Explanatory Statement:

UQM Technologies, Inc. (“UQM” or the “Company”) is filing this Amendment No. 1 on Form 10-K/A this “Amendment No. 1” to amend our Annual Report on Form 10-K for the year ended December 31, 2018, initially filed with the U.S. Securities and Exchange Commission on March 27,  2019  (the “Original Form 10-K”). This Amendment No. 1 includes information required by Part III of Form 10-K (Items 10, 11, 12, 13, and 14). Our Original Form 10-K stated that information required by these Items would be incorporated by reference to the Company’s definitive proxy statement for the 2019 Annual Meeting of Shareholders, which was to be filed with the Securities and Exchange Commission on or before April 30, 2019.  We are filing this Amendment No. 1 to include this information because we will not be able to file the definitive proxy statement by such date.

This Amendment No. 1 amends and restates Items 10, 11, 12, 13, and 14 of Part III of the Original Form 10-K. No other items in the Original Form 10-K are amended hereby. This amendment does not change any previously reported financial results, modify or update disclosures in the Original Form 10-K, or reflect events occurring after the date of the Original Form 10-K other than compensation decisions and award grants made following the end of the reported period. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications of our principal executive officer and principal financial officer are being filed as exhibits (Item 15) to this Amendment No. 1.

Table of Contents

PART III

Item 10.Directors, Executive Officers and Corporate Governance

DIRECTORS

Pursuant to the bylaws of the Company, the Board of Directors (the “Board”) or shareholders set the number of directors.  The Board currently consists of five members. The Board is not classified, and each director serves for a term of one year and thereafter until his successor is duly elected and qualified.  Below is a list of our directors, their ages, committee assignments and business experience.

We have provided below information about each director’s specific experience, qualifications, attributes or skills that led our Board to conclude, in light of our business and corporate strategy, that such individual should serve as a director of the Company at the time of their election in October 2019.  

Mr. Vanlandingham, our Chairman, has been an independent director of the Company for 16 years.  He brings many years of leadership and management experience as Chairman and Chief Executive Officer of a major technology and manufacturing company to his role on the Board.  With experience in overseeing development of technology and complex equipment with attention to development schedules, production, quality, business development and budgets, he brings valuable insight to the Board as it oversees the Company’s operations and strategy.

Mr. Mitchell is our President and Chief Executive Officer.  Mr. Mitchell has over 28 years of experience in the automotive sector with particular focus in operations and quality, and over 18 years of experience in hybrid electric automotive applications.  Mr. Mitchell brings operational and management experience specific to UQM’s business and is a recognized leader in the electric propulsion industry.

Mr. Roy has been an independent director of the Company for over 17 years.  With over 30 years of investment banking experience and over ten years’ experience as a principal and co-founder of a private equity business, Mr. Roy brings valuable insight to the Company in finance and accounting, capital markets, business analysis and strategy.  Mr. Roy has the financial background and skills to serve as our “audit committee financial expert.”

Mr. Sellinger has been an independent director of the Company since 2008.  He brings extensive senior management experience with a major manufacturing company to his role on the Board.  From his experience running a high volume manufacturing business with annual sales in excess of $1 billion, he provides valuable insight to the Board on operations, planning and implementation of strategy, risk management and other issues as the Company launches volume production of its products.

Mr. Sztykiel has been an independent director of the Company since 2012.  Mr. Sztykiel was the Chief Executive Officer of a manufacturer of trucks and truck components for 12 years.  In this capacity, Mr. Sztykiel has extensive senior management and marketing experience in the North American truck market. Mr. Sztykiel’s extensive management experience in a manufacturing company servicing the truck market provides valuable insight to the Board on strategy, marketing and manufacturing of the Company’s products.

No family relationship exists between any director, executive officer, significant employee or person nominated or chosen by the Company to become a director or executive officer.  There are no arrangements or understandings between any director and any other person pursuant to which any director was nominated or serves as a director.

During the year ended December 31, 2018, the Board held nine meetings. Each incumbent director attended or participated in more than 80 percent of the meetings of the Board and Board committees on which he served during the period he was a director.  Participation at meetings was sometimes by telephone, as authorized under Colorado law.  The Company encourages directors to attend the Annual Meeting of Shareholders each year.  The independent directors serving on the Board periodically meet as a group without management present.  At the 2018 Annual Meeting of Shareholders held October 17, 2018, all members of the Board attended.  None of the directors listed above have been involved during the last ten years in any legal proceedings required to be disclosed under Item 401(f) of Regulation S-K and that are material to an evaluation of the ability or integrity of that person to serve as a director of the Company.

Code of Ethics

The Company has adopted a Code of Business Conduct Ethics that applies to all directors, officers, employees, consultants, representatives and agents. The Code of Business Conduct Ethics is available on our website at www.uqm.com “Investors – Corporate Governance.”  If the Company makes any substantive amendments to the Code of Business Conduct Ethics or grants any waiver from a provision of the code to any executive officer or director, the Company will promptly disclose the nature of the amendment or waiver on its website.

Committees of the Board

Our Board has three standing committees – the Audit Committee,  the Compensation Committee, and the Governance and Nominating Committee.  Each of the Audit, Compensation and Governance and Nominating committees is comprised entirely of independent directors and is led by a committee chair.  All of our independent directors are encouraged to, and do, actively participate in the development of the Company’s business strategy in collaboration with the Chief Executive Officer and in the general oversight of the Company’s operations and financial affairs.

Mr. Roy serves as the committee chair of the Audit Committee. The Audit Committee has a written charter adopted by the Board that specifies its duties including assisting the Board in its general oversight of the Company’s financial

reporting, internal controls and audit functions, and its direct responsibility for the appointment, retention, compensation and oversight of the independent auditors.  A copy of the Company’s Audit Committee charter is available on our website at www.uqm.com “Investors – Corporate Governance”.  The Audit Committee consists of three directors, Messrs. Roy, Sellinger and Sztykiel, and met four times during the year ending December 31, 2018.  All members of the Audit Committee are independent directors as defined in applicable rules of the NYSE American Stock Exchange and the Securities and Exchange Commission (“SEC”).  The Board has determined that Mr. Roy meets the qualifications of an “audit committee financial expert” in accordance with SEC rules.    

