---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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 July 31, 2003, or



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



For the transition period from
 to



Commission File No. 0-49629



Quantum Fuel Systems Technologies Worldwide, Inc.

(Exact name of registrant as specified in its charter)



|                                  | 
|--------------------------------- | 
|Delaware (State of Incorporation) | 



17872 Cartwright
Road, Irvine, CA 92614

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (949) 399-4500



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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No  x



Number of shares outstanding of each of the issuers classes of common stock, as of August 25, 2003:



21,680,475 shares of Common Stock, $.001 par value per share, and 999,969 shares of Series B Common Stock, $.001 par value per share.



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---

INDEX



QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.



|Part I.    Financial Information                                                                   
|---------------------------------------------------------------------------------------------------
|                                                                                                   
|Item 1.    Financial Statements                                                                    
|                                                                                                   
|Condensed balance sheets  April 30, 2003 and July 31, 2003 (unaudited)                            
|                                                                                                   
|Condensed statements of operations (unaudited)  Three months ended July 31, 2002 and July 31, 2003
|                                                                                                   
|Condensed statements of cash flows (unaudited)  Three months ended July 31, 2002 and July 31, 2003
|                                                                                                   
|Notes to condensed financial statements (unaudited)  July 31, 2003                                
|                                                                                                   
|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 2.    Changes in Securities and Use of Proceeds                                               
|                                                                                                   
|Item 6.    Exhibits and Reports on Form 8-K                                                        
|                                                                                                   
|Signatures                                                                                         
|                                                                                                   
|Certifications                                                                                     
|                                                                                                   
|Exhibit Index                                                                                      



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PART IFINANCIAL INFORMATION



Item 1.    Financial Statements





QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

CONDENSED BALANCE SHEETS

April 30, 2003 and July 31, 2003



|                                                                                                                   |  | April 30, 2003 |            |   | July 31, 2003 |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------- | ---------- | - | ------------- | -
|                                                                                                                   |  |                |            |   | (Unaudited)   |  
|ASSETS                                                                                                             |  |                |            |   |               |  
|Current assets:                                                                                                    |  |                |            |   |               |  
|Cash and cash equivalents                                                                                          |  | $              | 11,538,873 |   |               | $
|Accounts receivable, less allowance for doubtful accounts                                                          |  |                | 5,501,923  |   |               |  
|Other receivables                                                                                                  |  |                | 70,702     |   |               |  
|Inventories:                                                                                                       |  |                |            |   |               |  
|Raw materials and parts                                                                                            |  |                | 4,812,341  |   |               |  
|Work-in-process                                                                                                    |  |                | 29,896     |   |               |  
|Finished goods                                                                                                     |  |                | 2,961,685  |   |               |  
|Less inventory reserves                                                                                            |  |                | (1,778,020 | ) |               |  
|                                                                                                                   |  |                |            |   |               |  
|Total inventories                                                                                                  |  |                | 6,025,902  |   |               |  
|Other current assets                                                                                               |  |                | 364,385    |   |               |  
|                                                                                                                   |  |                |            |   |               |  
|Total current assets                                                                                               |  |                | 23,501,785 |   |               |  
|Equipment and leasehold improvements:                                                                              |  |                |            |   |               |  
|Dies, molds and patterns                                                                                           |  |                | 2,917,795  |   |               |  
|Machinery and equipment                                                                                            |  |                | 9,149,263  |   |               |  
|Office furnishings and equipment                                                                                   |  |                | 7,558,287  |   |               |  
|Automobiles and trucks                                                                                             |  |                | 101,144    |   |               |  
|Leasehold improvements                                                                                             |  |                | 2,521,888  |   |               |  
|Construction in process                                                                                            |  |                | 276,048    |   |               |  
|                                                                                                                   |  |                |            |   |               |  
|                                                                                                                   |  |                | 22,524,425 |   |               |  
|Less accumulated depreciation and amortization                                                                     |  |                | 11,640,393 |   |               |  
|                                                                                                                   |  |                |            |   |               |  
|Net equipment and leasehold improvements                                                                           |  |                | 10,884,032 |   |               |  
|Intangible asset, net of accumulated amortization of $1,159,878 and $1,574,822 at April 30, 2003 and July 31, 2003 |  |                | 15,319,480 |   |               |  
|Other assets                                                                                                       |  |                | 1,246,984  |   |               |  
|                                                                                                                   |  |                |            |   |               |  
|Total assets                                                                                                       |  | $              | 50,952,281 |   |               | $
|                                                                                                                   |  |                |            |   |               |  





See accompanying notes to condensed financial statements.



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QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

CONDENSED BALANCE SHEETS

April 30,
2003 and July 31, 2003

(Continued)



|                                                                                                                                                                            |  | April 30, 2003 |             |   | July 31, 2003 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ------------- | -
|                                                                                                                                                                            |  |                |             |   | (Unaudited)   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                        |  |                |             |   |               |  
|Current liabilities:                                                                                                                                                        |  |                |             |   |               |  
|Accounts payable                                                                                                                                                            |  | $              | 4,036,960   |   |               | $
|Accrued payroll obligations                                                                                                                                                 |  |                | 950,164     |   |               |  
|Accrued warranties                                                                                                                                                          |  |                | 1,120,754   |   |               |  
|Other accrued expenses                                                                                                                                                      |  |                | 1,755,340   |   |               |  
|Current maturities of capital leases                                                                                                                                        |  |                | 138,794     |   |               |  
|                                                                                                                                                                            |  |                |             |   |               |  
|Total current liabilities                                                                                                                                                   |  |                | 8,002,012   |   |               |  
|                                                                                                                                                                            |  |               
|Commitments and contingencies                                                                                                                                               |  |                |            |   |               |  
|                                                                                                                                                                            |  |               
|Stockholders equity:                                                                                                                                                       |  |                |             |   |               |  
|Preferred stock, $.001 par value, 20,000,000 shares authorized at April 30, 2003 and July 31, 2003; 0 issued and outstanding at
April 30, 2003 and July 31, 2003            |  |                |            |   |               |  
|Series A common stock, $.001 par value, 12,000,000 shares authorized at April 30, 2003 and July 31, 2003; 0
issued and outstanding at April 30, 2003 and July 31, 2003      |  |                |            |   |               |  
|Series B common stock, $.001 par value, 6,000,000 shares authorized at April 30, 2003 and July 31, 2003; 999,969 issued and
outstanding at April 30, 2003 and July 31, 2003 |  |                | 1,000       |   |               |  
|Common stock, $.001 par value, 42,000,000 authorized at April 30, 2003 and July 31, 2003; 21,680,475 issued and
outstanding at April 30, 2003 and July 31, 2003             |  |                | 21,680      |   |               |  
|Additional paid-in capital                                                                                                                                                  |  |                | 56,437,797  |   |               |  
|Accumulated deficit                                                                                                                                                         |  |                | (13,510,208 | ) |               |  
|                                                                                                                                                                            |  |                |             |   |               |  
|Total stockholders equity                                                                                                                                                  |  |                | 42,950,269  |   |               |  
|                                                                                                                                                                            |  |                |             |   |               |  
|Total liabilities and stockholders equity                                                                                                                                  |  | $              | 50,952,281  |   |               | $
|                                                                                                                                                                            |  |                |             |   |               |  





See accompanying notes to condensed financial statements.



