quarter and second quarter were $476,978 and $935,092 respectively and totaled $1,412,070 for the six months ended September 30, 2006. This compares with product sales for the first and second quarter last fiscal year of $685,617 and $413,724, respectively, and $1,099,341 for the six months ended September 30, 2005.

For the quarter and six months ended September 30, 2006 contract services revenue derived from funded engineering activities increased to $679,126 and $1,503,480 versus $470,276 and $937,864, respectively, for the comparable quarter and six month period last fiscal year. The increase is attributable to improved utilization of billable personnel and reduced levels of cost overruns on projects during the current fiscal year. Gross profit margins on contract services improved to 9.7 percent for the quarter ended September 30, 2006 versus nil for the comparable quarter last fiscal year and 15.6 percent for the six months ended September 30, 2006 versus a negative 21.0 percent for the comparable period last year. The improvement in gross profit margins reflects improved overhead absorption and fewer cost overruns on funded projects. Gross profit margins on product sales declined to 6.0 percent for the quarter ended September 30, 2006 versus 20.9 percent for the comparable quarter last year and declined to 0.6 percent for the six months ended September 30, 2006 versus 15.3 percent for the comparable period last year. The decrease in gross profit margins is primarily attributable to costs associated with the launch of new production for auxiliary motors and the electronic product discussed above. Expenditures on production engineering activities for the quarter and six months ended September 30, 2006 rose to $232,517 and $480,889, respectively versus $172,876 and $339,566 for the comparable quarter and six month period last fiscal year. The increase is attributable to additional staffing and increased prototype and sample expenses this fiscal year.

Internally funded research and development costs for the quarter and six months ended September 30, 2006 were $79,330 and $174,481 versus $103,532 and $133,852 for the comparable quarter and six month period last year. The decrease for the quarter is due to reduced cost-share type contract expenditures. The increase for the six month period is due to higher levels of internally-funded software development activities.

During the first quarter of this fiscal year we implemented the provisions of FAS 123R, which mandates the expensing of costs associated with stock based compensation, including the granting of stock options. FAS 123R requires the expensing of costs arising from the unearned portion of employee stock options issued in previous fiscal years that are earned in the current period as well as compensation costs arising from stock options issued and earned during the current period. During the quarter and six months ended September 30, 2006 we recorded non-cash compensation expense associated with stock options issued in prior fiscal years totaling $160,975 and $317,232. We also recorded non-cash compensation expense during the quarter ended September 30, 2006 totaling $157,152 due to the grant of stock options to employees and directors and the issuance of common stock under our employee stock bonus plan. The classification of non-cash compensation expense arising from FAS 123R in our statement of

operations for the quarter and six months ended September 30, 2006 is shown in the following table:

		Quarter Ended	Six Months Ended
		September 30, 2006	September 30, 2006
Costs of contract services		$   37,003	73,346
Costs of product sales		12,963	20,773
Research and development		5,086	11,228
Production engineering		29,460	54,658
Selling, general and administrative		228,897	314,379
	Total	$ 313,409	474,384

Loss from continuing operations for the quarter and six months ended September 30, 2006 was $864,930 and $1,650,614, respectively, or $0.04 and $0.07 per common share, versus a loss from continuing operations of $543,438 and $1,263,812, or $0.02 and $0.05 per common share, for the comparable quarter and six month period last year. The increase in losses for the second quarter versus the comparable quarter last year is generally attributable to higher expenditures on production engineering activities and the expensing of compensation costs arising from share based compensation detailed in the table above.

During the six months ended September 30, 2006 the exercise of employee stock options and underwriter warrants resulted in cash proceeds to us of $1,041,867. Cash and cash equivalents at September 30, 2006 declined by $1,983,138 to $2,093,668 at September 30, 2006 versus $4,076,806 at March 31, 2006. The decrease is attributable to cash used in operating and investing activities of $2,933,386 which was partially offset by cash flows from financing activities of $1,003,058. We believe our existing cash and short-term investments, which totaled $8,843,427 at September 30, 2006, will be adequate to fund our operations over the next several years.

Financial Condition

Cash and cash equivalents and short-term investments were $8,843,427 versus $10,086,200, and working capital (the excess of current assets over current liabilities) was $10,044,641 compared with $10,415,409, at September 30, 2006 and March 31, 2006, respectively. The decrease in cash and short-term investments and working capital is primarily attributable to cash used in operating and investing activities, offset, in part, by cash proceeds from the exercise of stock options and underwriter warrants during the six months ended September 30, 2006.

Accounts receivable increased $663,708 to $1,176,117 at September 30, 2006 from $512,409 at March 31, 2006. The increase is primarily attributable to increased product shipments and higher levels of contract services revenue during the six months ended September 30, 2006. Historically, we have had nominal bad debt expense arising from uncollectible accounts receivable due to the high credit quality of our customers. Accordingly, no allowance for bad debts has been recorded at September 30, 2006 or March 31, 2006, respectively.

Costs and estimated earnings on uncompleted contracts declined $298,726 to $151,318 at September 30, 2006 versus $450,044 at March 31, 2006. The decrease is due to improved billing terms on certain contracts in process at September 30, 2006 versus March 31, 2006. Estimated earnings on contracts in process rose to $340,733 or 14.4 percent of contracts in process of $2,367,930 at September 30, 2006 compared to estimated earnings on contracts in process of $221,382 or 8.2 percent of contracts in process of $2,695,407 at March 31, 2006. The increase in estimated margins on contracts in process is attributable to improved overhead absorption and decreased levels of cost overruns.

Inventories rose $375,107 to $842,592 at September 30, 2006 principally due to higher levels of raw material, and work-in-process inventories which rose $253,951, and $133,244, respectively. The increase in raw materials inventory is attributable to higher levels of inventory in transit associated with international sourcing and increasing revenue levels. The increase in work-in-process inventory is due to rising revenue levels.

Prepaid expenses and other current assets increased to $240,405 at September 30, 2006 from $118,439 at March 31, 2006 reflecting the prepayment of insurance premium costs on our commercial insurance coverages.

We invested $319,367 for the acquisition of property and equipment during the six months ended September 30, 2006 compared to $66,419 during the comparable six month period last fiscal year. The increase in capital expenditures is primarily due to the installation of a semi-automated high volume motor manufacturing cell and equipment for an electronic product production cell.

Patent and trademark costs, net of accumulated depreciation decreased to $509,092 at September 30, 2006 from $552,382 at March 31, 2006 reflecting the systematic amortization of these costs.

Accounts payable decreased $168,284 to $366,144 at September 30, 2006 from $534,428 at March 31, 2006, primarily due to improved processing of vendor payments during the second quarter.

Other current liabilities decreased $91,572 to $217,525 at September 30, 2006 from $309,097 at March 31, 2006. The decrease is primarily attributable to lower levels of accrued legal and accounting fees, and other accrued costs.

Short-term and long-term deferred compensation under executive employment agreements rose $73,525 to $284,386 at September 30, 2006 from $210,861 at March 31, 2006, reflecting the service cost of future retirement and severance payments under employment agreements with executive officers.

Liabilities and commitments of discontinued operations were $25,946 at September 30, 2006 compared to $62,004 at March 31, 2006 reflecting the estimated obligation for future lease payments on subleased facilities of our discontinued electronic products segment for which we are the primary obligor. See also note 9 to the consolidated financial statements.

Billings in excess of costs and estimated earnings on uncompleted contracts increased $150,468 to $372,094 at September 30, 2006 from $221,626 at March 31, 2006 reflecting increased levels of billings on certain engineering contracts in advance of the performance of the associated work during the six months ended September 30, 2006.

Long-term debt, less current portion decreased $48,345 to $573,340 at September 30, 2006 from $621,685 at March 31, 2006 reflecting principal repayments on the mortgage debt for our Frederick, Colorado facility.

Common stock and additional paid-in capital increased to $251,431 and $70,812,236, respectively, at September 30, 2006 compared to $247,760 and $69,293,461 at March 31, 2006. The increase in additional paid-in capital is attributable to the exercise of stock options and underwriter warrants during the quarter which resulted in cash proceeds to us of $1,041,867 and an increase of $474,384 associated with the recording of non-cash share based payments under FAS 123R.

Results of Continuing Operations

Quarter ended September 30, 2006

Continuing operations for the second quarter ended September 30, 2006, resulted in a loss of $864,930, or $0.04 per common share, compared to a loss from continuing operations of $543,438, or $0.02 per common share for the same quarter last year. The increase in the loss from continuing operations for the quarter is primarily attributable to higher levels of production engineering expenses and selling general and administrative expenditures, including non-cash charges arising from the expensing of share based payments under FAS 123R.

Revenue from contract services rose $208,850 or 44 percent to $679,126 for the quarter ended September 30, 2006 compared to $470,276 for the comparable quarter last year. The increase is primarily attributable to improved staff utilization on revenue generating programs.