Mr. Sztykiel serves as the committee chair of the Governance and Nominating Committee. The Governance and Nominating Committee considers such matters as whether the size and composition of the Board is appropriate in the context of the Company’s business operations, monitors and addresses issues related to corporate governance and suggests changes when it deems appropriate and oversees the annual assessment of Board performance.  The Governance and Nominating Committee has a written charter specifying its responsibilities.  The Governance and Nominating Committee consists of three directors, Messrs. Sellinger, Sztykiel and Vanlandingham and met five times during the year ending December 31, 2018.  All members of the Governance and Nominating Committee are independent directors as defined in applicable rules of the NYSE American Stock Exchange.  

Mr. Sellinger serves as the committee chair of the Compensation Committee.  The Compensation Committee reviews the performance and compensation of the Company’s Chief Executive Officer and administers the 2012 Equity Incentive Plan, Employee Stock Purchase Plan, Non-Employee Director Stock Option Plan and Stock Bonus Plan.  The Compensation Committee consists of three directors, Messrs. Roy, Sellinger and Vanlandingham, and met four times during the year ending December 31, 2018.  All members of the Compensation Committee are independent directors as defined in applicable rules of the NYSE American and the SEC.  The Compensation Committee has a written charter specifying its responsibilities which is available on our website at www.uqm.com “Investors – Corporate Governance.”

Compensation Committee Interlocks and Insider Participation

Messrs. Roy, Sellinger and Vanlandingham were members of the Compensation Committee during the year ending December 31, 2018. All members of the Compensation Committee were independent directors, and no member was an employee or former employee of the Company. During the year ending December 31, 2018, none of the Company’s executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on the Board or the Compensation Committee.

The executive officers of the Company are:

Our business strategy is also comprisedDirector of the following:

ProductsOperations and Hybrid Drive Segment Manager for Siemens VDO. Prior to that, Mr. Mitchell held a series of manufacturing and quality positions at Ballard Power Systems and Ford Motor Company.

We offerDavid I. Rosenthal joined the Company as Treasurer, Secretary and Chief Financial Officer on May 1, 2013.  From March 2011 until joining the Company, Mr. Rosenthal was a full rangefinancial consultant for start-up and turnaround companies. From February 2010 until February 2011, Mr. Rosenthal was Interim President and Chief Executive Officer of motorsCyanotech Corporation, a publicly-traded manufacturer of nutritional supplement products.  Mr. Rosenthal served as a director of Cyanotech from August 2000 until September 2011.  From May 2008 until March 2009, Mr. Rosenthal served as Chief Financial Officer for Hickory Farms and controllers for electric, hybrid electric, plug-in hybrid electric and fuel cell electric commercial trucks, vans, buses and automobiles.  Our current core electric propulsion products are:from June 2007 until November 2007 served as Chief Financial Officer of Sanz, Inc., both portfolio companies of the private equity firm Sun Capital Partners.

Under Section 16(a) of the Exchange Act, the Company’s directors, its executive (and certain other) officers, and any persons holding more than ten percent of the Company’s common stock are required to report their ownership of the Company’s common stock and any changes in that ownership to the SEC.  The Company is required to report in this Annual Report any failure to file timely reports with the SEC  during the year ending December 31, 2018.  Based solely on its review of Form 3, Form 4 and Form 5 filings, the Company believes that all required Section 16(a) reports were filed timely during the year ending December 31, 2018.

Compensation Philosophy and Objectives

Our executive compensation program is designed to attract, motivate and retain highly qualified executives, while providing performance-based incentives for the attainment of strategic business objectives, rewarding superior performance and aligning the interests of our executives with those of our shareholders.

Our management compensation program has three primary components:

Product Development ActivitiesThe minimum base pay component of executive compensation is specified in an employment agreement with each of our executive officers.  Bonus payments are performance-based payments that are payable annually in cash. Long-term equity-based incentive awards consist of shares of the Company’s common stock, stock options to acquire shares of the Company’s common stock or a combination of both. 

We continue to develop new variationsBonus payments and long-term incentive grants are determined by the Compensation Committee based principally on objective criteria consisting of each executive officer’s achievement of personal and Company-wide goals.  Payments of bonus awards each year are based on a retrospective review of the prior year’s performance.  The amount of the cash bonus payment and long-term incentive grant for each executive is determined based on the Compensation Committee’s deliberations regarding attainment of Company-wide goals by Company executives.  The Compensation Committee’s determination of the degree of attainment of these goals by each executive was subjective and based on its deliberations.  The Compensation Committee also annually reviews the base pay of our product lineup to meet expanding customer requirementsexecutive offices and work on custom solutions for new prospective customers meeting their precise specifications.  We are also developingmay increase (but not decrease) the next generationamount of PowerPhase Pro®  and PowerPhaseHD®  products designed to be smaller, lighter weight, more energy efficient and producible at lower cost with equal or better performance than our current PowerPhase systems. The resulting products from this development effort are expected to launchbase pay as specified in the next two years. Development targets include a substantial size and cost reductionrespective employment agreement with each executive officer.

The Compensation Committee is composed of three members of our Board, each of which is independent as defined in applicable rules of the motor controllers.  Adopting new generation componentsNYSE American Stock Exchange and control strategies are alsothe SEC.  The Compensation Committee does not delegate its authority to establish executive compensation to any other persons.  The Compensation Committee approved the total compensation (and each of the individual elements of this development.  Target applications include automotivecompensation) for Joseph R. Mitchell, President and light commercial truck, medium and heavy-duty truck, and bus, markets.Chief Executive Officer.  The Committee also approved the compensation of the other named executive officers with input from the Chief Executive Officer. 