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QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

CONDENSED STATEMENTS OF OPERATIONS

Unaudited

Three months ended July 31, 2002 and 2003



|                                                |  | Three Months Ended July 31, |           
|----------------------------------------------- |  | --------------------------- | ----------
|                                                |  | 2002                        |           
|Net revenue:                                    |  |                             |           
|Product sales                                   |  | $                           | 2,823,153 
|Contract revenue                                |  |                             | 1,795,365 
|                                                |  |                             |           
|Total revenue                                   |  |                             | 4,618,518 
|Costs and expenses:                             |  |                             |           
|Cost of product sales                           |  |                             | 3,640,862 
|Research and development expense                |  |                             | 3,225,068 
|Selling, general and administrative expense     |  |                             | 2,311,382 
|                                                |  |                             |           
|Total costs and expenses                        |  |                             | 9,177,312 
|                                                |  |                             |           
|Operating loss                                  |  |                             | (4,558,794
|Interest expense (income), net                  |  |                             | 96,490    
|Other expense (income), net                     |  |                             | 400,111   
|Provision for income taxes                      |  |                             |          
|                                                |  |                             |           
|Net loss applicable to common stock             |  | $                           | (5,055,395
|                                                |  |                             |           
|Net loss per share:                             |  |                             |           
|Basic                                           |  | $                           | (0.35     
|                                                |  |                             |           
|Diluted                                         |  | $                           | (0.35     
|                                                |  |                             |           
|Number of shares used in per share calculation: |  |                             |           
|Basic                                           |  |                             | 14,450,910
|                                                |  |                             |           
|Diluted                                         |  |                             | 14,450,910
|                                                |  |                             |           





See accompanying notes to condensed financial statements.



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QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

Unaudited

Three months ended July 31, 2002 and 2003



|                                                                            |  | Three Months Ended July 31, |           
|--------------------------------------------------------------------------- |  | --------------------------- | ----------
|                                                                            |  | 2002                        |           
|Cash flows from operating activities:                                       |  |                             |           
|Net loss                                                                    |  | $                           | (5,055,395
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |           
|Depreciation and amortization                                               |  |                             | 892,717   
|Non-cash stock compensation charge                                          |  |                             |          
|Changes in operating assets and liabilities:                                |  |                             |           
|Accounts receivable                                                         |  |                             | 1,151,381 
|Inventories                                                                 |  |                             | 709,251   
|Other assets                                                                |  |                             | 172,783   
|Accounts payable                                                            |  |                             | (1,074,322
|Accrued liabilities                                                         |  |                             | (216,167  
|                                                                            |  |                             |           
|Net cash used in operating activities                                       |  |                             | (3,419,752
|                                                                            |  |                             |           
|                                                                            |  |                            
|Investing activities                                                        |  |                             |           
|Proceeds from sale of property and equipment                                |  |                             | 20,836    
|Purchases of equipment and leasehold improvements                           |  |                             | (155,003  
|                                                                            |  |                             |           
|Net cash used in investing activities                                       |  |                             | (134,167  
|                                                                            |  |                             |           
|                                                                            |  |                            
|Financing activities                                                        |  |                             |           
|Payments on capital lease obligations                                       |  |                             | (47,210   
|Net advances from IMPCO                                                     |  |                             | 2,713,405 
|Issuance of Series A common stock                                           |  |                             | 3,513     
|Contribution from IMPCO                                                     |  |                             | 15,000,000
|Additional costs related to equity offering                                 |  |                             |          
|                                                                            |  |                             |           
|Net cash provided by (used in) financing activities                         |  |                             | 17,669,708
|                                                                            |  |                             |           
|Net increase (decrease) in cash                                             |  |                             | 14,115,789
|Cash and cash equivalents at beginning of period                            |  |                             | 177,414   
|                                                                            |  |                             |           
|Cash and cash equivalents at end of period                                  |  | $                           | 14,293,203
|                                                                            |  |                             |           
|                                                                            |  |                            
|Supplemental schedule of non-cash activity                                  |  |                             |           
|Issuance of Series A & Series B common stock recorded as intangible asset   |  | $                           | 14,229,428
|Assumption of line of credit by IMPCO Technologies                          |  |                             | 8,625,000 
|Conversion of owners net investment to stockholders equity                |  |                             | 31,921,600
|Issuance of warrants                                                        |  |                             |          





See accompanying notes to condensed financial statements.



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QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

July 31, 2003



1) BASIS OF PRESENTATION



On July 23, 2002, IMPCO Technologies, Inc. (IMPCO) completed the distribution and spin-off
of Quantum Fuel Systems Technologies Worldwide, Inc. (the Company) to its stockholders. The Company is focusing on enabling technologies for alternative propulsion and energy in emerging global markets. The Company provides hydrogen and compressed
natural gas (CNG) handling and storage system technologies to manufacturers of fuel cell and internal combustion engines.



On the date of the distribution and spin-off, IMPCO distributed the stock of the Company to stockholders of IMPCO based on a distribution ratio of one share of the
Companys common stock for every share of IMPCO common stock outstanding on the record date. In addition, IMPCO contributed $15 million in cash to the Company and assumed the Companys debt facility of $8.6 million on the date of
distribution. Furthermore, as discussed in Note 7, immediately following the spin-off the Company issued 3,513,439 shares of its Series A common stock to General Motors (GM) in connection with a strategic alliance between the Company and GM. The
Companys accumulated deficit at July 31, 2003 of $15,278,131 represents its operating results from the distribution date to July 31, 2003.