Product sales for the second quarter more than doubled to $935,092 compared to $413,724 for the comparable quarter last year. Power Products segment revenue for the quarter ended September 30, 2006 increased to $483,690 compared to $166,156 for the comparable quarter last year. The increase is principally attributable to increasing revenue from vehicle auxiliary motors and the commencement of shipments of an electronic product to a hybrid electric vehicle customer. Technology segment revenue for the second quarter increased to $1,130,528 compared to $717,844 for second quarter last fiscal year due to higher levels of contract services revenue and low volume product shipments. Technology segment product revenue for the second quarter increased to $451,402 compared to $247,568 for the second quarter last year, due to increased shipments of propulsion motors and controllers.

Gross profit margins for the quarter ended September 30, 2006 declined to 7.5 percent compared to 9.6 percent for the comparable quarter last year primarily due to production launch costs for auxiliary motors and an electronic product for a hybrid electric vehicle. Gross profit margin on contract services was 9.7 percent for the second quarter this fiscal year compared to nil for the second quarter last year. The increase is attributable to improved overhead absorption and fewer cost overruns on funded projects. Gross profit margin on product sales for the second quarter this year was 6.0 percent compared to 20.9 percent for the second quarter last year. The decrease is attributable to costs associated with the launch of production for a new customer.

Research and development expenditures for the quarter ended September 30, 2006 declined to $79,330 compared to $103,532 for the quarter ended September 30, 2005. The decrease is primarily due to reduced cost-share type contract expenditures and reduced levels of internally funded projects.

Production engineering costs were $232,517 for the second quarter versus $172,876 for the same quarter last year. The increase is attributable to additional staffing, increased prototype and sample expenses and non-cash compensation charges associated with the expensing of share based payments.

Selling, general and administrative expense for the quarter ended September 30, 2006 was $780,322 compared to $418,608 for the same quarter last year. The increase is primarily attributable to increased accounting and legal expenses and non-cash compensation charges associated with the expensing of share based payments.

Interest income rose to $117,559 for the second quarter compared to $81,833 for the comparable quarter last year. The increase is attributable to higher yields on invested balances during the current quarter.

Interest expense decreased to $12,160 for the second quarter versus $15,824 for the comparable quarter last year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.

Six Months Ended September 30, 2006

Continuing operations for the six months ended September 30, 2006, resulted in a loss of $1,650,614, or $0.07 per common share, compared to a loss from continuing operations of $1,263,812, or $0.05 per common share for the comparable period last year. The increase in the loss from continuing operations for the six month period is primarily attributable to higher levels of production engineering expenses and selling general and administrative expenditures, including non-cash charges arising from the expensing of share based payments under FAS 123R.

Revenue from contract services rose $565,616 or 60 percent to $1,503,480 for the six months ended September 30, 2006 compared to $937,864 for the comparable period last year. The increase is primarily attributable to improved staff utilization on revenue generating programs and reduced cost overruns on development projects.

Product sales for the six months ended September 30, 2006 rose 28 percent to $1,412,070 compared to $1,099,341 for the comparable period last year. Power Products segment revenue for the six months ended September 30, 2006 increased to $905,390 compared to $594,217 for the comparable period last year. The increase is principally attributable to increasing revenue from vehicle auxiliary motors and the commencement of shipments of an electronic product to a hybrid electric vehicle customer. Technology segment revenue for the six months ended September 30, 2006 increased to $2,010,160 compared to $1,442,988 for the comparable period last year due to higher levels of contract services revenue and low volume product shipments. Technology segment product revenue for the six month period increased to $506,680 compared to $505,124 for the comparable period last year.

Gross profit margins for the six months ended September 30, 2006 rose to 8.4 percent compared to a negative 1.4 percent for the comparable quarter last year primarily due to improved overhead absorption associated with increasing revenue levels. Gross profit margin on contract services was 15.6 percent for the six months ended September 30, 2006 compared to a negative 20.9 percent for the comparable period last year. The increase is attributable to improved overhead absorption and fewer cost overruns on funded development projects. Gross profit margin on product sales for the six months ended September 30, 2006 was .6 percent compared to 15.3 percent for the comparable period last year. The decrease in margins on product sales is attributable to costs associated with the launch of production for a new customer.

Research and development expenditures for the six months ended September 30, 2006 rose to $174,481 compared to $133,852 for the same period last year. The increase is primarily due to increased levels of internally funded software development projects.

Production engineering costs were $480,889 for the six months ended September 30, 2006 versus $339,566 for the comparable six month period last year. The increase is attributable to additional staffing, increased prototype and sample expenses and non-cash compensation charges associated with the expensing of share based payments.

Selling, general and administrative expense for the quarter ended September 30, 2006 was $1,452,839 compared to $867,053 for the same period last year. The increase is primarily attributable to increased accounting and legal expenses and non-cash compensation charges associated with the expensing of share based payments.

Interest income rose to $238,211 for the six months ended September 30, 2006 compared to $137,998 for the comparable period last year. The increase is attributable to higher yields on invested balances during the current period.

Interest expense decreased to $24,587 for the six months ended September 30, 2006 versus $32,416 for the comparable period last year. The decrease is due to lower average mortgage borrowings outstanding throughout the current quarter.

Results of Discontinued Operations

In January 2004, we committed to a plan to exit our contract electronics manufacturing business whose results were reported as the electronic products segment. In May 2004, we completed the divestiture of equipment and inventory of this business. We are the primary obligor on a lease for the facility previously occupied by this divested business. The facility has been subleased at a rental rate below that provided for in the master lease. At September 30, 2006 liabilities and commitments of discontinued operations totaled $25,946, all of which was associated with the lease commitment.

The operating results of this business for the quarters ended September 30, 2006 and 2005 have been reported separately as discontinued operations. Loss from discontinued operations does not include allocations of general corporate overheads, which have been allocated to other business segments. Operating results of all prior periods presented have been adjusted to reflect the contract electronics manufacturing business as discontinued operations.

Loss from discontinued operations for the quarter and six months ended September 30, 2006 was $14,640 and $16,752, respectively, versus $33,270 and $43,701 for the comparable periods last fiscal year.

Liquidity and Capital Resources

Our cash balances and liquidity throughout the quarter and six months ended September 30, 2006 were adequate to meet operating needs. At September 30, 2006, we had working capital (the excess of current assets over current liabilities) of $10,044,641 compared to $10,415,409 at March 31, 2006.

For the six months ended September 30, 2006 net cash used in operating activities of continuing operations was $1,867,482 compared to net cash used in operating activities of $1,221,952 for the comparable six month period last year. The increase in cash used in operating activities was primarily attributable to increased losses and higher levels of accounts receivable, inventories and prepaid expenses and other current assets and reduced levels of trade accounts payable, which were partially offset by and higher levels of billings in excess of costs and estimated earnings on uncompleted contracts.

Net cash used in investing activities of continuing operations for the six months ended September 30, 2006 was $1,065,904 compared to net cash used by investing activities of $4,380,069 for the comparable period last year. The decrease for the current six month period was due to reduced levels of maturities of short-term securities, which was partially offset by an increase in capital expenditures for equipment.

Net cash provided by financing activities of continuing operations was $1,003,058 for the six months ended September 30, 2006 versus $4,037,146 for the same period last year. The decrease arises from the completion of a private placement of our common stock to an institutional investor during the first quarter last year which was partially offset by increased cash proceeds from the exercise of stock options and warrants during the six months ended September 30, 2006.

We expect to manage our operations and working capital requirements to minimize the future level of operating losses and working capital usage consistent with execution of our business plan; however, we cannot provide assurance that we will be successful in achieving these objectives. We believe our available cash resources are sufficient to fund our expected level of operations for the next several years. We have begun, and expect to continue, to make substantial investments from our available cash and short-term investments for additional human resources, manufacturing facilities and equipment, production and application engineering, among other things. We expect to fund our operations over at least the next several years from existing cash and short-term investment balances and from available bank financing, if any. We cannot, however, provide any assurance that our existing financial resources will be sufficient to execute our business plan. If our existing financial resources are not sufficient to execute our business plan, we may issue equity or debt securities in the future. In the event financing or equity capital to fund future growth is not available on terms acceptable to us, 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 September 30, 2006:

	Payments due by Period
	Total	Less Than        1 Year	2 – 3      Years	4 – 5      Years	More than    5 Years
Long-term debt obligations	$     668,694	95,354	212,197	361,143	-
Operating lease obligations (1)	132,072	132,072	-	-	-
Purchase obligations	1,954,506	1,954,506	-	-	-
Executive employment agreements (2)	2,146,650	541,633	783,067	396,400	425,550
Total	$  4,901,922	2,723,565	995,264	757,543	425,550

(1) Does not include sublease payments of $99,500 over the remaining term of a facility lease.

(2) Includes future salary payments, potential retirement pay, and severance pay obligations.