In September, 2016, we completed our work on2017, the Compensation Committee retained the consulting firm Frederic W. Cook & Co., Inc. to review and assist in establishing appropriate compensation for the Company’s executive officers.  Frederic W. Cook & Co. evaluated the compensation practices of a peer group of 18 publicly-traded companies with broadly similar operations as UQM.  The consulting firm affirmed that the compensation packages of the Company’s executive officers are in-line with market comparisons.  The Compensation Committee anticipates that it may engage a compensation consultant at an advanced motor design technologyinterval of every three to five years to assist it in evaluating the competitiveness of its executive compensation program.    

The Compensation Committee has also reviewed compensation data from a peer group of alternative energy companies that eliminatesit believed to be in competition with the need for rare-earth elementsCompany in the magnets. The technology incorporates permanent magnets of an alternate chemistry, arranged in a unique way that maintains performance benefits. A patent has been awarded to protect this innovation. We had a $4.0 million program withmarketplace for executive talent.  While the Department of Energy (“DOE”) to develop non-rare-earth magnet electric motorsCompensation Committee does not set benchmark percentile targets for use in electric and hybrid vehicles. The DOE provided $3.0 million of fundingexecutive compensation, the compensation levels for this program and the Company provided $1.0 million of cost-share contribution.   This award was announced in August 2011.

In January 2017, we announced a development agreement with Meritor, Inc. to jointly develop and supply full electric axle systems (E-axles) targeting the medium and heavy-duty commercial vehicle market.  This next-generation technology could accelerate market demand over the next few years due to improved component packaging, lower costs from integration, and increased vehicle performance.

three

Excess Inventoryprimary elements of executive compensation are generally set to establish pay levels that are competitive with those of the identified peer group of companies.

We re-evaluatedThe Compensation Committee has reviewed all compensation policies and practices for the carrying value ofCompany’s executive officers and employees to determine if the PowerPhase Pro®   inventory during 2016 and as of December 31, 2016.  A key factor in our analysis during the nine months ended December 31, 2016 was that in October of 2016, our customer ITL had informed us of their intention to purchase in cash a significant portion of the PowerPhase Pro®  inventory, which did not happen.  Because of the long delays in this customer’s product launch and the lack of a significant cash payment towards this inventory, we determined that, out of a total of $7.6 million, approximately $6.8 million of this inventory should be reserved as excess inventory and we took a charge for this amount against this inventory as of December 31, 2016.  At that time, we had purchase orders from existing customers to acquire the remaining balance of the PowerPhase Pro®re is inventory. We also reserved approximately $350,000 for other obsolete inventory as of December 31, 2016.  As of December 31, 2017, no additional reserve was required.risk arising from s

Competition

All of the markets in which we operate are highly competitiveuch policies and are characterized by changes due to technological advancespractices that could render existing technologies and products obsolete, although we are not currently aware of any such advances that could render our current product portfolio obsolete.  We believe our competitors are large automotive OEMs, Tier 1 suppliers to OEMs, Chinese electric motor manufacturers offering lower cost options, and numerous other competitors in nearly every region of the world.

As a result, additional vehicle makers in both on-road and off-road markets are expected to develop and introduce a variety of hybrid electric and all-electric vehicles as market acceptance of these vehicles continues to grow. We cannot assure that we will be able to compete successfully in this market or any other market that now exists or may develop in the future. There are numerous companies developing products that do or soon will compete with our systems. Some of these companies possess significantly greater financial, personnel and other resources than we do, including established supply arrangements, volume manufacturing operations and access to governmental incentive programs.

Customers and Suppliers

We derive our revenue from the following sources: 1) the sale of products designed, engineered and manufactured by us primarily to OEMs, Tier 1 suppliers of OEMs, and vehicle integrators; 2) funded contract research and development services performed for strategic partners, customers, and in the past from the U.S. government, directed toward either the advancement of our proprietary technology portfolio or the application of our proprietary technology to customers’ products; and 3) after-market services and remanufacture.

Our business is subject to revenue fluctuation based on the buying cycles of our customers.  Specific customers that reach 10% or more of revenues in any given fiscal quarter or year will also vary depending on these buying cycles.  In the fiscal year ended December 31, 2017, two customers individually comprised 10% or more of our total revenues.  Any loss of business with these customers could reasonably have a material adverse effect on the Company. The Compensation Committee reviews all aspects of performance in determining bonus awards and there are no specific threshold targets that increase bonuses.  In addition, the Company’s maximum bonus award in any year is limited to two times the target bonus, and the Company has to date never exceeded a bonus payout of more than 100% of the target.  Further, bonuses awarded may be recouped pursuant to our business, financial conditionclawback policy.  Therefore, the Committee believes there is a low risk for any material adverse effect on the Company arising from the Company’s compensation policies and results of operation.

Principal raw materials and components purchased by us include iron, steel, electronic components, rare-earth magnets and copper wire. Most of these items are available from several suppliers. In the fiscal year ended December 31, 2017, one supplier comprised 10% or more of our total purchases.  Certain components used by us are custom designs and if our current supplier no longer made them available to us, we could experience production delays.practices.

We can experience significant price fluctuationhave entered into employment agreements with our executive officers that contain severance payment provisions, including change in control severance payments, and provide a modest program of executive perquisites and personal benefits as are further described in the section “Employment Agreements” below.  The purpose of the employment agreements is to provide financial security for the applicable executive officer, to aid in retention and to encourage loyalty to and long-term employment with the Company. 

2018 Say-on-Pay Advisory Vote

At our 2018 Annual Meeting of the Company’s shareholders, 93% of the votes cast by our shareholders approved, on an advisory basis, the compensation of our named executive officers.  Our Compensation Committee considered the results of the advisory vote on executive compensation.

Adoption of Compensation Clawback Policy

In July 2015, our Board adopted the UQM Technologies, Inc. Clawback Policy.  This clawback policy allows us to recoup executive incentive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws.   The clawback policy applies to all forms of incentive compensation previously granted to executive officers, including stock options, cash bonuses, and restricted stock, that were granted during the three years prior to any accounting restatement. The amount to be recovered will be the excess of the executive compensation paid to the named executive officer based on the erroneous data over the executive compensation that would have been paid to the named executive officer had it been based on the restated results, as determined by the Compensation Committee.