The financial statements include the Company, as well as certain assets, liabilities, and related operations that were transferred to the Company (the Contribution) from
IMPCO. The financial statements include the historical operations transferred to the Company by IMPCO (the Companys Businesses). The Contribution was completed prior to the distribution and resulted in a recapitalization of the Company.



The accompanying condensed financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and operating results for the interim periods. The condensed financial statements
should be read in conjunction with the financial statements and notes thereto, together with managements discussion and analysis of financial condition and the results of operations, contained in the Companys Annual Report on Form 10-K
for the fiscal year ended April 30, 2003. The results of operations for the three months ended July 31, 2003 are not necessarily indicative of the results that may be expected for the entire year ending April 30, 2004.



Certain reclassifications have been made to prior period balances in order to conform to the
current period presentation.



2) EARNINGS PER SHARE



The Company computes net income (loss) per share in accordance with SFAS No. 128,
Earnings Per Share, and SEC Staff Accounting Bulletin (SAB) No. 98. Under the provisions of SFAS No. 128, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average
number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the
period.



Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if they were outstanding for all periods presented. The Company initially issued 1,000 shares to IMPCO for nominal consideration. Prior to the spin-off, the Company declared a
stock split to increase the number of shares outstanding to match the number of shares outstanding of IMPCOs common stock. In July 2002, IMPCOs Board of Directors declared a 1-for-1 stock dividend whereby every shareholder of IMPCO
Common Stock received a corresponding share of the Companys common stock. On July 24, 2002, the Company issued 3,513,439 shares of Series A common stock to General Motors. The Company considers common equivalent shares from the exercise of
stock options and warrants in the instance where the shares are dilutive to net income of the Company by application of the treasury stock method. The effects of stock options and warrants were anti-dilutive for all periods presented.



The following table sets forth the computation of basic and diluted earnings per share:



|                                                                     |  | Three Months Ended July 31, |           
|-------------------------------------------------------------------- |  | --------------------------- | ----------
|                                                                     |  | 2002                        |           
|Numerator:                                                           |  |                             |           
|Net loss                                                             |  | $                           | (5,055,395
|Numerator for basic earnings per shareloss to common stockholders   |  | $                           | (5,055,395
|Numerator for diluted earnings per shareloss to common stockholders |  | $                           | (5,055,395
|Denominator:                                                         |  |                             |           
|Denominator for basic earnings per shareweighted-average shares     |  |                             | 14,450,910
|Denominator for diluted earnings per shareweighted-average shares   |  |                             | 14,450,910
|                                                                     |  |                             |           
|Basic earnings per share                                             |  | $                           | (0.35     
|                                                                     |  |                             |           
|Diluted earnings per share                                           |  | $                           | (0.35     
|                                                                     |  |                             |           



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3) BUSINESS SEGMENT INFORMATION



The Company classifies its business operations into four reporting segments: the Alternative Fuels division, Fuel Cell Systems division,
Advanced Research & Product Development and Corporate Expenses. The Alternative Fuels division generates revenues through the sale of compressed natural gas (CNG) and propane (LPG) fuel storage, fuel delivery and electronic control systems to
OEMs, primarily General Motors, and the installation of its products into OEM vehicles. The Alternative Fuels division also generates contract revenue by providing engineering design and support to the OEMs so that its fuel storage, fuel delivery
and electronic control systems integrate and operate with certain of their alternative fuel vehicles. The Fuel Cell Systems division generates revenues through the sale of fuel cell-related fuel storage, fuel delivery and electronic control systems
to OEMs, and the installation of its products into OEM vehicles. The Fuel Cell Systems division also generates contract revenue by providing engineering design and support to the OEMs so that its fuel storage, fuel delivery and electronic control
systems integrate and operate with certain of their fuel cell applications. The chief operating decision maker allocates resources and tracks performance by the four reporting segments.



All research and development is expensed as incurred. Research and development expense includes both customer-funded research and
development and Company-sponsored research and development. For segment reporting purposes, research and development expense is allocated to the Alternative Fuels and Fuel Cell Systems segments when the expense can be identified with those segments.
Advanced Research & Product Development is a sub-category of research and development expense and represents company-sponsored research and development that is not allocated to the Alternative Fuels or Fuel Cell Systems reporting segments.
Customer-funded research and development consists primarily of expenses associated with contract revenue. These expenses include applications development costs in the Company funded under customer contracts.



The Company recognizes revenue for product sales when goods are shipped in accordance with
the Companys shipping terms. Contract revenues are recognized based on the percentage of completion method. Corporate expenses represent a sub-category of selling, general and administrative expense. Corporate expenses consist of general and
administrative expense incurred at the corporate level.



The Company evaluates
performance based on profit or loss from operations before interest and income taxes.



All of the Companys product revenues are generated from alternative fuel systems and fuel cell-related hydrogen storage systems for automotive OEM applications. The Companys revenue from unaffiliated customers is derived from
within the United States. All of the Companys long-lived assets are based in its offices in Sterling Heights, Michigan; Irvine, California; and Lake Forest, California.



Net revenues and operating income/(loss) for the Companys business segments for the three months ended July 31, 2002 and 2003 are as
follows:



|                                        |  | Revenue                     |       |      |   | Operating Income/(Loss)     | 
|--------------------------------------- |  | --------------------------- | ----- | ---- | - | --------------------------- | 
|                                        |  | Three Months Ended July 31, |       |      |   | Three Months Ended July 31, | 
|                                        |  | 2002                        |       | 2003 |   |                             | 
|                                        |  | (in thousands)              |      
|Alternative Fuels                       |  | $                           | 3,464 |      | $ | 3,462                       | 
|Fuel Cell Systems                       |  |                             | 1,154 |      |   | 4,416                       | 
|Advanced Research & Product Development |  |                             |      |      |   |                            | 
|Corporate Expenses (1)                  |  |                             |      |      |   |                            | 
|                                        |  |                             |       |      |   |                             | 
|Total                                   |  | $                           | 4,618 |      | $ | 7,878                       | 
|                                        |  |                             |       |      |   |                             | 



(1) Represents
corporate expenses not allocated to any of the reporting segments.



---

4) WARRANTS



In connection with the spin-off from IMPCO, the Company expects to issue warrants to purchase an aggregate of 300,000 shares of the Companys common stock to holders
of outstanding IMPCO warrants as of the distribution date, July 23, 2002. The Company expects to issue these warrants at an exercise price of $5.83 with a term expiring in January 2006.