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 effect 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, 2006 describes the significant accounting policies and methods used in preparation of the consolidated financial statements. Estimates are used for, but not limited to, allowance for doubtful accounts receivables, potential future lease obligations arising from discontinued operations, recoverability of inventories, costs to complete contracts, and fair value and compensation expense arising from share-based compensation. 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. We have established no reserve for potentially uncollectible trade accounts receivable, which is our best estimate of the amount of trade accounts receivable that we believe are uncollectible due to the foregoing factors. It is 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.

Asset Recovery and Realization – Discontinued Operations

In May 2004, we completed the divestiture of equipment and inventory of our electronics product segment. We are the primary obligor on a lease for the facility previously occupied by this divested business. The facility has been subleased at a rental rate below that provided for in the master lease. Accordingly, we have recorded a liability for the difference between these two amounts which totaled $25,946 at September 30, 2006. At this time we believe our currently recorded liabilities for discontinued operations are adequate to cover potential future obligations that may arise. Our estimate of future sublease payments could change materially based on future developments and events. Any change in this estimate could result in a material change in our financial condition and results of operations.

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. In addition we maintain work-in-process and finished goods inventories for the products we manufacture. Accordingly, we periodically assess our inventories for potential impairment of value based on then available information, expectations and estimates and establish impairment reserves for estimated declines in the realizable value. 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 material impairment losses.

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

We recognize revenue on the development projects funded by 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 September 30, 2006 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.

Share-Based Compensation

In the first quarter of fiscal 2007, we adopted SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based payment awards. We use the Black-Scholes-Merton option pricing model to estimate the fair value of employee stock options consistent with the provisions of SFAS No. 123(R). Option pricing models, including the Black-Scholes-Merton model, require the use of input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. We use the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin 107, due to changes in the vesting terms and contractual life of current option grants compared to our historical grants. If we change our option pricing input assumptions based on future events or determine that a different method of determining expected life was more reasonable than our current methods, or if another method for calculating these input assumptions was prescribed by authoritative guidance, the fair value calculated for share-based awards could change significantly.

In addition, SFAS No. 123(R) requires us to develop an estimate of the number of share-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation. Any such adjustments may affect our gross margin, research and development expenses, production engineering and selling, general and administrative expenses. The expense we recognize in future periods could also differ significantly from the current period and/or our forecasts due to changing circumstances.

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

Controls Evaluation and Related CEO and CFO Certifications.

We conducted an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (Disclosure Controls) as defined by Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report. The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Attached as exhibits to this Quarterly Report are certifications of the CEO and the CFO, which are required by Rule 13a-15(b) of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. To the extent that components of our internal control over financial reporting are included within our Disclosure Controls, they are included in the scope of our periodic controls evaluation.

Limitations on the Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our Disclosure Controls or our internal control over financial reporting will prevent all errors and all fraud. Our control system, has been designed to provide reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, the Company’s implementation of the controls and the effect of the controls on the information generated for use in this Quarterly Report. In the course of the controls evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning control effectiveness can be reported in our Quarterly Reports on Form 10-Q and in our Annual Report on Form 10-K. Many of the components of our Disclosure Controls are also evaluated on an ongoing basis by personnel in our finance organization.

The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Among other matters, we also considered whether our evaluation identified any "significant deficiencies" or "material weaknesses" in our internal control over financial reporting, and whether we had identified any acts of fraud involving personnel with a significant role in our internal control over financial reporting. This information was important both for the controls evaluation generally, and because item 5 in the certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board’s Audit Committee and to our independent auditors. In the professional auditing literature, a "significant deficiency" is an internal control deficiency that, alone or in the aggregate with others, results in more than a remote likelihood that a misstatement of a company’s financial statements that is more than inconsequential in amount will not be prevented or detected. Auditing literature defines a "material weakness" as a significant deficiency that, alone or in the aggregate with others, results in more than a remote likelihood that a material misstatement in a company’s financial statements will not be prevented or detected. During the course of our evaluation this quarter, we identified a few internal control procedures that should be changed to improve the effectiveness of our internal controls. We do not believe that any of the internal control procedures we expect to improve represented a material weakness, or is reasonably likely to materially affect, our internal control over financial reporting in a manner requiring disclosure in accordance with Item 308(c) of Regulation S-K.

Conclusions

Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective, at the reasonable assurance level, in: 1) identifying material information required to be disclosed in Exchange Act Reports; 2) providing that material information is recorded, processed, summarized and reported within the time periods specified by the SEC; and 3) providing that material information relating to the Company and its consolidated subsidiaries is made known to management, including the CEO and CFO.

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 there can be no assurance that adverse developments in these matters could not have a material impact on a future reporting period.

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

The annual meeting of our shareholders was held on August 2, 2006. The following is a summary of the matters submitted to a vote of security holders and the results of the voting thereon:

Proposal 1: Election of Directors

	For	Withhold Authority
William G. Rankin	17,045,706	923,967
Ernest H. Drew	17,579,059	390,614
Stephen J. Roy	17,585,159	384,514
Jerome H. Granrud	17,584,269	385,404
Donald W. Vanlandingham	17,585,849	383,824

Proposal 2: Proposal to Ratify the Appointment of Grant Thornton, L.L.P. to Act as Independent Auditors for the Fiscal Year Ending March 31, 2007.

For	Against	Abstain
17,788,713	119,138	61,822

Total Voted Shares Represented in Person and by Proxy:	17,969,673
Outstanding Votable Shares:	25,129,019
Percentage of the Outstanding Votable Shares:	71.51%

ITEM 5. OTHER INFORMATION

Risk Factors

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

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

We have incurred significant net losses. For the quarter and six months ended September 30, 2006 and 2005, our net loss was $879,570 and $1,667,366 and $576,708 and $1,307,513, respectively. Our net loss for each of the last three fiscal years were as follows:

	Fiscal Year Ended March 31,
	2006	2005	2004
Net loss	$ 2,784,970	$ 1,868,896	$ 4,786,953

We have had accumulated deficits as follows:

September 30, 2006	$ 58,464,213
March 31, 2006	$ 56,796,847
March 31, 2005	$ 54,011,877

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

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

Our net loss for the quarter and six months ended September 30, 2006 were $879,570 and $1,667,366 versus a net loss for the comparable quarter and six months last year of $576,708 and $1,307,513, respectively. At September 30, 2006, our cash and short-term investments totaled $8,843,427. If our losses continue, operations could consume some or all of our cash balances. We expect to make additional investments in human resources, manufacturing facilities and equipment, production and application engineering, among other things, in order to compete in conventional markets and the emerging market for hybrid electric vehicles. We cannot assure, however, that our existing cash resources will be sufficient to complete our business plan. Should our existing cash resources be insufficient, we may need to secure additional funding. We cannot assure you, however, that funding will be available on terms acceptable to us, if at all.

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 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.

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. 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. These competitors also have much greater experience in and resources for marketing their products.

If we fail to develop and achieve market acceptance for our products, our business may not grow.

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

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

10.1 Restricted Stock Agreement with William G. Rankin dated August 2, 2006

10.2 Restricted Stock Agreement with Donald A. French dated August 2, 2006

10.3 Incentive Stock Option Agreement with Ronald G. Burton dated August 8, 2006

10.4 Non-Qualified Stock Option Agreement with Ronald G. Burton dated August 8, 2006

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-Oxely Act of 2002

Reports on Form 8-K

Report Regarding the Amendment of the Employment Agreements of William G. Rankin and Donald A. French filed August 7, 2006.

			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:  October 31, 2006
	/s/  Donald A. French
		Donald A. French
		Treasurer
		(Principal Financial and
		Accounting Officer)

EX-10

UQM TECHNOLOGIES, INC.
STOCK bonus PLAN

RESTRICTED STOCK AGREEMENT

THIS RESTRICTED STOCK AGREEMENT made as of this 2^nd day of August, 2006 between UQM TECHNOLOGIES, INC., a Colorado corporation (together with its Affiliated Corporations, except where the context requires otherwise, the "Company"), and William G. Rankin (the "Grantee").

1. Grant of Restricted Stock. Pursuant to the UQM Technologies, Inc. Stock Bonus Plan (the "Plan") and subject to the terms and conditions of this Agreement, the Company hereby grants to the Grantee 70,125 shares of the common stock of the Company (the "Restricted Stock"), effective as of August 2, 2006 (the "Transfer Date"), with a Fair Market Value of $3.20 per share as of the Transfer Date.

2. Restrictions. The Grantee shall not sell, assign, transfer by gift or otherwise, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise, the Shares for the period commencing on the Transfer Date and ending on the dates the restrictions described in Section 3(a) lapse (the "Expiration Date"), except as otherwise provided in Section 3(c) or as otherwise permitted by this Agreement or the terms of the Plan.

3. Vesting; Lapse of Restrictions; Transferability.

(a) General. Except as provided otherwise in this Agreement, if the Grantee has been employed by the Company continuously since the Transfer Date, the Restricted Stock shall vest in increments if the Grantee is still in the employ of the Company on the dates indicated in the following schedule:

Employment Vesting Date	Percentage of Shares That Shall Become Vested on Each Date
August 2, 2007	33 – 1/3 %
August 2, 2008	an additional 33 – 1/3%
August 2, 2009	an additional 33 – 1/3%

The number of shares of Restricted Stock that are vested shall be cumulative, so that once a share of Restricted Stock shall become vested, it shall continue to be vested.