Elements of Compensation

Base Salary.  Base salaries for our executive officers are established based on the scope of their responsibilities, taking into account competitive market compensation for similar positions in the peer group of companies, as well as the experience and performance of the individual, our ability to replace the individual and other primarily judgmental factors deemed relevant by the Compensation Committee.  Base salaries are reviewed annually by the Compensation Committee and the Board and may be increased, but not decreased without the consent of the executive, by the Board from time to time coincident with our annual review. 

During the year ending December 31, 2018, the Compensation Committee increased annual base salary for each executive officer by approximately 3.0%. These increases consisted of cost of magnets used in our motors, which containliving and merit based adjustments.    

Cash Bonus Compensation. The Compensation Committee annually considers the rare-earth elements neodymiumaward of performance-based cash bonuses to compensate executives for achieving financial, operational and dysprosiumstrategic goals and are primarily sourcedfor individual performance.  The amount of cash bonuses, if any, is established during deliberations by the Compensation Committee using its judgment after considering the objective and subjective factors discussed above and the individual’s performance. As a result, bonuses may vary greatly from China. We have not experienced any disruption in supply of magnets, and magnet prices may continueone year to be volatile until mining operations outside of China increase or restart.the next.

Financial Information about Geographic Areas The Compensation Committee has established target cash bonus levels as a percentage of base salary for each named executive officer based on the level of responsibility for each executive position and by reference to the level of target cash bonus payments by the peer group of companies. The target cash bonus levels for each of the Company’s named executive officers as a percentage of each officer’s base salary is as follows:

Actual cash bonus payments may either exceed or be less than the target level based on the Compensation Committee’s judgment as to whether Company-wide goals were met, exceeded or partially-met, subject to a maximum bonus award in any year of two times the target bonus.

The following summarizes total revenue by geographic area:For the year ending December 31, 2018, cash bonuses paid to the named executive officers as a percentage of their base salary, were as follows for performance in the year ended December 31, 2017:

ClassificationIn addition, for the year ending December 31, 2018, the Company-wide goals for the year ending December 31, 2018

used by the Compensation Committee for purposes of geographic area is determined based upondetermining bonus payments included growing the country whereCompany’s revenue, executing on international strategies, controlling the purchase transaction originated.rate of cash outflows with cost management and efficiencies, and executing on product innovation and product quality.

U.S. Government ContractsAs of the date of this filing, the Compensation Committee is evaluating management’s performance for the year ended December 31, 2018 against the Company’s goals, and has not approved or authorized payment of any cash bonus awards.      

When the Company entered into new employment agreements with its named executive officers in July 2015, it agreed to provide retention bonuses to its named executive officers to incent them to remain employees of the Company while it explored strategic alternatives.  If the executive remained an employee of the Company continuously through June 30, 2017, he would be paid a cash bonus after that date in the amount specified in his respective employment agreement.  The retention bonuses were paid to its named executive officers, Mr. Mitchell, Mr. Rosenthal, and Mr. Schaffer, in July 2017 in the amounts of $100,000, $100,000, and $75,000, respectively. 

We had a $4.0 million program withLong-Term Incentive Compensation.  The Compensation Committee annually considers the DOEaward of long-term incentive compensation to develop non-rare-earth magnet electric motorscompensate executive officers for usetheir efforts in electric and hybrid vehicles. This grant ended in September 2016. The DOE provided $3.0 million of funding for this program andpositioning the Company provided $1.0 millionfor long-term growth. The Compensation Committee considers a number of cost-share contribution. The objectivequalitative factors in setting the long-term incentive compensation for each executive officer, including the specific goals listed above as well as each executive officer’s contribution to a variety of  the program was to identifyother Company-wide goals such as new customer and evaluate magnet materialsmarket development activities, supply chain optimization and improvement, technology that can deliver performance comparable to our rare-earth magnet motors, broaden ourbase enhancements, new product portfolio, potentially lower magnet costsdevelopment and limit our exposure to pricelaunch activities, enhanced investor relations and supply concerns associated with rare-earth magnets.  We have been granted a U.S. patent for our electric and hybrid electric vehicle motor design using non-rare earth magnets.implementation of certain extraordinary transactions, among other things. 

Backlog

Our order backlog for products at January 31, 2018 was approximately $2.4 million versus $4.9 million at January 31, 2017. Certain orders are blanket purchase orders which are subject toLong-term incentive compensation may be paid in the issuanceform of subsequent release orders directingCompany common stock or in the numberform of a grant of stock options or any combination of stock and timing of actual deliveries. We had backlog of service contracts from customers, which will provide future revenue upon completion, totaling approximately $200,000 at January 31, 2018 versus $0 at January 31, 2017. Substantially allstock options.  The Compensation Committee believes that equity-based compensation awards aid in the retention of the backlog amounts at January 31, 2018named executive officers and 2017 are subjectserve to amendment, modification or cancellation.  We expect to ship motor and controller backlog products overalign the next twelve months.

Intellectual Property

We have numerous patents in the United States and in other countries to protect our intellectual property.

We determine if our intellectual property should be treated as a trade secret or submitted to the patent application process by deciding whether a technology successfully passes through three evaluation gates.  The first gate is an assessment of whether the expected breadthinterests of the patent would offerexecutive with those of the Company’s other shareholders. Equity-based compensation awards have a high levelfuture service requirement (vesting period) of protection or whether it will serve as an educational tool for competitors.  Based upon a patent and literature search, if the expected coverage is broad, the evaluation moves to the second gate, which is an assessment of infringement detection.  This is a review of whether or not it will be possible to detect patent infringement if a competitor were to adopt the technology.  Difficulty in detection reduces the value of a patent and will lead us to handle the technology as a trade secret rather than a patent.  The last gate is an assessment of whether the technology will have value for many years or whether the technology is a stepping stone to a different technology.  The patent process is a multi-year endeavor from the initial disclosure to the granted patent, which leads to the importance of this gate.  A technology that is expected to have value for five or more years will pass the final gate and the patent application process will then commence.