The Company issued a warrant to purchase 100,000 shares of the Companys common stock to a consulting firm on August 27, 2002 for
services related to investor relations. This warrant was issued at an exercise price of $5.10 with a four-year term. The Company valued the warrant at fair value (in accordance with FASB Statement No. 123, Accounting for Stock Based
Compensation) based on a Black-Scholes fair value calculation. The warrant was valued at date of grant and was re-measured at fair value at each subsequent reporting period, and changes in value was recorded over the performance period. The
Company has recorded an expense of approximately $16,000 for the first quarter of fiscal year 2004 in connection with the issuance of this warrant.



5) STOCK OPTION PLANS



In April 2003, the Company adopted SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent
disclosures in financial statements of the effects of stock-based compensation. The Company elected to continue to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations. Under APB No. 25, because the exercise price of the Companys employee stock options equals the market price of the underlying stock
at the date of grant, no compensation expense is recognized. If the Company had elected to recognize compensation cost based on the estimated fair value of the options granted at the grant date as prescribed by SFAS No. 148, net loss and loss per
share would have been increased to the pro forma amounts shown below:



|                                       |  | Three Months Ended July 31,              |       
|-------------------------------------- |  | ---------------------------------------- | ------
|                                       |  | 2002                                     |       
|                                       |  | (In thousands, except per share amounts) |       
|Reported net loss                      |  | $                                        | (5,055
|Stock-based employee compensation cost |  |                                          | (319  
|                                       |  |                                          |       
|Pro forma net loss                     |  | $                                        | (5,374
|                                       |  |                                          |       
|Loss per sharebasic and diluted       |  |                                          |       
|Reported                               |  | $                                        | (0.35 
|Stock-based employee compensation cost |  |                                          | (0.02 
|                                       |  |                                          |       
|Pro forma net lossbasic and diluted   |  | $                                        | (0.37 
|                                       |  |                                          |       



On May 1, 2003, an additional 650,414
shares of common stock became available for future grant under the 2002 Stock Incentive Plan pursuant to an evergreen provision contained in the plan.



6) INCOME TAXES



Income taxes for the three months ended July 31, 2003 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to
ongoing review and evaluation by management. The Company has established a full valuation allowance for deferred income tax assets due to the lack of earnings history.



7) INTANGIBLE ASSET



In connection with the Companys strategic alliance with General Motors, the Company issued 3,513,439 shares of its Series A common stock to General Motors on July
24, 2002. This issuance has been recorded at the estimated fair market value on the date of the distribution of approximately $14.2 million, in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, and EITF 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services. The intangible asset was recorded in accordance with the
consensus reached by the Emerging Issues Task Force during their November 2001 meeting with respect to EITF 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other than Employees.



Pursuant to the terms of the Companys Amended and Restated Certificate of
Incorporation, upon the completion of the Companys January 2003 public equity offering, all of the 3,513,439 shares of the Companys outstanding Series A common stock held by



---

General Motors converted automatically into shares of the Companys common stock on a one-for-one basis, and the
Company issued to General Motors an aggregate of 999,969 shares of its non-voting Series B common stock. The issuance of the Series B common stock has been recorded as additional consideration related to the strategic alliance between the companies
at the estimated fair market value on the date of the public offering of approximately $2.2 million. As a result, the intangible asset recorded in connection with the Companys issuance of Series B common stock to General Motors was increased
by $2.2 million.



The Company has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No.142, Goodwill and Other Intangible Assets, effective May 1, 2002. SFAS 142 requires that intangible assets other than goodwill be amortized over their useful lives. Accordingly, the Company is
amortizing the intangible asset, subject to periodic evaluations for impairment, over the ten-year term of the Corporate Alliance Agreement with General Motors.



On May 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. Accordingly, the intangible asset will be reviewed on an annual basis for impairment or on a more frequent basis if events or circumstances change that might indicate that impairment exists. In
accordance with the requirements of SFAS 144, the Company believes that no event or circumstance currently exists that would indicate impairment of this asset.



The amortization expense during the first three months of fiscal year 2004 was approximately $415,000. The expected amortization expense for the next five full fiscal
years is as follows:



|           |  | Amortization Expense
|---------- |  | --------------------
|2004       |  | 1,659,778           
|2005       |  | 1,659,778           
|2006       |  | 1,659,778           
|2007       |  | 1,659,778           
|2008       |  | 1,659,778           
|Thereafter |  | 7,020,590           



8) WARRANTIES



The Company offers a warranty for all of its alternative fuel products. The specific terms
and conditions of those warranties varies depending on the platform and model year. For most products the Company provides a limited warranty, including parts and labor, extending 3 years or 36,000 miles, whichever is achieved first. The Company
estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Companys warranty liability include the number of installed
units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.



Changes in the Companys product warranty liability during the first three months of
fiscal year 2004 are as follows (in thousands):



|Balance at April 30, 2003                                                                 |  | $ | 1,121 |  
|----------------------------------------------------------------------------------------- |  | - | ----- | -
|Warranties issued during the period                                                       |  |   | 30    |  
|Settlements made during the period                                                        |  |   | 63    |  
|Changes in liability for pre-existing warranties during the period, including expirations |  |   | (100  | )
|                                                                                          |  |   |       |  
|Balance at July 31, 2003                                                                  |  | $ | 1,114 |  
|                                                                                          |  |   |       |  