(b) Transfer Upon Lapse of Restrictions. After the restrictions described in Section 2 and subsection 3(a) have lapsed, the Grantee may sell, assign by gift or otherwise, hypothecate, or otherwise dispose of, by operation of law or otherwise, any of the formerly Restricted Stock at the Grantee’s discretion, except that the Grantee agrees that he shall not make any sale or transfer of the formerly Restricted Stock that would conflict with or violate any of the provisions of the Securities Act of 1933 or any applicable state securities laws.

(c) Vesting and Transferability Upon Change in Control. Upon the occurrence of a Change in Control Event, as defined in the Plan, the restrictions set forth in Section 2 and subsection 3(a) shall lapse in their entirety, and the Restricted Stock shall become fully vested and freely transferable as described in subsection 3(b) above, except that the Grantee agrees that he shall not make any sale or transfer of the formerly Restricted Stock that would conflict with or violate any of the provisions of the Securities Act of 1933 or any applicable state securities laws.

4. Termination of Employment.

(a) Death or Disability. If the Grantee terminates employment or services with the Company on account of death or Disability (as defined in the Plan) prior to the lapse of all restrictions, a pro rata portion of the Restricted Stock that would have vested in the 12-month employment vesting period of termination of employment shall become vested based on the ratio between (i) the number of full months of employment completed from August 2 of the period in which the termination of employment occurs to the date of termination of employment and (ii) twelve (12). The Grantee or the Grantee’s personal representative, as the case may be, shall immediately transfer and assign to the Company, without the requirement of any consideration from the Company, all shares of Restricted Stock that have not become vested pursuant to this subsection 4(a).

(b) Retirement. If the Grantee terminates employment with the Company on account of Retirement (as defined in the Plan) prior to the lapse of all restrictions, all shares of the Restricted Stock as to which the restrictions shall not otherwise have lapsed shall become vested.

(c) Other Terminations. If the Grantee ceases performing services for the Company for any reason other than death, Disability, or Retirement prior to the lapse of all restrictions, the Grantee shall immediately transfer and assign to the Company, without the requirement for any consideration from the Company, all shares of Restricted Stock as to which the restrictions have not otherwise lapsed.

5. Delivery of Unvested Shares. If the Grantee or the Grantee’s representative is required to transfer some or all of the shares of Restricted Stock to the Company pursuant to Section 4 hereof, the shares shall be tendered promptly to the Company by the delivery of certificates for such shares, duly endorsed in blank by the Grantee or the Grantee’s representative or with stock powers attached thereto duly endorsed, at the Company’s principal offices, all in form suitable for the transfer of such shares to the Company without the payment of any consideration therefor by the Company. After the time at which any such shares are required to be delivered to the Company for transfer to the Company, the Company shall not pay any dividend to the Grantee on account of such shares or permit the Grantee to exercise any of the privileges or rights of a stockholder with respect to such shares but shall, in so far as permitted by law, treat the Company as owner of such shares.

6. Effect of Prohibited Transfer. If any transfer of Shares is made or attempted to be made contrary to the terms of this Agreement, the Company shall have the right to acquire for its own account, without the payment of any consideration therefor, such shares from the owner thereof or his transferee, at any time before or after such prohibited transfer. In addition to any other legal or equitable remedies it may have, the Company may enforce its rights to specific performance to the extent permitted by law and may exercise such other equitable remedies then available to it. The Company may refuse for any purpose to recognize any transferee who receives shares contrary to the provisions of this Agreement as a stockholder of the Company and may retain and/or recover all dividends on such shares that were paid or payable subsequent to the date on which the prohibited transfer was made or attempted.

7. Enforcement of Restrictions.

(a) Legend. All certificates representing Restricted Stock shall have affixed thereto the following legend:

"The shares of Stock represented by this certificate are subject to all of the terms of a Restricted Stock Agreement between UQM Technologies, Inc. (the "Company") and the registered owner ("Owner") of this Certificate (the "Agreement") and to the terms of the UQM Technologies, Inc. Stock Bonus Plan (the "Plan"). Copies of the Agreement and the Plan are on file at the office of the Company. The Agreement, among other things, limits the right of the Owner to transfer the shares represented by this Certificate and provide in certain circumstances that all or a portion of the shares must be returned to the Company."

(b) Custody of Certificates. The Company may, in its sole discretion, require the Grantee to keep the certificate the shares of Restricted Stock, duly endorsed, in the custody of the Company while the shares are subject to the restrictions contained in Sections 2 and 3. The Company may, in its sole discretion, require the Grantee to keep the certificate the shares of Restricted Stock, duly endorsed, in the custody of a third party while the shares are subject to the restrictions contained in Sections 2 and 3.

8. Adjustments to the Stock.

(a) Adjustment by Stock Split, Stock Dividend, Etc. If at any time the Company increases or decreases the number of its outstanding shares of Company common stock, or changes in any way the rights and privileges of such shares, by means of the payment of a stock dividend or the making of any other distribution on such shares payable in Company common stock, or through a stock split or subdivision of shares, or a consolidation or combination of shares, or through a reclassification or recapitalization involving the Company common stock, the numbers, rights and privileges of the shares of Restricted Stock shall be increased, decreased or changed in like manner as if such shares had been issued and outstanding, fully paid and non-assessable at the time of such occurrence.

(b) General Adjustment Rules. No adjustment or substitution provided for in Section 8 or Section 9 shall require the Company to issue a fractional Share, and the total substitution or adjustment with respect to the Restricted Stock shall be limited by deleting any fractional Share. If the Restricted Stock is covered by Code section 409A, the parties intend that any and all adjustments under this Agreement shall be made in a manner that is consistent with Code section 409A.

9. Reorganization and Change in Control.

(a) Full Vesting. Upon the occurrence of a Change in Control Event (as defined in subsection 9(b)), the Restricted Stock shall become fully vested and transferable regardless of whether all conditions for vesting and transferability relating to length of service have been satisfied.

(b) Change in Control Event. The term "Change in Control Event" shall have the meaning provided in the Plan.

10. Withholding. Upon vesting of any number of the shares of Restricted Stock, the Grantee shall make appropriate arrangements with the Company to make payment to the Company of the amount required to be withheld under applicable federal, state, local, and other tax laws (collectively, "Withholding Taxes"). The Grantee shall pay such Withholding Taxes in cash. If the Grantee has not made arrangements satisfactory to the Company to pay the Withholding Taxes, the Company shall withhold from the Grantee’s pay for the pay periods immediately following the Vesting Date the required Withholding Taxes.

11. Miscellaneous.

(a) Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed:

(i) If to the Company, to UQM Technologies, Inc., Attention: Corporate Secretary, 7501 Miller Drive, Frederick, Colorado 80530, or at such other address as may have been furnished to the Grantee in writing by the Company; or

(ii) If to the Grantee, to the Grantee at UQM Technologies, Inc., 7501 Miller Drive, Frederick, Colorado 80530, or at other address as may have been furnished to the Company by the Grantee.

Any such notice shall be deemed to have been given as of the second day after deposit in the United States mails, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery.

(b) Amendment. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Grantee.

(c) Defined Terms. Capitalized terms shall have the meaning set forth in the Plan or herein, as the case may be.

(d) Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(e) Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Committee appointed under the Plan, but only to the extent permitted under the Plan.

(f) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Grantee and their respective heirs, executors, administrators, legal representatives, successors and assigns.

(g) Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Grantee any right to be retained in the employ of the Company and this Agreement is limited solely to governing the rights and obligations of the Grantee with respect to the Restricted Stock.

(h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

UQM TECHNOLOGIES, INC.
By	__________________________________
		Donald A. French, Treasurer

GRANTEE
	__________________________________
		William G. Rankin

EX-10

UQM TECHNOLOGIES, INC.
STOCK bonus PLAN

RESTRICTED STOCK AGREEMENT

THIS RESTRICTED STOCK AGREEMENT made as of this 2^nd day of August, 2006 between UQM TECHNOLOGIES, INC., a Colorado corporation (together with its Affiliated Corporations, except where the context requires otherwise, the "Company"), and Donald A. French (the "Grantee").

1. Grant of Restricted Stock. Pursuant to the UQM Technologies, Inc. Stock Bonus Plan (the "Plan") and subject to the terms and conditions of this Agreement, the Company hereby grants to the Grantee 52,344 shares of the common stock of the Company (the "Restricted Stock"), effective as of August 2, 2006 (the "Transfer Date"), with a Fair Market Value of $3.20 per share as of the Transfer Date.

2. Restrictions. The Grantee shall not sell, assign, transfer by gift or otherwise, pledge, hypothecate, or otherwise dispose of, by operation of law or otherwise, the Shares for the period commencing on the Transfer Date and ending on the dates the restrictions described in Section 3(a) lapse (the "Expiration Date"), except as otherwise provided in Section 3(c) or as otherwise permitted by this Agreement or the terms of the Plan.