We also implement measures to protect our intellectual property, including the guarding and protection of source code, nondisclosure of control techniques, and protection of product design details, drawings and documentation.

Trademarks

We have registered the letters "UQM" in the U.S. Patent and Trademark Office. Counterpart applications have been filed in numerous countries throughout the world, most of which have granted registrations or indicated them to be allowable. We own three U.S. Trademark Registrations for "UQM" (International Class 7 for power transducers, Class 12 for utility land vehicles, and Class 16 for publications). The foreign trademark registrations and applications include major markets where we are doing business or establishing business contacts.years.

We have also registeredQualitative criteria are generally used to establish goals and objectives that the trademark "POWERPHASE" which we use in conjunction with certainBoard believes add value to the Company and enhance its prospects for long-term growth and success.  The Compensation Committee has established target levels for long-term incentive compensation for each executive officer based on the level of our propulsion systems.responsibility for each executive position and the peer group of companies. The trademark is registered in the European Community and several other foreign countries.  

Employee and Labor Relations 

Astarget long-term incentive compensation level (as a percentage of January 31, 2018, we had 51 employees, all of whom are full-time employees. We have entered into employment agreements with our executive officers.  The employment agreements expire on December 31, 2019.  We believe our relationship with employees has been generally satisfactory.

In addition to our full-time staff, we from time to time engage the services of outside consultants and contract employees to meet peak workload or specialized program requirements. We do not anticipate any difficulty in locating additional qualified engineers, technicians and production workers, if so required, to meet expanded research and development or manufacturing operations.  

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Anyone seeking information about our business can receive copies of our 2017 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports and other documents, filed with the SEC at the public reference sectioneach officer’s base salary) for each of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. These documents also may be obtained, free of charge, by: contacting our Investor Relations office by e-mail at investor@uqm.com; by phone at (303) 682-4900; writing to UQM Technologies, Inc., Investor Relations, 4120 Specialty Place, Longmont, CO 80504-5400; or accessing our website at www.uqm.com. We make our Transition Report on Form 10-KT, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available on our websiteCompany’s named executive officers is as soon as reasonably practicable after we file or furnish the materials electronically with the SEC. To obtain any of this information, go to www.uqm.com, select “Investor Relations” and select the form you would like to access. Our website also includes our Audit Committee Charter and Code of Business Conduct and Ethics as well as the procedures for reporting a violation of business ethics.  Information on our website does not constitute part of this Annual Report.

ITEM 1A.        RISK FACTORS

We operate in a challenging and changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth below may cause our actual results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.

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

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

We determined in 2016 that most of our PowerPhase Pro® inventory was impaired.  As a result, the net lossThe Compensation Committee reviewed performance for the year ended December 31, 2016 (unaudited)2017 and nine months ended December 31, 2016 includesdetermined to award in 2018 long-term incentive compensation to the named executive officers at 100% of the target level.  The fair value of long-term incentive compensation awards granted to the named executive officers in for their performance, as a reserve for excess inventorypercentage of $6,817,010 related to that inventory and a reserve of $349,906 for other obsolete inventory.their base salary, were as follows:

As of the date of this filing, the Compensation Committee is evaluating management’s performance for the year ended December 31, 2017, we had2018 against the Company’s goals, and has not approved or authorized payment of any long term incentive compensation awards.  

Employment Agreements

Each of our named executive officers has an accumulated deficitemployment agreement with the Company, as described below.  The agreements provide for compensation in the form of $124,671,250.annual base salary, which cannot be decreased during the term of the agreement without the consent of the executive, a monthly automobile allowance, the opportunity for cash bonuses, stock awards, stock options, and employee benefits available to other Company employees.  The agreements also provide for potential payments upon termination without cause, termination upon a change in control, disability or death.  See “Employment Agreements” below.

Tax and Accounting Considerations

All elements of our employee and executive compensation program generate charges to earnings under generally accepted accounting principles in the United States.  Our allocations of the elements of total compensation are generally not influenced by the accounting treatment of each element.  We do, however, consider the tax treatment of compensation elements as one factor in the allocation of each element.

In the future, we plan to make additional investments in product development, facilities and equipment and other costs related to the commercialization of our products. As a result, we expect to continue to incur net losses for the foreseeable future.  

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

Our net loss for the year ended December 31, 2017 was $4,778,316 versus a net loss for the nine months ended December 31, 2016 of $13,017,508 (which includes a reserve for excess and obsolete inventory of $7,166,916). At December 31, 2017, our cash, cash equivalents and restricted cash totaled $6,809,325. We expect our losses to continue for the foreseeable future. Our existing cash resources and cash generated from our revenues, are expected to be sufficient to complete our business plan for at least the next twelve months.  Should those resources be insufficient, we may need to renegotiate existing debt, secure additional debt or equity funding, which may not be available on terms acceptable to us, if at all.  

We may not be able to sell the remaining PowerPhase Pro®inventory and may recognize additional loss on the value of this inventory carried on our books.

Following the write-down of the value of inventory of the PowerPhase Pro® systems we still have aged inventory of $739,262 of PowerPhase Pro® systems.  Based upon anticipated customer demand, we continue to believe there is still a market for this product.  If customers do not purchase the amount of inventory they have ordered or we are unable to find new customers for this inventory, it may become  obsolete, causing an adverse effect on our results of operations.

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

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

The popularityfollowing tables and narrative discuss the compensation of alternative fuel based vehiclesour Chief Executive Officer and “green energy” initiativesour next two highest compensated officers serving as of December 31, 2018 as determined under the SEC rules.  These persons are highly dependent on macro-economic conditions, including oil prices and the overall health of the economy. When oil prices fall, interest in and resources allocatedreferred to the development of advanced technology vehicles and propulsion systems may diminish. We cannot predict how and the extent to which the recent substantial decrease of oil prices will affect the domestic interest in electric and hybrid vehicles.  Downturns in the world economy may also have a severe impact on the automotive industry, slowing the demand for vehicles generally and reducing consumers' willingness to pay more for environmentally friendly technology.as our “named executive officers.”    