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ITEM 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This Report, including the Managements Discussion and Analysis that follows, contains forward-looking statements that involve risks and uncertainties. These
forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use words such as anticipate, expect,
intend, plan, believe, seek, estimate and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance
and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include, but are not limited to, the following: we have a history of operating losses and negative cash flow and anticipate that we will continue to incur operating losses for the foreseeable future; if we
fail to achieve and to maintain profitability in the future, investors could lose confidence in the value of our stock, which could cause it to decline; we may need to raise additional capital in order to complete our product development and
commercialization plans; we may be required to indemnify IMPCO for taxes arising in connection with the spin-off, and the tax characteristics of the spin-off may interfere with our ability to engage in desirable strategic transactions and issue our
equity securities; the market price and trading volume of our common stock may be volatile; we may never be able to introduce commercially viable fuel storage, fuel delivery or electronic control products for fuel cell systems; a mass market for
fuel storage, fuel delivery and electronic control systems for fuel cells may never develop or may take longer to develop than we anticipate; our revenue depends to a great extent on our relationships with and revenues from Toyota and General Motors
and their commitment to the commercialization of fuel cell automotive markets; our business depends on the growth of the fuel cell and alternative fuel markets; users of gaseous alternative fueled or fuel cell powered vehicles may not be able to
obtain fuel conveniently and affordably, which may adversely affect the demand for our products; we currently face and will continue to face significant competition, which could result in a decrease in our revenue; our business may be subject to
product liability claims or product recalls, which could be expensive and could result in a diversion of managements attention; our business may become subject to future product certification regulations, which may impair our ability to market
our products; new technologies could render our existing products obsolete; we depend on our intellectual property, and our failure to protect our intellectual property rights could adversely affect our future growth and success; if third parties
claim that our products infringe their intellectual property rights, we may be forced to expend significant financial resources and management time and our operating results would suffer; we depend on relationships with strategic partners, and the
terms and enforceability of many of these relationships are not certain; we have limited experience manufacturing fuel cell-related systems on a commercial basis; we may not meet our product development or commercialization milestones; we depend on
third-party suppliers for the supply of key materials and components for our products; we could lose or fail to attract the personnel necessary to run our business; our business could be harmed if we fail to meet OEM specifications; we may be
subject to increased warranty claims due to longer warranty periods; labor disputes at OEM facilities could impact our business; changes in environmental policies could hurt the market for our products; and the development of uniform codes and
standards for hydrogen fuel cell vehicles and related hydrogen refueling infrastructure may not develop in a timely fashion. This list of factors is not intended to be exhaustive. Reference should also be made to the factors set forth from time to
time in our SEC reports, including but not limited to those set forth in the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended April 30, 2003. You should not place undue reliance on these forward-looking statements,
which reflect our view only as of the date of this Report.



Overview



We design, manufacture and supply integrated fuel systems to OEMs for use
in alternative fuel vehicles and fuel cell applications. Our fuel systems enable cars, trucks and buses powered by internal combustion engines to operate on hydrogen, natural gas or propane. Our advanced enabling products for fuel cell systems are
used in transportation and industrial vehicles, stationary and portable power generation, and hydrogen refueling products for the infrastructure to support fuel cell vehicles. Our advanced fuel systems comprise the storage, monitoring, control and
injection of gaseous fuels to improve efficiency, enhance power output, and reduce pollutant emissions from internal combustion engines and fuel cell systems.



We supply our advanced gaseous fuel systems for alternative fuel vehicles to OEM customers for use by consumers and for commercial and government fleets. Since 1997,
we have sold over 16,500 fuel systems for alternative fuel vehicles, primarily to General Motors, which in turn has sold substantially all of those vehicles to its customers. We also provide our gaseous fuel systems and hydrogen refueling products
for fuel cell applications to major OEMs through funded research and development contracts and on a prototype basis. These fuel cell and hydrogen refueling products are not currently used on a commercial basis and will require additional product
development over the next five years; however, we believe that a commercial market will begin to develop for these products in 2004 to 2005. We believe that these systems will reach production volumes only if OEMs produce fuel cell applications and
hydrogen refueling products using our systems on a commercial basis.



We
classify our business operations into four reporting segments: the Alternative Fuels division, Fuel Cell Systems division, Advanced Research & Product Development and Corporate Expenses. The Alternative Fuels division generates revenue through
the sale of compressed natural gas (CNG) and propane (LPG) fuel storage, fuel delivery and electronic control systems to OEMs, primarily General Motors, and the installation of our products into OEM vehicles. The Alternative
Fuels division also generates



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contract revenue by providing engineering design and support to OEMs so that our fuel storage, fuel delivery and
electronic control systems integrate and operate with certain of their alternative fuel vehicles. The Fuel Cell Systems division generates revenue through the sale of compressed hydrogen storage, fuel delivery and electronic control systems to OEMs
and the installation of our products into OEM fuel cell vehicles and hydrogen refueling systems. The Fuel Cell Systems division also generates contract revenue by providing engineering design and support to OEMs so that our fuel storage, fuel
delivery and electronic control systems integrate and operate with certain of their fuel cell applications.



For the three months ended July 31, 2002 and 2003, revenue related to sales of our products to and contracts with General Motors and its affiliates represented 76.8% and 33.6% of our total revenue for these periods.
For the three months ended July 31, 2002 and 2003, revenue related to sales of our products to and contracts with Toyota represented 15.6% and 45.9% of our total revenue.



We recognize revenue for product sales when goods are shipped in accordance with our shipping terms and collectability is reasonably
assured. Contract revenue is recognized based on the percentage of completion method.



Corporate Expenses represents a sub-category of selling, general and administrative expense. Corporate Expenses consist of general and administrative expense incurred at the corporate level.



We expense all research and development when incurred. Research and development expense
includes both customer-funded research and development and company-sponsored research and development. For segment reporting purposes, research and development expense is allocated to the Alternative Fuels and Fuel Cell Systems segments when the
expense can be identified with those segments. Advanced Research & Product Development is a sub-category of research and development expense and represents company-sponsored research and development that is not allocated to the Alternative Fuels
or Fuel Cell Systems reporting segments. Customer-funded research and development consists primarily of expenses associated with contract revenue. These expenses include application development costs we funded under customer contracts. We will
continue to require significant research and development expenditures over the next several years in order to commercialize our products for fuel cell applications.



General Motors Relationship. Our strategic alliance with General Motors became effective upon our spin-off from IMPCO. We believe
that our strategic alliance with General Motors will advance and commercialize, on a global basis, the integration of our gaseous storage and handling systems into fuel cell systems used in the transportation markets. Under the alliance, Quantum and
General Motors will co-develop technologies that are designed to accelerate the commercialization of fuel cell applications. Additionally, General Motors will endorse Quantum as a recommended provider of hydrogen storage, hydrogen handling and
associated electronic controls. This strategic alliance expands the relationship that has been in place between General Motors and Quantum (as IMPCOs Automotive OEM Division) since 1993, through which we provide integrated natural gas and
propane fuel systems for General Motors alternative fuel vehicle products.



In connection with our strategic alliance, immediately following our spin-off from IMPCO, we issued to General Motors an aggregate of 3,513,439 shares of our Series A common stock, representing 19.9% of our total outstanding equity
following such issuance, for consideration of a nominal cash contribution and access to certain of General Motors proprietary information. Under the alliance, we have committed to provide minimum amounts of annual funding to projects approved
under the alliance. Each party will retain the ownership of its existing technology and will jointly own technology that is jointly created under the alliance. We will be free to use jointly created technologies in certain aspects of our business
but will be required to share revenue with General Motors on fuel cell system-related products that are sold to General Motors or third parties.