3. Vesting; Lapse of Restrictions; Transferability.

(a) General. Except as provided otherwise in this Agreement, if the Grantee has been employed by the Company continuously since the Transfer Date, the Restricted Stock shall vest in increments if the Grantee is still in the employ of the Company on the dates indicated in the following schedule:

Employment Vesting Date	Percentage of Shares That Shall Become Vested on Each Date
August 2, 2007	33 – 1/3 %
August 2, 2008	an additional 33 – 1/3%
August 2, 2009	an additional 33 – 1/3%

The number of shares of Restricted Stock that are vested shall be cumulative, so that once a share of Restricted Stock shall become vested, it shall continue to be vested.

(b) Transfer Upon Lapse of Restrictions. After the restrictions described in Section 2 and subsection 3(a) have lapsed, the Grantee may sell, assign by gift or otherwise, hypothecate, or otherwise dispose of, by operation of law or otherwise, any of the formerly Restricted Stock at the Grantee’s discretion, except that the Grantee agrees that he shall not make any sale or transfer of the formerly Restricted Stock that would conflict with or violate any of the provisions of the Securities Act of 1933 or any applicable state securities laws.

(c) Vesting and Transferability Upon Change in Control. Upon the occurrence of a Change in Control Event, as defined in the Plan, the restrictions set forth in Section 2 and subsection 3(a) shall lapse in their entirety, and the Restricted Stock shall become fully vested and freely transferable as described in subsection 3(b) above, except that the Grantee agrees that he shall not make any sale or transfer of the formerly Restricted Stock that would conflict with or violate any of the provisions of the Securities Act of 1933 or any applicable state securities laws.

4. Termination of Employment.

(a) Death or Disability. If the Grantee terminates employment or services with the Company on account of death or Disability (as defined in the Plan) prior to the lapse of all restrictions, a pro rata portion of the Restricted Stock that would have vested in the 12-month employment vesting period of termination of employment shall become vested based on the ratio between (i) the number of full months of employment completed from August 2 of the period in which the termination of employment occurs to the date of termination of employment and (ii) twelve (12). The Grantee or the Grantee’s personal representative, as the case may be, shall immediately transfer and assign to the Company, without the requirement of any consideration from the Company, all shares of Restricted Stock that have not become vested pursuant to this subsection 4(a).

(b) Retirement. If the Grantee terminates employment with the Company on account of Retirement (as defined in the Plan) prior to the lapse of all restrictions, all shares of the Restricted Stock as to which the restrictions shall not otherwise have lapsed shall become vested.

(c) Other Terminations. If the Grantee ceases performing services for the Company for any reason other than death, Disability, or Retirement prior to the lapse of all restrictions, the Grantee shall immediately transfer and assign to the Company, without the requirement for any consideration from the Company, all shares of Restricted Stock as to which the restrictions have not otherwise lapsed.

5. Delivery of Unvested Shares. If the Grantee or the Grantee’s representative is required to transfer some or all of the shares of Restricted Stock to the Company pursuant to Section 4 hereof, the shares shall be tendered promptly to the Company by the delivery of certificates for such shares, duly endorsed in blank by the Grantee or the Grantee’s representative or with stock powers attached thereto duly endorsed, at the Company’s principal offices, all in form suitable for the transfer of such shares to the Company without the payment of any consideration therefor by the Company. After the time at which any such shares are required to be delivered to the Company for transfer to the Company, the Company shall not pay any dividend to the Grantee on account of such shares or permit the Grantee to exercise any of the privileges or rights of a stockholder with respect to such shares but shall, in so far as permitted by law, treat the Company as owner of such shares.

6. Effect of Prohibited Transfer. If any transfer of Shares is made or attempted to be made contrary to the terms of this Agreement, the Company shall have the right to acquire for its own account, without the payment of any consideration therefor, such shares from the owner thereof or his transferee, at any time before or after such prohibited transfer. In addition to any other legal or equitable remedies it may have, the Company may enforce its rights to specific performance to the extent permitted by law and may exercise such other equitable remedies then available to it. The Company may refuse for any purpose to recognize any transferee who receives shares contrary to the provisions of this Agreement as a stockholder of the Company and may retain and/or recover all dividends on such shares that were paid or payable subsequent to the date on which the prohibited transfer was made or attempted.

7. Enforcement of Restrictions.

(a) Legend. All certificates representing Restricted Stock shall have affixed thereto the following legend:

"The shares of Stock represented by this certificate are subject to all of the terms of a Restricted Stock Agreement between UQM Technologies, Inc. (the "Company") and the registered owner ("Owner") of this Certificate (the "Agreement") and to the terms of the UQM Technologies, Inc. Stock Bonus Plan (the "Plan"). Copies of the Agreement and the Plan are on file at the office of the Company. The Agreement, among other things, limits the right of the Owner to transfer the shares represented by this Certificate and provide in certain circumstances that all or a portion of the shares must be returned to the Company."

(b) Custody of Certificates. The Company may, in its sole discretion, require the Grantee to keep the certificate the shares of Restricted Stock, duly endorsed, in the custody of the Company while the shares are subject to the restrictions contained in Sections 2 and 3. The Company may, in its sole discretion, require the Grantee to keep the certificate the shares of Restricted Stock, duly endorsed, in the custody of a third party while the shares are subject to the restrictions contained in Sections 2 and 3.

8. Adjustments to the Stock.

(a) Adjustment by Stock Split, Stock Dividend, Etc. If at any time the Company increases or decreases the number of its outstanding shares of Company common stock, or changes in any way the rights and privileges of such shares, by means of the payment of a stock dividend or the making of any other distribution on such shares payable in Company common stock, or through a stock split or subdivision of shares, or a consolidation or combination of shares, or through a reclassification or recapitalization involving the Company common stock, the numbers, rights and privileges of the shares of Restricted Stock shall be increased, decreased or changed in like manner as if such shares had been issued and outstanding, fully paid and non-assessable at the time of such occurrence.

(b) General Adjustment Rules. No adjustment or substitution provided for in Section 8 or Section 9 shall require the Company to issue a fractional Share, and the total substitution or adjustment with respect to the Restricted Stock shall be limited by deleting any fractional Share. If the Restricted Stock is covered by Code section 409A, the parties intend that any and all adjustments under this Agreement shall be made in a manner that is consistent with Code section 409A.

9. Reorganization and Change in Control.

(a) Full Vesting. Upon the occurrence of a Change in Control Event (as defined in subsection 9(b)), the Restricted Stock shall become fully vested and transferable regardless of whether all conditions for vesting and transferability relating to length of service have been satisfied.

(b) Change in Control Event. The term "Change in Control Event" shall have the meaning provided in the Plan.

10. Withholding. Upon vesting of any number of the shares of Restricted Stock, the Grantee shall make appropriate arrangements with the Company to make payment to the Company of the amount required to be withheld under applicable federal, state, local, and other tax laws (collectively, "Withholding Taxes"). The Grantee shall pay such Withholding Taxes in cash. If the Grantee has not made arrangements satisfactory to the Company to pay the Withholding Taxes, the Company shall withhold from the Grantee’s pay for the pay periods immediately following the Vesting Date the required Withholding Taxes.

11. Miscellaneous.

(a) Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed:

(i) If to the Company, to UQM Technologies, Inc., Attention: Corporate Secretary, 7501 Miller Drive, Frederick, Colorado 80530, or at such other address as may have been furnished to the Grantee in writing by the Company; or

(ii) If to the Grantee, to the Grantee at UQM Technologies, Inc., 7501 Miller Drive, Frederick, Colorado 80530, or at other address as may have been furnished to the Company by the Grantee.

Any such notice shall be deemed to have been given as of the second day after deposit in the United States mails, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery.

(b) Amendment. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Grantee.

(c) Defined Terms. Capitalized terms shall have the meaning set forth in the Plan or herein, as the case may be.

(d) Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(e) Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Committee appointed under the Plan, but only to the extent permitted under the Plan.

(f) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Grantee and their respective heirs, executors, administrators, legal representatives, successors and assigns.

(g) Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Grantee any right to be retained in the employ of the Company and this Agreement is limited solely to governing the rights and obligations of the Grantee with respect to the Restricted Stock.

(h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

UQM TECHNOLOGIES, INC.
By	_____________________________
		William G. Rankin, President

GRANTEE
By	_____________________________
		Donald A. French

EX-10

UQM TECHNOLOGIES, INC.
2002 EQUITY INCENTIVE PLAN

INCENTIVE STOCK OPTION AGREEMENT

THIS AGREEMENT made as of this 8th day of August, 2006, between UQM TECHNOLOGIES, INC., a Colorado corporation (together with its Affiliated Corporations, except where the context requires otherwise, the "Company"), and Ronald Burton (the "Option Holder").