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

Although we believe our proprietary systems are suited for a wide-range of vehicle electrification applications, our business and financial plan relies heavily on our introduction of new products that have limited testing in the marketplace. We have made substantial investments in manufacturing facilities and equipment, production and application engineering, among other things, to increase our production capacity in order to capitalize on the anticipated expansion in demand for electric propulsion systems and generators in the commercial truck, bus and automobile markets. We cannot be certain that our existing products will achieve broad market acceptance, or that we will be able to develop new products or product enhancements that will achieve broad market acceptance.  

Our sales cycle is inherently long.Stock Awards

We must go through lengthy processes to achieve supply contracts with our customers.  Our products must conform toStock awards are granted under the technical specificationsCompany’s Stock Bonus Plan.  Any shares granted vest in three equal annual installments beginning on the first anniversary of the customer and meet design requirements of the electric vehicle.  Typically prototype testing is required to ensure consistent system performance on an ongoing basis.  These steps can often take many months to multiple years until decisions are made on whether or not to take a vehicle to production.  We may spend considerable financial and human resources over an extended period of time and not end up with a completed supply contract.  Failure to secure volume production levels within a reasonable period of time could have an adverse effect on our results of operations and our liquidity.grant date.

CODA Automotive filed for bankruptcy protection on May 1, 2013 and it is unlikely we will be able to recover more than insignificant amounts due to us under our CODA Supply Agreement, including substantial amounts due for accounts receivable, inventory purchases and guaranteed minimum payments.

We executed a ten-year supply agreement with CODA in July, 2009 which provided a framework for CODA, or its manufacturing partner, to purchase from us electric propulsion systems for use in automobiles to be manufactured by CODA.  On May 1, 2013, CODA filed for bankruptcy protection.  Amounts due from CODA at December 31, 2017 totaled $3,838,092, all of which had been written off as uncollectible in prior years.  In addition, CODA was obligated under the supply agreement for inventory purchases totaling approximately $8.2 million and for a guaranteed minimum payment of $2 million due to their failure to purchase at least 15,000 units.  It is likely that we will recover only an insignificant amount of the balance owed to us under the CODA supply agreement, if any.

All funding from our DOE Grant to develop non-rare –earth magnet electric motors ended as of September 30, 2016 when the Grant expired.

Funds from the DOE Grant were very useful in supporting our growth initiatives and reducing our losses over the past several years. While we are pursuing other grant opportunities, there can be no assurance that we will be successful in obtaining other government grants.

The reduction or elimination of government subsidies and economic incentives for alternative energy technologies, including our electric vehicle motor technology, could reduce demand for our products and services, lead to a reduction in our revenues and adversely impact our operating results.

We believe that the near-term growth of alternative energy technologies, including our electric vehicle motor technology, relies on the availability and size of government and economic incentives both in the United States and in other countries.  Many of these government incentives expire, phase out over time, exhaust the allocated funding, require renewal by the applicable authority, and/or could be reduced or discontinued for other reasons. The reduction, elimination, or expiration of government subsidies and economic incentives may result in the diminished demand from our customers and could materially and adversely affect our future operating results.

We are subject to risks inherent in international operations.

Since we market our products both inside and outside the United States, our success depends in part, on our ability to secure international customers and our ability to manufacture products that meet foreign regulatory and commercial requirements in target markets. In addition, we are subject to tariff regulations and requirements for export licenses.  We can face numerous challenges in our international growth plans, including unexpected changes in regulatory requirements, potential conflicts or disputes that countries may have to deal with, fluctuations in currency exchange rates, longer accounts receivable requirements and collections, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of international laws. Any of these factors could adversely affect our results of operations and financial condition.

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

A large percentage of our revenue is typically derived from a small number of customers, and we expect this trend to continue.

Our customer arrangements generallyOption Awards

Option awards are non-exclusive, have no long-term volume commitmentsgranted under the Company’s 2012 Equity Incentive Plan.  Any options granted vest in three equal annual installments beginning on the first anniversary of the grant date.  Any options granted are incentive stock options and are typically done onexercisable for a purchase order basis. We cannot be certain that customers that have accounted for significant revenue in past periods will continueterm of ten years from the date of grant.  The exercise price of the options is equal to purchase our products. Accordingly, our revenue and results of operations may vary substantially from period to period. We are also subject to credit risk associated with the concentrationclosing price of our accounts receivable from our customers. If one or morecommon stock on the NYSE American Stock Exchange on the date of our significant customers were to cease doing business with us, significantly reduce or delay its purchases from us or fail to pay us on a timely basis, our business, financial condition and results of operations could be materially adversely affected.  grant.

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

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

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

Neodymium and dysprosium, rare-earth minerals, are key elements used in the production of magnets that are components of our electric propulsion systems. We currently source our magnets from China, and China has indicated its intent to retain more of this mineral for China use, rather than exporting it. During calendar year 2011, for example, we experienced significant price escalation in the cost of magnets used in our motors. This price escalation was primarily due to rare-earth government policy in China. Rare-earth prices have decreased substantially since peaking in the summer of 2011, and are now approaching the baseline prices (defined as the beginning of calendar year 2011). We have implemented a magnet surcharge process to recover these additional costs in the event of another price escalation. Although rare-earth magnets are available from other sources, these alternative sources are currently more costly. Reduced availability of neodymium and dysprosium from China could adversely affect our ability to obtain magnets in sufficient quantities, in a timely manner, or at a commercially reasonable cost. In the event that China's actions cause us to seek alternate sources of supply for magnets, it could cause an increase in our product costs, thereby reducing or eliminating our profit margin on electric propulsion systems if we are unable to pass the increase on to our customers. Increasing prices to our customers due to escalating magnet costs may reduce demand for our motors and make it difficult or impossible to compete with other motor manufacturers whose motors do not use rare-earth minerals.

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

Our contracts with government agencies are 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 exercise of march-in rights by the government or an agency of the government could restrict our ability to commercialize our technology.