Pursuant to the terms of our Amended and Restated Certificate of Incorporation, upon the completion of our January 2003 public offering, all of the outstanding 3,513,439
shares of Series A common stock held by General Motors converted on a one-for-one basis into Quantum common stock. We also issued an additional 999,969 shares of our non-voting Series B common stock to General Motors pursuant to General Motors
anti-dilution rights. As a result of the conversion of the Series A common stock, General Motors no longer has anti-dilution rights.



We recorded the value of the shares issued to General Motors as an intangible asset at fair market value on the date of their respective issuance. We will amortize this
intangible asset over the ten-year term of the strategic alliance with General Motors, subject to periodic evaluations for impairment.



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Separation from IMPCO. We were incorporated under the laws of the State of Delaware on October 13, 2000, as a
wholly-owned subsidiary of IMPCO. IMPCO conducted our business through various departments, first as a division (the Automotive OEM Division) and most recently as a subsidiary (Quantum Fuel Systems Technologies Worldwide, Inc.). On July 23, 2002,
IMPCO completed the distribution and spin-off of our company by distributing to IMPCO stockholders one share of Quantum common stock for every share of IMPCO common stock held on the record date, which was July 5, 2002. Prior to the distribution, we
entered into several agreements with IMPCO with respect to, among other things, intellectual property, interim services and a number of ongoing commercial relationships. The interim services agreement provided for specified charges generally
intended to allow the providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses, but without any profit. The pricing terms for goods and services covered by the commercial
agreements reflected negotiated prices.



Our financial statements, which are
discussed below, reflect the historical financial position, results of operations and cash flows of the business transferred to us from IMPCO as part of the distribution. The financial information included herein, however, may not necessarily
reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been a stand-alone company during the periods prior to July 23, 2002.



Combination with Global Thermoelectric. On April 8, 2003, we entered
into a Combination Agreement with Global Thermoelectric Inc. (Global) to combine Global with our company in a share-for-share exchange pursuant to a Plan of Arrangement to be submitted to the Court of Queens Bench of Alberta,
Canada for approval. On July 14, 2003, Global announced that it had received a competing proposal from FuelCell Energy, Inc (FuelCell). On July 31, 2003, upon reviewing the terms of the competing proposal and after full consideration of
the possible alternative terms that could have been offered by us, our board of directors concluded that it was not in the best interest of Quantum or its stockholders to propose any adjustments or improvements to the terms and conditions of the
transaction contemplated by the Combination Agreement between us and Global. On August 4, 2003, we announced that Global had terminated the Combination Agreement with us as a result of the proposed combination between Global and FuelCell. As a
result of the termination of the Combination Agreement, we received a US$2 million break-up fee from Global on August 4, 2003. This fee was netted against the accumulated transaction costs of approximately $2,127,000, which resulted in a $127,000
charge to earnings during the period ending July 31, 2003.



Critical
Accounting Policies and Estimates



The discussion and analysis of our
financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and are included elsewhere in this report. The
preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our
estimates, including those related to bad debts, inventories, our intangible asset, warranty and recall obligations, long-term service contracts, and contingencies and litigation, on an ongoing basis. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:



| |  |  | We recognize revenue and profit as work progresses on long-term, fixed price contracts for product application development using the percentage-of-completion method, which relies on
estimates of total expected contract revenue and costs. We follow this method because we can make reasonably dependable estimates of the revenue and costs applicable to various stages of a contract. Recognized revenue and profit are subject to
revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs and processes, including actively monitoring
and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We conduct a major portion of our business with a limited number of customers. For the past three years and for the foreseeable future, General Motors Corporation (and subsidiaries
of General Motors) has represented and is expected to continue to represent a significant portion of our sales and outstanding accounts receivable. Credit is extended based upon an
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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evaluation of each customers financial condition, with terms consistent with those present
throughout the industry. Typically, we do not require collateral from customers. We have recorded an allowance for uncollectible accounts receivable based on past experience and certain circumstances surrounding the composition of total accounts
receivable. To the extent we increase this allowance in a period, we must include an expense in the statement of operations. If commercial conditions differ from managements estimates, an additional write-off may be required.



| |  |  | As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves
the estimation of our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. Included in this assessment is the determination of the net operating loss
carryforward that has resulted from our cumulative net operating loss since spin-off. These differences result in a net deferred tax asset. We must assess the likelihood that our deferred tax assets will be recovered from future taxable income and
to the extent that we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the
statement of operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance due to uncertainties related to our ability to utilize the net deferred tax assets, primarily consisting of net operating losses and credits which may be carried forward, before they expire. In the event that actual results
differ from these estimates or we adjust these estimates in future periods, we may need to adjust the recorded valuation allowance which could materially impact our financial position and results of operations. At July 31, 2003, our net deferred tax
assets have been offset in full by a valuation allowance.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We evaluate our long-lived assets, particularly our intangible asset relating to the strategic alliance with General Motors, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. We review our long-lived assets, which includes property, plant and equipment and identifiable finite-lived intangible assets, for
impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors we consider important which could trigger an impairment review include, but are not limited
to, the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; significant negative
industry or economic trends; and a significant decline in our stock price for a sustained period. An impairment would be recognized based on the difference between the fair value of the asset and its carrying value. Future events could cause us to
conclude that impairment indicators exist and that long-lived assets may be impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results of Operations



Three months ended July 31, 2002 and 2003



Net revenues and operating income/(loss) for our business segments for the three months ended July 31, 2002 and 2003 were as follows:



|                                        |  | Revenue                    |       | Operating Income/(Loss)    |  
|--------------------------------------- |  | -------------------------- | ----- | -------------------------- | -
|                                        |  | Three Months Ended July 31 |       | Three Months Ended July 31 |  
|                                        |  | 2002                       |       | 2003                       |  
|                                        |  | (in thousands)             |      
|Alternative Fuels                       |  | $                          | 3,464 |                            | $
|Fuel Cell Systems                       |  |                            | 1,154 |                            |  
|Advanced Research & Product Development |  |                            |      |                            |  
|Corporate Expenses (1)                  |  |                            |      |                            |  
|                                        |  |                            |       |                            |  
|Total                                   |  | $                          | 4,618 |                            | $
|                                        |  |                            |       |                            |  



| | (1) |  | Represents corporate expenses not allocated to any of the reporting segments.
| | --- |  | -----------------------------------------------------------------------------



Net revenues increased $3.3 million, or 71.7%, from $4.6 million in the first quarter of fiscal year 2003 to $7.9 million in the first quarter of fiscal year 2004.