1. Grant of Option. Pursuant to the UQM Technologies, Inc. 2002 Equity Incentive Plan (the "Plan") and subject to the terms and conditions of this Agreement, the Company hereby grants to the Option Holder an incentive stock option (the "Option") to purchase 31,250 shares of the common stock of the Company (the "Stock") at an exercise price per share of $3.20 (the "Option Price"). The Option grant shall be effective as of August 2, 2006 (the "Effective Date"). The Option is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

2. Requirements for Exercise; Vesting.

(a) In General. Except as provided otherwise in this Agreement, the Option shall not become exercisable until the Option Holder has completed one full year of continuous employment after the Effective Date. Upon the completion of one full year of continuous employment after the Effective Date, the Option shall become vested and exercisable in increments, if the Option Holder is still in the employ of the Company on the dates indicated in the following schedule:

Percentage of Option

Employment That Shall Become Vested

Vesting Date and Exercisable on Each Date

One year from date of grant 33%

Two years from date of grant an additional 33%

Three years from date of grant an additional 34%

Except as set forth in Section 5 of this Agreement, the Option shall not be exercisable as to any shares of Stock as to which the vesting requirements of this Section 2 shall not be satisfied, regardless of the circumstances under which the Option Holder’s employment by the Company shall be terminated. The number of shares of Stock as to which the Option may be exercised shall be cumulative, so that once the Option shall become vested and exercisable as to any shares of Stock it shall continue to be vested and exercisable as to such shares, until expiration or termination of the Option as provided in Section 6 hereof. If at any time the number of shares of Stock that are covered by the vested and exercisable portion of the Option includes a fractional share, the number of shares of Stock as to which the Option shall be actually vested and exercisable shall be rounded down to the next whole share of Stock.

(b) Accelerated Vesting in Certain Circumstances. The Option Holder shall become 100% vested with respect to the entire Option, and the entire Option shall become exercisable, upon a reorganization or change in control of the Company (as defined in Section 5(b) below).

3. Method for Exercising the Option. The Option may be exercised only by delivery of written notice of exercise, together with payment of the Option Price as provided below, in person or through certified or registered mail, fax or overnight delivery to the Company at the following address: UQM Technologies, Inc., Attention: Corporate Secretary, 425 Corporate Circle, Golden, Colorado 80401, or such other address as shall be furnished in writing to the Option Holder by the Company. Such written notice shall specify that the Option is being exercised, and the number of shares of Stock with respect to which the Option is exercised, the Option Price shall be paid no later than 30 days after the notice of exercise is delivered. The Option shall be exercised only when the Option Price is paid in full.

The Company intends to register the shares of Stock subject to this Option and this Option on a Form S-8 Registration Statement (or any successor or replacement Form). Notwithstanding such registration, the Company may require the Option Holder, as a condition of exercise of this Option, to give written assurance in substance and form satisfactory to the Company and its counsel to the effect that the Option Holder is acquiring the Stock for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and state securities laws. Legends evidencing such restrictions may be placed on the Stock certificates.

The purchase of such Stock shall take place at the address of the Company set forth above upon delivery of a notice of exercise that specifies the number of shares with respect to which the Option is being exercised and payment of the Option Price for the Stock in full, within 30 days of the delivery of the notice of exercise, (i) by certified or cashier’s check payable to the Company’s order, or (ii) by wire transfer to such account as may be specified by the Company for this purpose, or (iii) by delivery to the Company of certificates representing the number of shares of Stock then owned by the Option Holder, the Fair Market Value of which equals the Option Price of the Stock to be purchased pursuant to the Option, properly endorsed for transfer to the Company; provided, however, that no Option may be exercised by delivery to the Company of certificates representing Stock, unless such Stock has been held by the Option Holder for more than six (6) months, or (iv) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder required to pay the Option Price; provided, however, that if the Option Holder is subject to the Sarbanes-Oxley Act of 2002, the Option Price shall not be paid with the proceeds of a loan. For purposes of this Option, the Fair Market Value of any shares of Stock delivered in payment of the Option Price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price.

Upon such notice to the Company and payment of the Option Price, the exercise of the Option shall be deemed to be effective, and a properly executed certificate or certificates representing the Stock so purchased shall be issued by the Company and delivered to the Option Holder.

4. Adjustment of the Option.

(a) Adjustment by Stock Split, Stock Dividend, Etc. If at any time the Company increases or decreases the number of its outstanding shares of Stock, or changes in any way the rights and privileges of such shares, by means of the payment of a stock dividend or the making of any other distribution on such shares payable in Stock, or through a Stock split or subdivision of shares, or a consolidation or combination of shares, or through a reclassification or recapitalization involving the Stock, the numbers, rights and privileges of the shares of Stock included in the Option shall be increased, decreased or changed in like manner as if such shares had been issued and outstanding, fully paid and non- assessable at the time of such occurrence.

(b) Other Distributions and Changes in the Stock. If the Company shall at any time distribute with respect to the Stock assets or securities of persons other than the Company (excluding cash or distributions referred to in subsection (a)) or grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or there shall be any other change (except as described in subsection (a)) in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that the event equitably requires an adjustment in the number or kind of shares subject to the Option, an adjustment to the Option Price, or the taking of any other action by the Committee, including without limitation, the setting aside of any property for delivery to the Option Holder upon the exercise of the Option, then such adjustment shall be made, or other actions taken, by the Committee and shall be effective for all purposes of this Agreement.

(c) Apportionment of Option Price. Upon any occurrence described in the preceding subsections (a) and (b), the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged and shall be apportioned ratably over the increased or decreased number or changed kinds of securities or other properties subject to the Option. Any fractional shares resulting from any of the foregoing adjustments shall be disregarded and eliminated from this Option.

(d) General Adjustment Rules. No adjustment or substitution provided for in Section 4 or Section 5 shall require the Company to sell a fractional Share under any Option, or otherwise issue a fractional Share, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional Share. In the case of any such substitution or adjustment, the aggregate Option Price for the total number of Shares then subject to an Option shall remain unchanged but the Option Price per Share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of Shares or other securities into which the Stock subject to the Option may have been changed and all such adjustments shall be completed pursuant to the rules of Code section 424 and the regulations promulgated thereunder. If the Option is covered by Code section 409A, any and all adjustments under this Agreement shall be made in a manner that is consistent with Code section 409A.

5. Reorganization and Change in Control.

(a) Full Vesting; Termination; Assumption or Substitution. Upon the occurrence of a Corporate Transaction (as defined in subsection 5(c)), the Option shall become fully exercisable regardless of whether all conditions of exercise relating to length of service have been satisfied. The Committee may also provide for the assumption or substitution of the Option by the surviving entity as described in subsection 5(b) and make any other provision for the Option as the Committee deems appropriate in its sole discretion. The Committee may provide that any portion of the Option that outstanding at the time the Corporate Transaction is closed shall expire at the time of the closing, as the Committee determines in its sole discretion.

(b) Assumption or Substitution. The Company, or the successor or purchaser, as the case may be, may make adequate provision for the assumption of the Option or the substitution of a new option for the outstanding Option on terms comparable to the Option.

(c) Corporate Transaction. A Corporate Transaction shall include the following:

(i) Merger; Reorganization: the merger or consolidation of the Company with or into another corporation or other reorganization (other than a reorganization under the United States Bankruptcy Code) of the Company (other than a consolidation, merger, or reorganization in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding Shares); or

(ii) Sale: the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company) or the sale of more than 50% of the outstanding voting stock of the Company; or

(iii) Liquidation: the dissolution or liquidation of the Company; or

(iv) Change in Control: a "Change in Control" shall be deemed to have occurred if at any time during any period of two consecutive years (including any period prior to the Effective Date of the Plan), individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of all directors at any time during such period; or

(v) Other Transactions: any other transaction that the Board determines by resolution to be a Corporate Transaction.

Notwithstanding anything to the contrary in this Section 5 to the contrary, no Option or other Award will become exercisable and/or vested by virtue of the occurrence of a Corporate Transaction if the Participant or any group of which such Participant is a member of the person whose acquisition constituted the Corporate Transaction.

6. Expiration and Termination of the Option. The Option shall expire on the fifth (5^th) anniversary of the Effective Date, (the period from the Effective Date to the expiration date is the "Option Period") or prior to such time as follows:

(a) Termination for Cause. If the Option Holder’s employment by the Company is terminated for "cause," as determined by the Company, within the Option Period, the entire Option, whether or not vested, shall become void, shall be forfeited and shall terminate immediately upon the termination of employment of the Option Holder. For this purpose, "cause" shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures.

(b) Termination on Account of Disability. If the Option Holder becomes Disabled, the Option may be exercised by the Option Holder within one year following the Option Holder’s termination of services on account of Disability (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder’s termination of services.

(c) Death. If the Option Holder dies during the Option Period while still employed by or performing services for the Company or within the one year period referred to in (b) above or the three (3) month period referred to in (d) or (e) below, the Option may be exercised by those entitled to do so under the Option Holder’s will or by the laws of descent and distribution within one year following the Option Holder’s death (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder’s death.