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

We face intense competition and may be unable to compete successfully.  

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

resources for marketing their products. For these reasons, potential customers may choose to purchase electric motors from

We have employment agreements with each of our competitors rather than from us.named executive officers as described below.  

ChangesCurrent Named Executive Officers 

On July 1, 2017, the Company entered into an employment agreement with each of Messrs. Mitchell, Rosenthal, and Schaffer, which continue through December 31, 2019.  The agreements will automatically renew on generally the same  terms and conditions for successive twenty-four (24) month periods, unless either party gives written notice of non-renewal to the other party at least sixty (60) days prior to December 31, 2019 or any such renewal term then in environmental policies could hurteffect.  The agreements for these officers contain certain severance provisions, including severance provisions arising from a change in control of the marketCompany.

If the executive’s employment is terminated by the Company without cause, other than upon a change in control event, the executive will be paid a lump sum equal to six months’ base salary (twenty-four months’ base salary in the case of Mr. Mitchell, because Mr. Mitchell’s employment agreement mandates that, in the event of termination, Mr. Mitchell would be prohibited from working with any competitor for our products.twenty-four months).  

Health and Life Insurance and Other Benefits  

The market for electric and other alternative fuel vehicles and equipment andexecutive employment agreements provide that upon termination without cause, change in control or because of disability, the demand for our products are influenced, to a degree, by federal, state and local regulations relating to air quality, greenhouse gases and pollutants. These laws and regulations may change, which could result in transportation or equipment manufacturers abandoning or delaying their interest in electric or hybrid electric vehicles or equipment. In addition, a failure by authorities to enforce current laws and regulations or to adopt additional environmental laws or regulations could limit the demand for our products.

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

If we are unable to protect our patents and other proprietary technology, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our products. In addition, the cost of enforcing our proprietary rights may be expensiveCOBRA premiums for the executive and result in increased losses.any covered dependents for a period of six months or, if earlier, until the executive is employed by another employer.  Each executive of the Company also receives a monthly automobile allowance.  

Our abilityAll of the employment agreements provide that the Company shall maintain at its expense, life insurance coverage on the executive payable to compete effectively againstthe executive’s designees in an amount equal to three times the annual salary payable to the executive. 

Change in Control 

In the event of a change in control, all stock options and bonus stock awards held by executive officers become immediately vested under the terms of the employment agreements.  In addition, upon a termination of the executive officer’s employment (or a material diminution to his responsibilities or other companies in our industrymaterial changes) within twenty-four months following a change of control, the executive will depend, in part, on our abilityreceive a lump sum equal 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 protectionone year’s base salary (two years’ base salary in the United States andcase of Mr. Mitchell), 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, ascash bonus (equal to the scopeaverage of their protection. Patents granted may not provide meaningful protection from competitors. Even ifthe annual cash bonus paid for the preceding three years), and two-thirds of six months of COBRA premiums for the same medical coverage elected by the Executive immediate prior to the termination date.    For purposes of the agreements, a competitor's products were to infringe patents owned by us, it would be costly for us to pursue our rightschange in an enforcement action, it would divert funds and resources which otherwise could be used in our operations and we may not 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 productscontrol generally means any merger, reorganization, sale of substantially all Company assets, liquidation, a change in the future. If third parties assert technology infringement claims against us, the defensecomposition of the claims could involve significant legal costsCompany’s Board as defined in the employment agreement and require our managementany other transaction that the Board determines by resolution 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. Finally, patents may not deter third parties from attempting to reverse engineer our products and discovering our intellectual property.a corporate transaction. 

We rely, in part, on contractual provisions to protect our trade secrets and proprietary knowledge, the adequacy of which may not be sufficient.Other Provisions 

ConfidentialityThe employment agreements have customary confidentiality obligations.  The employment agreements further provide that the executive, for a period of one year after the term of his respective employment agreement, will not become affiliated with any person, firm or corporation whose business is similar to which we are party may be breached,or in competition with the Company and we mayfor a period of two years (in the case of Mr. Mitchell) or six months (in the case of the other executives) after termination of the executive’s employment agreement, to not have adequate remedies forinduce or attempt to induce any breach.  Our trade secrets may also be known without breachemployee of such agreementsthe Company to leave the employ of the Company; nor will the executive induce or may be independently developed by competitors.  Our inabilityattempt to maintaininduce any customer, supplier or licensee to cease doing business with the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have.Company. 

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

The automotive industry experiences significant product liability claims. As a supplier of electric propulsion systems or other products to vehicle OEMs, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or

death. We may be named

Our current executive employment agreements provide compensation to Messrs. Mitchell, Rosenthal and Schaffer in product liability claims even if there is no evidence that our systemsthe event of a termination of employment, including termination of employment (or deemed termination) following a change in control.  The tables below show the potential payments or components caused an accident. Product liability claims could resultbenefits upon a termination or change in significant losses as a resultcontrol for each of expenses incurred in defending claims or the award of damages.Company’s executive officers assuming the triggering event took place on December 31, 2018.  The sale of systems and components for the transportation industry entails a high risk of these claims, which may increase as our production and sales increase. In addition, we may be required to participate in recalls involving these systems if anyclosing price per share of our systems provecommon stock on the last trading day prior to December 29, 2018 was $0.85.  Actual amounts can only be defective,determined at the date of the triggering event.  The amount of acceleration of unvested equity awards represents the intrinsic value of in-the-money non-vested stock options and non-vested stock awards as of December 31, 2018 that would vest upon termination or we may voluntarily initiatechange in control.  The proposed Merger with Danfoss (as described below and in the Original Form 10-K) will constitute a recall or make payments relatedchange in control for purposes of each executive officer’s employment agreement; however, it is expected that each executive officer will continue to such claimsserve as a resultan executive officer of various industry or business practices or the need to maintain good customer relationships.Company after the Merger is consummated.

We carry product liability insurance of $10 million covering most of our products. If we were to experience a large insured loss, it might exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable levels, any of which could impair our financial position and results of operations. Any product liability claim brought against us also could have a material adverse effect on our reputation.  