Operating losses decreased by $2.8 million, or 60.9%, from $4.6 million in the
first quarter of fiscal year 2003 to $1.8 million in the first quarter of fiscal year 2004. The decrease in loss was attributable to a $0.8 million decrease in the operating loss of the Alternative Fuels segment, a $1.9 million decrease in operating
loss for the Fuel Cell Systems segment, and a $0.7 million decrease in the loss of



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the Corporate Expenses segment, partially offset by a $0.5 million increase in the operating loss of the Advanced
Research & Product Development segment.



Alternative Fuels. Product
sales for the Alternative Fuels segment remained flat at $2.8 million in the first quarter of fiscal year 2004. Product sales consist of sales associated with General Motors mid-size automobiles, pick-up trucks, and vans equipped with our
bi-fuel and compressed natural gas fuel systems and General Motors medium duty trucks equipped with dedicated liquid propane gas kits. Product sales of GM pick-up trucks and midsize automobiles during the first quarter of fiscal year 2004 was
higher than the first quarter of fiscal year 2003 primarily due to improved pricing on these platforms. This increase was offset by the discontinuation of the GM van and medium duty truck platforms during the third quarter of fiscal year 2003.



Cost of product sales decreased $0.9 million, or 24.3%, from $3.7 million in
the first quarter of fiscal year 2003 to $2.8 million in the first quarter of fiscal year 2004. The decrease in cost of product sales was due to a $0.7 million decrease in material costs related to lower unit sales as a result of the discontinuation
of two platforms and a $0.2 million decrease in manufacturing overhead and other costs.



Gross profits on product sales increased $0.8 million, or 100.0%, from a negative $0.8 million in the first quarter of fiscal year 2003 to $0.0 million in the first quarter of fiscal year 2004, due to a 39.6% decrease in cost of product
sales as a percentage of sales.



Contract revenue related to alternative fuels
remained flat at $0.6 million in the first quarter of fiscal year 2004. Contract revenues from emissions testing, environmental testing and contract engine calibration services increased $0.4 million in the first quarter of fiscal year 2004. This
increase was offset by a $0.4 million decrease in core contract revenue due to a decline in the number and scope of General Motors alternative fuel developmental programs and due to the fact that many of these contracts are model year rollover
programs, which require less engineering time. Contract revenue is used primarily for system development and application engineering of our products under funded General Motors and other OEM contracts, and other funded contract work with state and
federal agencies.



Research and development associated with cost of contract
revenues included in our Alternative Fuels segment decreased $0.1 million, or 33.3%, from $0.3 million in the first quarter of fiscal year 2003 to $0.2 million in the first quarter of fiscal year 2004. The decrease is primarily due to higher margins
related to the emissions testing, environmental testing and contract engine calibration services.



Internally funded research and development expense for the Alternative Fuels segment decreased by $0.4 million, or 44.4%, from $0.9 million in the first quarter of fiscal year 2003 to $0.5 million in the first quarter
of fiscal year 2004.



Operating loss for the Alternative Fuels segment
decreased by $0.8 million, or 47.1%, from $1.7 million in the first quarter of fiscal year 2003 to $0.9 million in the first quarter of fiscal year 2004. The decrease in loss was attributable to a $0.8 million decrease in negative gross profit on
product sales and $0.5 million decrease in research and development expenses, partially offset by a $0.5 million increase in general and administrative expenses.



Fuel Cell Systems. Revenues for the Fuel Cell Systems segment increased by $3.2 million, or 266.7%, from $1.2 million in the first
quarter of fiscal year 2003 to $4.4 million in the first quarter of fiscal year 2004. Product sales were $3.7 million in the first quarter of fiscal year 2004. There were no fuel cell-related product sales during the first quarter of fiscal year
2003. Product sales consisted of sales associated with Toyota Motor Companys fuel cell SUV and bus platforms equipped with our hydrogen fuel metering and fuel storage systems. These product sales contributed $2.2 million in gross profit during
the first quarter of 2004.



Contract revenue for the Fuel Cell Systems segment
decreased $0.4 million, or 36.4%, from $1.1 million in the first quarter of fiscal year 2003 to $0.7 million in the first quarter of fiscal year 2004. Contract revenue is used primarily for system development and application engineering of our
products under funded OEM contracts, and other funded contract work with state and federal agencies.



Research and development expenses associated with cost of contract revenues included in our Fuel Cell Systems segment decreased $0.3 million, or 42.9%, from $0.7 million in the first quarter of fiscal year 2003 to
$0.4 million in the first quarter of fiscal year 2004. The decrease is primarily due to higher utilization of resources on product commercialization efforts associated with engineering and product sales compared to the same period of fiscal year
2003.



Internally funded research and development expense for the Fuel Cell
Systems segment increased by $0.1 million, or 9.1%, from $1.1 million in the first quarter of fiscal year 2003 to $1.2 million in the first quarter of fiscal year 2004.



Operating income for the Fuel Cell Systems segment increased by $1.9 million, or 316.7%, from a $0.6 million operating loss in the first
quarter of fiscal year 2003 to $1.3 million in operating income for first quarter of fiscal year 2004. This increase was attributable to a $2.2 million increase in gross profit from product sales, a $0.1 decrease in research and development
expenses, partially offset by a $0.4 million decrease in contract revenue.



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Advanced Research & Product Development. Research and development expense increased by $0.5 million, or
166.7%, from $0.3 million in the first quarter of fiscal year 2003 to $0.8 million in the first quarter of fiscal year 2004. The increase is due to higher development costs to commercialize our injectors, advanced vehicle design and support costs.



Corporate Expenses. Corporate expenses decreased by $0.7 million, or
35.0%, from $2.0 million in the first quarter of fiscal year 2003 to $1.3 million in the first quarter of fiscal year 2004. The decrease is primarily due to $0.6 million in non-recurring expenses experienced in the first quarter of fiscal year 2003
related to the spin-off from Impco.



Interest Expense (Income), Net.
During the first quarter of fiscal year 2004, we recorded approximately $26,000 in interest income. In the first quarter of fiscal year 2003, we had interest expense of $0.1 million from the loan outstanding under IMPCOs credit facility.



Provision for Income Taxes. Income tax expense increased due to a
provision for international taxes in Korea. A valuation allowance has been established for deferred tax assets due to our lack of earnings history. We expect that income tax expense for fiscal year 2004 will be approximately the same as fiscal year
2003 as we expect to continue to incur operating losses.