(d) Retirement. If the Option Holder terminates employment during the Option Period on account of Retirement, the Option may be excused by the Option Holder within three (3) months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option shall become fully vested and may be exercised as to all Shares remaining subject to the Option on the date of Retirement. Retirement shall mean termination of services on or after the Option Holder’s 65^th birthday or pursuant to an early retirement provision in an employment agreement between the Company and the Option Holder.

(e) Termination for Other Reasons. If the services of the Option Holder are terminated (which for this purpose means that the Option Holder is no longer employed by the Company or performing services for the Company) within the Option Period for any reason other than cause, Disability, or death, the Option may be exercised by the Option Holder within three (3) months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of services.

7. Transferability. The Option may not be transferred except by will or pursuant to the laws of descent and distribution, and it shall be exercisable during the Option Holder’s life only by him, or in the event of Disability or incapacity, by his guardian or legal representative, and after his death, only by those entitled to do so under his will or the applicable laws of descent and distribution. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or any right or privilege granted hereunder, or upon the levy of any attachment or similar process upon the rights and privileges herein conferred, the Option and the rights and privileges hereunder shall become immediately null and void.

8. Limitation of Rights. The Option Holder or his successor shall have no rights as a stockholder with respect to the shares of Stock covered by this Option until the Option Holder or his successors become the holder of record of such shares.

9. Stock Reserve. The Company shall at all times during the term of this Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement, and the Company shall pay all original issue taxes (if any) on the exercise of the Option, and all other fees and expenses necessarily incurred by the Company in connection therewith.

10. Withholding. The issuance of Stock pursuant to the exercise of this Option shall be subject to the requirement that the Option Holder shall make appropriate arrangements with the Company to provide for the amount of additional income and other tax withholding applicable to the exercise of the Option.

11. Miscellaneous.

(a) Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed:

(i) If to the Company, to UQM Technologies, Inc., Attention: Corporate Secretary, 7501 Miller Drive, Frederick, Colorado 80530, or at such other address as may have been furnished to the Option Holder in writing by the Company; or

(ii) If to the Option Holder, to the Option Holder at UQM Technologies, Inc., 7501 Miller Drive, Frederick, Colorado 80530, or at other address as may have been furnished to the Company by the Option Holder.

Any such notice shall be deemed to have been given as of the second day after deposit in the United States mails, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery.

(b) Amendment. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Option Holder.

(c) Defined Terms. Capitalized terms shall have the meaning set forth in the Plan or herein, as the case may be.

(d) Compliance with Securities Laws. This Agreement shall be subject to the requirement that if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of such shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or obtain such listing, registration or qualification.

(e) Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(f) Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Committee appointed under the Plan, but only to the extent permitted under the Plan.

(g) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Option Holder and their respective heirs, executors, administrators, legal representatives, successors and assigns.

(h) Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Option Holder any right to be retained in the employ of the Company and this Agreement is limited solely to governing the rights and obligations of the Option Holder with respect to the Stock and the Option.

(i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

UQM TECHNOLOGIES, INC.
By	_________________________________
		Donald A. French, Treasurer

OPTION HOLDER
	_________________________________
		Ronald Burton

EX-10

UQM TECHNOLOGIES, INC.
2002 EQUITY INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT made as of this 8th day of August, 2006, between UQM TECHNOLOGIES, INC., a Colorado corporation (together with its Affiliated Corporations, except where the context requires otherwise, the "Company"), and Ronald Burton (the "Option Holder").

1. Grant of Option. Pursuant to the UQM Technologies, Inc. 2002 Equity Incentive Plan (the "Plan") and subject to the terms and conditions of this Agreement, the Company hereby grants to the Option Holder a non-qualified option (the "Option") to purchase 57,868 shares of the common stock of the Company (the "Stock") at an exercise price per share of $3.20 (the "Option Price"). The Option grant shall be effective as of August 2, 2006 (the "Effective Date"). The Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

2. Requirements for Exercise; Vesting.

(a) In General. Except as provided otherwise in this Agreement, the Option shall not become exercisable until the Option Holder has completed one full year of continuous employment after the Effective Date. Upon the completion of one full year of continuous employment after the Effective Date, the Option shall become vested and exercisable in increments, if the Option Holder is still in the employ of the Company on the dates indicated in the following schedule:

Employment
Vesting Date Percentage of Option
That Shall Become Vested
and Exercisable on Each Date

One year from date of grant 33%

Two years from date of grant an additional 33%

Three years from date of grant an additional 34%

Except as set forth in Sections 5 and 6 of this Agreement, the Option shall not be exercisable as to any shares of Stock as to which the vesting requirements of this Section 2 shall not be satisfied, regardless of the circumstances under which the Option Holder’s employment by the Company shall be terminated. The number of shares of Stock as to which the Option may be exercised shall be cumulative, so that once the Option shall become vested and exercisable as to any shares of Stock it shall continue to be vested and exercisable as to such shares, until expiration or termination of the Option as provided in Section 6 hereof. If at any time the number of shares of Stock that are covered by the vested and exercisable portion of the Option includes a fractional share, the number of shares of Stock as to which the Option shall be actually vested and exercisable shall be rounded down to the next whole share of Stock.

(b) Accelerated Vesting in Certain Circumstances. The Option Holder shall become 100% vested with respect to the entire Option, and the entire Option shall become exercisable, upon a reorganization or change in control of the Company (as defined in Section 5(b) below).

3. Method for Exercising the Option. The Option may be exercised only by delivery of written notice of exercise, together with payment of the Option Price as provided below, in person or through certified or registered mail, fax or overnight delivery to the Company at the following address: UQM Technologies, Inc., Attention: Corporate Secretary, 425 Corporate Circle, Golden, Colorado 80401, or such other address as shall be furnished in writing to the Option Holder by the Company. Such written notice shall specify that the Option is being exercised, and the number of shares of Stock with respect to which the Option is exercised, the Option Price shall be paid no later than 30 days after the notice of exercise is delivered. The Option shall be exercised only when the Option Price is paid in full.

The Company intends to register the shares of Stock subject to this Option and this Option on a Form S-8 Registration Statement (or any successor or replacement Form). Notwithstanding such registration, the Company may require the Option Holder, as a condition of exercise of this Option, to give written assurance in substance and form satisfactory to the Company and its counsel to the effect that the Option Holder is acquiring the Stock for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and state securities laws. Legends evidencing such restrictions may be placed on the Stock certificates.

The purchase of such Stock shall take place at the address of the Company set forth above upon delivery of a notice of exercise that specifies the number of shares with respect to which the Option is being exercised and payment of the Option Price for the Stock in full, within 30 days of the delivery of the notice of exercise, (i) by certified or cashier’s check payable to the Company’s order, or (ii) by wire transfer to such account as may be specified by the Company for this purpose, or (iii) by delivery to the Company of certificates representing the number of shares of Stock then owned by the Option Holder, the Fair Market Value of which equals the Option Price of the Stock to be purchased pursuant to the Option, properly endorsed for transfer to the Company; provided, however, that no Option may be exercised by delivery to the Company of certificates representing Stock, unless such Stock has been held by the Option Holder for more than six (6) months, or (iv) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder required to pay the Option Price; provided, however, that if the Option Holder is subject to the Sarbanes-Oxley Act of 2002, the Option Price shall not be paid with the proceeds of a loan. For purposes of this Option, the Fair Market Value of any shares of Stock delivered in payment of the Option Price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price.

Upon such notice to the Company and payment of the Option Price, the exercise of the Option shall be deemed to be effective, and a properly executed certificate or certificates representing the Stock so purchased shall be issued by the Company and delivered to the Option Holder.

4. Adjustment of the Option.

(a) Adjustment by Stock Split, Stock Dividend, Etc. If at any time the Company increases or decreases the number of its outstanding shares of Stock, or changes in any way the rights and privileges of such shares, by means of the payment of a stock dividend or the making of any other distribution on such shares payable in Stock, or through a Stock split or subdivision of shares, or a consolidation or combination of shares, or through a reclassification or recapitalization involving the Stock, the numbers, rights and privileges of the shares of Stock included in the Option shall be increased, decreased or changed in like manner as if such shares had been issued and outstanding, fully paid and non-assessable at the time of such occurrence.

(b) Other Distributions and Changes in the Stock. If the Company shall at any time distribute with respect to the Stock assets or securities of persons other than the Company (excluding cash or distributions referred to in subsection (a)) or grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or there shall be any other change (except as described in subsection (a)) in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that the event equitably requires an adjustment in the number or kind of shares subject to the Option, an adjustment to the Option Price, or the taking of any other action by the Committee, including without limitation, the setting aside of any property for delivery to the Option Holder upon the exercise of the Option, then such adjustment shall be made, or other actions taken, by the Committee and shall be effective for all purposes of this Agreement.

(c) Apportionment of Option Price. Upon any occurrence described in the preceding subsections (a) and (b), the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged and shall be apportioned ratably over the increased or decreased number or changed kinds of securities or other properties subject to the Option. Any fractional shares resulting from any of the foregoing adjustments shall be disregarded and eliminated from this Option.