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

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

Our future success will depend on our ability to attract and retain qualified management and technical personnel.

Our future success is substantially dependent on the continued services and on the performance of our executive officers and other key management, engineering, manufacturing and operating personnel. The loss of the services of any executive officer, or other key management, engineering, manufacturing and operating personnel, could materially adversely affect our business. Our ability to achieve our growth plans will also depend on our ability to attract and retain additional qualified management and technical personnel, and we do not know whether we will be able to be successful in these regards. Our inability to attract and retain additional qualified management and technical personnel, or the departure of key employees, could materially and adversely affect our growth plans and, therefore, our business prospects, results of operations and financial condition.

The maintenance and security of our information systems are critical to our operations.

We rely on our information systems to be functioning at all times, and that the data in those systems is protected and secure from viruses, illegal access and any other form of unauthorized use.  Should our information systems be compromised in any way, our business operations could be severely impacted.

Threats to information technology systems associated with cybersecurity risks and cyber incidents or attacks continue to grow. Cybersecurity attacks could include, but are not limited to, malicious software, viruses, attempts to gain unauthorized access, whether through malfeasance or error, either from within or outside of our organization, to our data or that of our customers or our customers’ customers which may be in our possession, and the unauthorized release, corruption or loss of the data, loss of the intellectual property, theft of the proprietary or licensed technology, whether ours, that of our customers or their customers, loss or damage to our data delivery systems, other electronic security breaches that could lead to disruptions in our critical systems, and increased costs to prevent, respond to or mitigate cybersecurity events. It is possible that our business, financial and other systems could be compromised, which might not be noticed for some period of time. Although we utilize various procedures and controls to mitigate our exposure to such risk, cybersecurity attacks are evolving and unpredictable and we cannot guarantee that any risk prevention measures implemented will be successful. The occurrence of such an attack could lead to financial losses and have a material adverse effect on our reputation, business, financial condition and results of operations.

Our stock price has been and could remain volatile.

The market price for our common stock has been and may continue to be volatile and subject to extreme price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

In 2017, the Compensation Committee retained the consulting firm Frederic W. Cook & Co., Inc. to review and assist in establishing appropriate compensation for the Company’s non-employee Directors.  Frederic W. Cook & Co. evaluated the compensation practices of a peer group of 18 publicly-traded companies with broadly similar operations as UQM.  After reviewing the recommendations of the consultant, the Board adopted a director compensation policy consisting of an annual cash compensation and an equity compensation that it believes appropriately compensates the non-employee directors while aligning the interests of directors with those of the Company’s shareholders.

Starting in April, 2018, each non-employee director receives an annual cash retainer of $35,000.  In addition the Chairman of the Board receives a cash retainer of $21,000.  The Chairman of the Audit Committee, the Chairman of the Compensation Committee and the Chairman of the Governance and Nominating Committee receive additional cash retainers of $10,000, $8,000, and $5,000 respectively.    Each non-employee Director receives $2,000 for each committee served on except the committee chaired.

Non-employee directors also receive each year shares of the Company’s common stock with a fair value of $14,000 on the date of the grant.  These shares vest immediately upon grant.  In addition, each non-employee director receives a stock option for the number of shares that is equivalent to $21,000 as determined by utilizing the Black-Scholes-Merton option-pricing model on the date of the grant.  Options granted under this component of director compensation vest immediately.

In addition, each non-employee director upon initial election to the Board is awarded 2,000 shares of the Company’s common stock at a purchase price of $0.01 per share.  Directors who are employees of the Company are not entitled to additional compensation for their service as directors.    Accordingly, Mr. Mitchell did not receive additional compensation for his service as a director. 

For the year ended December 31, 2018, directors of the Company who are not employees may elect to receive an annual retainer of $35,000 in cash or the grant of options with an exercise period of ten years to acquire that number of shares of the Company’s common stock that is equivalent to $35,000 as determined by utilizing the Black-Scholes-Merton option pricing model on the date of grant or a combination of cash and options that together have a fair value of $35,000.  Options granted under the plan vest immediately. In addition, the Chairman of the Board receives an additional annual cash retainer of $21,000 and the the Chairman of the Audit Committee,  Chairman of the Compensation Committee, and the Chairman of the Governance and Nominating Committee each receive an additional annual cash retainer of $10,000, $8,000, and $5,000 respectively.Each non-employee Director receives $2,000 for each committee served on except the committee chaired.

During the year ended December 31, 2018, non-employee directors also received shares with a fair value of $14,000 on the date of grant, except for the Chairman of the Board who received shares with a fair value of $17,000 on the date of grant.  These shares vest immediately.  In addition, each non-employee director received a stock option for that number of shares of the Company’s common stock that is equivalent to $21,000, or $26,000 in the case of the Chairman of the Board, as determined by utilizing the Black-Scholes-Merton option pricing model on the date of grant.  Options granted under this component of director compensation vest immediately.

The following table sets forth information concerning remuneration paid to non-employee directors of the Company during year ended December 31, 2018:

The table below shows the aggregate number of shares of common stock granted under the Stock Bonus Plan held by each non-employee director as of December 31, 2018:

In

The table below shows the past, following periodsaggregate number of volatility in the market priceoptions held by each non-employee director as of their stock, many companies have been the subjects of securities class action litigation.  If we become involved in securities class action litigation in the future, it could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business prospects, results of operations and financial condition.December 31, 2018:  

The Board determines the total amount of the annual retainer, bonus share award and stock option award payable to non-employee members of the Board.  

        UNRESOLVED STAFF COMMENTSItem 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

None.Security Ownership

ITEM 2.The following table shows the ownership PROPERTIESof the Company’s common stock by (i) beneficial owners of five percent or more of the Company’s common stock, (ii) each director, (iii) each of our named executive officers and (iv) all directors and executive officers as a group, as of April 24, 2019.  Unless otherwise noted, each shareholder’s address is the address of the Company and exercises sole voting and investment power with respect to the shares beneficially owned. None of the shares reported below are pledged as security or have been placed in a margin account by any executive officer or director.