Liquidity and
Capital Resources



Prior to our spin-off from IMPCO, we used cash generated
from IMPCOs operations, bank financings and investments from IMPCO to fund capital expenditures and research and development, as well as to invest in and operate our existing operations and new businesses. Until fiscal year 2002, we had been
funded entirely from IMPCO in the form of equity investments. In fiscal year 2002, we became a co-borrower with IMPCO on a debt facility with Bank of America. On June 24, 2002, IMPCO amended its credit facility with Bank of America to remove us as a
co-borrower under the line of credit and to release the pledge of our assets under the facility, effective upon completion of the distribution.



Prior to the distribution, IMPCO made an additional capital investment of $15.0 million in cash, plus an assumption of our debt facility of $8.6 million. As of July 31,
2003, we had no material indebtedness or commitments for capital expenditures.



In January 2003, we completed a public equity offering of an aggregate of 4,025,000 shares of our common stock at a price of $2.25 per share, which yielded net proceeds of $8.0 million after underwriting discounts and commissions and
offering expenses.



We anticipate that we will require additional sources of
financing to achieve commercialization of our products and technologies and to develop facilities for mass production of these products. These additional sources of financing may include bank borrowings or public or private offerings of equity or
debt securities. We cannot assure you that such additional sources of financing will be available on acceptable terms, if at all.



We believe that our working capital will be adequate to meet our liquidity needs for the near term.



Net cash used in operating activities was approximately $43,000 in the first quarter of fiscal year 2004 as compared to $3.4 million in the
first quarter of fiscal year 2003. The decrease in cash used in operating activities resulted primarily from the net operating loss in the first quarter of fiscal year 2004 of $1.8 million as compared to the net operating loss of $5.1 million in the
first quarter of fiscal year 2003. During the first quarter of fiscal year 2004, accounts receivable decreased $1.9 million compared to $1.2 million in the first quarter of fiscal year 2003. The improvement in accounts receivable collections was
mostly offset by an increase in other assets related to transaction costs paid and capitalized in connection with the combination with Global.



Net cash used in investing activities in the first quarter of fiscal year 2004 was $0.1 million, a decrease of $0.1 million from the first quarter of fiscal year 2003.
The decrease is a result of lower capital requirements during the period.



Net
cash used by financing activities in the first quarter of fiscal year 2004 was $0.2 million as compared to $17.7 million of net cash provided in the first quarter of fiscal year 2003. During the first quarter of fiscal year of 2003, we benefited
from certain one-time financing activities, such as $2.7 million of net advances from IMPCO and a $15.0 million cash infusion from IMPCO as part of the spin-off.



The ratio of current assets to current liabilities was 2.9:1 at April 30, 2003 and 3.3:1 at July 31, 2003. During the first quarter of
fiscal year 2004, our total working capital increased by $0.5 million from $15.5 million at the end of fiscal year 2003 to $16.0 million at July 31, 2003.



Quantitative and Qualitative Disclosures About Market Risk



We are exposed to market risk from exposures to changes in interest rates due to our financing, investing and cash management activities. Specifically, our cash and cash
equivalents are subject to fluctuations in interest rates. Based on our cash balance at July 31, 2003, a 1% decrease in interest rates would result in reduced annual interest income of approximately $112,000.



To date, we have not used any derivative financial instruments for the purpose of reducing
our exposure to adverse fluctuations in interest rates. We are not a party to leveraged derivatives and do not hold or issue financial investments for speculative purposes.



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Recent Accounting Pronouncements



In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 clarifies
the application of Accounting Research Bulletin No. 51 and applies immediately to any variable interest entities created after January 31, 2003 and to variable interest entities in which an interest is obtained after that date. This interpretation
required variable interest entities to be consolidated if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other parties or the equity investors lack specific characteristics. The
adoption of this Interpretation is not expected to have an impact on our financial statements.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies financial accounting and reporting derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for contracts entered into or modified and for
hedging relationships designated after June 30, 2003. We do not expect the adoption of this statement to have a material impact on our financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our results of
operations or the financial position.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk.



Information relating to Quantitative and Qualitative Disclosures About Market Risk appear under the heading Quantitative and Qualitative Disclosures About Market Risk that is included in Item 2, Managements
Discussion and Analysis of Financial Condition and Results of Operations.



Item 4. Controls and Procedures.



As of the end of
the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this
report.



There has been no change in our internal control over financial
reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



Item 2.    Changes in Securities and Use of Proceeds.



On January 16, 2003, the Securities and Exchange Commission declared effective our Registration Statement on Form S-1 (No. 333-101668). The Registration Statement covered the sale of 4,025,000 shares of our common
stock (including an option to purchase 525,000 shares to cover over-allotments) at an offering price of $2.25 per share. After deducting the underwriting discounts and commissions and offering expenses, we received aggregate net proceeds of
approximately $8.0 million in connection with the offering. Through the date of the filing of this report, none of the net proceeds from the offering have been used. Pending use of the net proceeds from the offering, we have invested them in
short-term, investment grade, interest-bearing securities.



Item 6.    Exhibits and Reports on Form 8-K.



(a) Exhibits:



|Exhibit Number |  | Description                                                                                                                     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|31.1           |  | Certification of the Chief Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a)                             
|31.2           |  | Certification of the Chief Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a)                             
|32.1           |  | Certification of the Chief Executive Officer of the Company furnished pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350
|32.2           |  | Certification of the Chief Financial Officer of the Company furnished pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350



(b) Reports on Form 8-K:



We filed a report on Form 8-K on June 2, 2003 disclosing our execution of a voting
agreement in favor of the combination of Quantum and Global Thermoelectric Inc. dated May 30, 2003 with K2 Principal Fund L.P.



We furnished to the SEC a report on Form 8-K on July 1, 2003 disclosing an earnings release announcing our financial results for the quarter and fiscal year ended April
30, 2003.



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|Date: September 11, 2003 |  |  |  | QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.
|------------------------ |  |  |  | -------------------------------------------------
|                         |  |  | 
|                         |  |  |  | By:                                              
|                         |  |  |  |                                                  



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EXHIBIT INDEX



|ExhibitNumber |  | Description                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|31.1          |  | Certification of the Chief Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a)                            
|              | 
|31.2          |  | Certification of the Chief Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a)                            
|              | 
|32.1          |  | Certification of the Chief Executive Officer of the Company furnished pursuant to Exchange Act Rule 13a-14(b)and 18 U.S.C. 1350
|              | 
|32.2          |  | Certification of the Chief Financial Officer of the Company furnished pursuant to Exchange Act Rule 13a-14(b)and 18 U.S.C. 1350