(d) General Adjustment Rules. No adjustment or substitution provided for in Section 4 or Section 5 shall require the Company to sell a fractional Share under any Option, or otherwise issue a fractional Share, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional Share. In the case of any such substitution or adjustment, the aggregate Option Price for the total number of Shares then subject to an Option shall remain unchanged but the Option Price per Share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of Shares or other securities into which the Stock subject to the Option may have been changed and all such adjustments shall be completed pursuant to the rules of Code section 424 and the regulations promulgated thereunder. If the Option is covered by Code section 409A, any and all adjustments under this Agreement shall be made in a manner that is consistent with Code section 409A.

5. Reorganization and Change in Control.

(a) Full Vesting; Termination; Assumption or Substitution. Upon the occurrence of a Corporate Transaction (as defined in subsection 5(c)), the Option shall become fully exercisable regardless of whether all conditions of exercise relating to length of service have been satisfied. The Committee may also provide for the assumption or substitution of the Option by the surviving entity as described in subsection 5(b) and make any other provision for the Option as the Committee deems appropriate in its sole discretion. The Committee may provide that any portion of the Option that outstanding at the time the Corporate Transaction is closed shall expire at the time of the closing, as the Committee determines in its sole discretion.

(b) Assumption or Substitution. The Company, or the successor or purchaser, as the case may be, may make adequate provision for the assumption of the Option or the substitution of a new option for the outstanding Option on terms comparable to the Option.

(c) Corporate Transaction. A Corporate Transaction shall include the following:

(i) Merger; Reorganization: the merger or consolidation of the Company with or into another corporation or other reorganization (other than a reorganization under the United States Bankruptcy Code) of the Company (other than a consolidation, merger, or reorganization in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding Shares); or

(ii) Sale: the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (other than a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company) or the sale of more than 50% of the outstanding voting stock of the Company; or

(iii) Liquidation: the dissolution or liquidation of the Company; or

(iv) Change in Control: a "Change in Control" shall be deemed to have occurred if at any time during any period of two consecutive years (including any period prior to the Effective Date of the Plan), individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of all directors at any time during such period; or

(v) Other Transactions: any other transaction that the Board determines by resolution to be a Corporate Transaction.

Notwithstanding anything to the contrary in this Section 5 to the contrary, no Option or other Award will become exercisable and/or vested by virtue of the occurrence of a Corporate Transaction if the Participant or any group of which such Participant is a member of the person whose acquisition constituted the Corporate Transaction.

6. Expiration and Termination of the Option. The Option shall expire on the fifth (5th) anniversary of the Effective Date, (the period from the Effective Date to the expiration date is the "Option Period") or prior to such time as follows:

(a) Termination for Cause. If the Option Holder’s employment by the Company is terminated for "cause," as determined by the Company, within the Option Period, the entire Option, whether or not vested, shall become void, shall be forfeited and shall terminate immediately upon the termination of employment of the Option Holder. For this purpose, "cause" shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures.

(b) Termination on Account of Disability. If the Option Holder becomes Disabled, the Option may be exercised by the Option Holder within one year following the Option Holder’s termination of services on account of Disability (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder’s termination of services.

(c) Death. If the Option Holder dies during the Option Period while still employed by or performing services for the Company or within the one year period referred to in (b) above or the twelve (12) month period referred to in (d) or (e) below, the Option may be exercised by those entitled to do so under the Option Holder’s will or by the laws of descent and distribution within one year following the Option Holder’s death (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder’s death.

(d) Retirement. If the Option Holder terminates employment during the Option Period on account of Retirement, the Option may be exercised by the Option Holder within twelve (12) months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option shall become fully vested and may be exercised as to all Shares remaining subject to the Option on the date of Retirement. Retirement shall mean termination of services on or after the Option Holder’s 65th birthday or pursuant to an early retirement provision in an employment agreement between the Company and the Option Holder.

(e) Termination for Other Reasons. If the services of the Option Holder are terminated (which for this purpose means that the Option Holder is no longer employed by the Company or performing services for the Company) within the Option Period for any reason other than cause, Disability, death, or Retirement, the Option may be exercised by the Option Holder within twelve (12) months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of services.

7. Transferability.

(a) In General: No Lifetime Transfers. Except as provided in subsection (b) below, the Option may not be transferred except by will or pursuant to the laws of descent and distribution, and it shall be exercisable during the Option Holder’s life only by him, or in the event of Disability or incapacity, by his guardian or legal representative, and after his death, only by those entitled to do so under his will or the applicable laws of descent and distribution. Except as specifically provided herein, upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or any right or privilege granted hereunder, or upon the levy of any attachment or similar process upon the rights and privileges herein conferred, the Option and the rights and privileges hereunder shall become immediately null and void.

(b) InterVivos Transfer to Certain Family Members. The Option Holder may transfer the Option to a member of the Option Holder’s immediate family, a trust of which members of the Option Holder’s immediate family are the only beneficiaries, or a partnership of which members of the Option Holder’s immediate family or trusts for the sole benefit of the Option Holder’s immediate family are the only partners (the "InterVivos Transferee"). Immediate family means the Option Holder’s spouse, issue (by birth or adoption), parents, grandparents, siblings (including half brothers and sisters and adopted siblings) and nieces and nephews. No transfer shall be effective unless the Option Holder shall have notified the Company of the transfer in writing and has furnished a copy of the documents that effect the transfer to the Company. The InterVivos Transferee shall be subject to all of the terms of this Agreement and the Plan, including, but not limited to, the vesting schedule, termination provisions, and the manner in which the Option may be exercised. The Option Holder and the InterVivos Transferee shall enter into an appropriate agreement with the Company providing for, among other things, the satisfaction of required tax withholding with respect to the exercise of the transferred Option and the satisfaction of any Stock retention requirements applicable to the Option Holder, together with such other terms and conditions as may be specified by the Committee. Except to the extent provided otherwise in such agreement, the InterVivos Transferee shall have all of the rights and obligations of the Option Holder under this Agreement and the Plan; provided that the InterVivos Transferee shall not have any Stock withheld to pay withholding taxes pursuant to Section 17.2 of the Plan unless the agreement referred to in the preceding sentence specifically provides otherwise.

8. Limitation of Rights. The Option Holder or his successor shall have no rights as a stockholder with respect to the shares of Stock covered by this Option until the Option Holder or his successors become the holder of record of such shares.

9. Stock Reserve. The Company shall at all times during the term of this Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement, and the Company shall pay all original issue taxes (if any) on the exercise of the Option, and all other fees and expenses necessarily incurred by the Company in connection therewith.

10. Withholding. The issuance of Stock pursuant to the exercise of this Option shall be subject to the requirement that the Option Holder shall make appropriate arrangements with the Company to provide for the amount of additional income and other tax withholding applicable to the exercise of the Option.

11. Miscellaneous.

(a) Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed:

(i) If to the Company, to UQM Technologies, Inc., Attention: Corporate Secretary, 7501 Miller Drive, Frederick, Colorado 80530, or at such other address as may have been furnished to the Option Holder in writing by the Company; or

(ii) If to the Option Holder, to the Option Holder at UQM Technologies, Inc., 7501 Miller Drive, Frederick, Colorado 80530, or at other address as may have been furnished to the Company by the Option Holder.

Any such notice shall be deemed to have been given as of the second day after deposit in the United States mails, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery.

(b) Amendment. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Option Holder.

(c) Defined Terms. Capitalized terms shall have the meaning set forth in the Plan or herein, as the case may be.

(d) Compliance with Securities Laws. This Agreement shall be subject to the requirement that if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of such shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or obtain such listing, registration or qualification.

(e) Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(f) Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Committee appointed under the Plan, but only to the extent permitted under the Plan.

(g) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Option Holder and their respective heirs, executors, administrators, legal representatives, successors and assigns.

(h) Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Option Holder any right to be retained in the employ of the Company and this Agreement is limited solely to governing the rights and obligations of the Option Holder with respect to the Stock and the Option.

(i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

UQM TECHNOLOGIES, INC.
By	__________________________________
		Donald A. French, Treasurer

OPTION HOLDER
By	____________________________
		Ronald Burton

EX-31

Exhibit 31.1

Certification

I, William G. Rankin, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of UQM Technologies, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
	c.	Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: October 31, 2006			/s/ William G. Rankin
				William G. Rankin
				Chairman, President and
				Chief Executive Officer

EX-31

Exhibit 31.2

Certification

I, Donald A. French, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of UQM Technologies, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
	c.	Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: October 31, 2006			/s/ Donald A. French
				Donald A. French
				Treasurer, Secretary and
				Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of UQM Technologies, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that; 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ William G. Rankin
	William G. Rankin
	Chairman, President and Chief Executive Officer

/s/ Donald A. French
	Donald A. French
	Treasurer, Secretary and Chief Financial Officer

Dated: October 31, 2006