##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended January 31, 2005,



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



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Quantum Fuel Systems Technologies Worldwide, Inc.

(Exact name of registrant as specified in its charter)



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|                         |  |                        
|------------------------ |  | -----------------------
|Delaware                 |  | 33-0933072             
|(State of Incorporation) |  | (IRS Employer I.D. No.)



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. Yesx    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yesx      No ̈



Number of shares outstanding of each of the
issuers classes of common stock, as of March 4, 2005:



51,732,980 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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##### Table of Contents

INDEX



QUANTUM FUEL SYSTEMS TECHNOLOGIES
WORLDWIDE, INC.



|                                                                                                       |  |                                                                                       |  |   
|------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | --
|Part I. Financial Information                                                                          |  |                                                                                      
|                                                                                                       |  |                                                                                      
|Item 1.                                                                                                |  | Financial Statements:                                                                 |  |   
|                                                                                                       | 
|Condensed balance sheets  April 30, 2004 and January 31, 2005 (unaudited)                             |  | 1                                                                                    
|                                                                                                       | 
|Condensed statements of operations (unaudited)  Three and nine months ended January 31, 2004 and 2005 |  | 2                                                                                    
|                                                                                                       | 
|Condensed statement of cash flows (unaudited)  Three and nine months ended January 31, 2004 and 2005  |  | 3                                                                                    
|                                                                                                       | 
|Notes to condensed financial statements (unaudited)  January 31, 2005                                 |  | 4                                                                                    
|                                                                                                       |  |                                                                                      
|Item 2.                                                                                                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11
|                                                                                                       |  |                                                                                      
|Item 3.                                                                                                |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 23
|                                                                                                       |  |                                                                                      
|Item 4.                                                                                                |  | Controls and Procedures                                                               |  | 23
|                                                                                                       | 
|Part II. Other Information                                                                             |  |                                                                                      
|                                                                                                       |  |                                                                                      
|Item 6.                                                                                                |  | Exhibits                                                                              |  | 23
|                                                                                                       | 
|Signatures                                                                                             |  | 24                                                                                   
|                                                                                                       | 
|Exhibit Index                                                                                          |  | 25                                                                                   



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##### Table of Contents

PART IFINANCIAL INFORMATION



Item 1. Financial Statements



QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.



CONDENSED BALANCE SHEETS



|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | --------------- | - | ----------- | -
|                                                                                                                                                                           |  | April 30, 2004 |             |   | January 31,2005 |  
|                                                                                                                                                                           |  |                |             |   | (Unaudited)     |  
|ASSETS                                                                                                                                                                     |  |                |             |   |                 |  
|Current assets:                                                                                                                                                            |  |                |             |   |                 |   |             |  
|Cash and cash equivalents                                                                                                                                                  |  | $              | 15,728,901  |   |                 | $ | 13,256,007  |  
|Marketable securities held-to-maturity                                                                                                                                     |  |                | 35,595,269  |   |                 |   | 38,971,902  |  
|Accounts receivable, net                                                                                                                                                   |  |                | 5,896,504   |   |                 |   | 6,021,633   |  
|Inventories, net                                                                                                                                                           |  |                | 5,744,769   |   |                 |   | 6,492,115   |  
|Other current assets                                                                                                                                                       |  |                | 719,229     |   |                 |   | 648,167     |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|Total current assets                                                                                                                                                       |  |                | 63,684,672  |   |                 |   | 65,389,824  |  
|Equipment and leasehold improvements, net                                                                                                                                  |  |                | 8,780,096   |   |                 |   | 7,533,459   |  
|Marketable securities held-to-maturity                                                                                                                                     |  |                | 17,232,298  |   |                 |   | 7,808,959   |  
|Intangible asset, net                                                                                                                                                      |  |                | 13,659,705  |   |                 |   | 12,414,874  |  
|Other assets                                                                                                                                                               |  |                | 90,173      |   |                 |   | 1,057,443   |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|Total assets                                                                                                                                                               |  | $              | 103,446,944 |   |                 | $ | 94,204,559  |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                       |  |                |             |   |                 |   |             |  
|Current liabilities:                                                                                                                                                       |  |                |             |   |                 |   |             |  
|Accounts payable                                                                                                                                                           |  | $              | 2,836,025   |   |                 | $ | 3,066,511   |  
|Accrued payroll obligations                                                                                                                                                |  |                | 773,937     |   |                 |   | 1,038,608   |  
|Deferred revenue                                                                                                                                                           |  |                | 736,518     |   |                 |   | 78,746      |  
|Accrued warranties                                                                                                                                                         |  |                | 948,521     |   |                 |   | 709,952     |  
|Other accrued liabilities                                                                                                                                                  |  |                | 700,466     |   |                 |   | 269,759     |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|Total current liabilities                                                                                                                                                  |  |                | 5,995,467   |   |                 |   | 5,163,576   |  
|                                                                                                                                                                           |  |               
|Commitments and contingencies                                                                                                                                              |  |                |             |   |                 |   |             |  
|                                                                                                                                                                           |  |               
|Stockholders' equity:                                                                                                                                                      |  |                |             |   |                 |   |             |  
|Preferred stock, $.001 par value, 20,000,000 shares authorized; none issued and outstanding for each period                                                                |  |                |            |   |                 |   |            |  
|Series A common stock, $.001 par value; 12,000,000 shares authorized; none issued and outstanding for each period                                                          |  |                |            |   |                 |   |            |  
|Series B common stock, $.001 par value; 6,000,000 shares authorized; 999,969 issued and outstanding for each period                                                        |  |                | 1,000       |   |                 |   | 1,000       |  
|Common stock, $.001 par value; 42,000,000 shares authorized; 30,673,089 issued and outstanding at April 30, 2004 and 30,736,774 issued and
outstanding at January 31, 2005 |  |                | 30,673      |   |                 |   | 30,737      |  
|Additional paid-in-capital                                                                                                                                                 |  |                | 119,864,432 |   |                 |   | 120,108,980 |  
|Accumulated deficit                                                                                                                                                        |  |                | (22,444,628 | ) |                 |   | (31,099,734 | )
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|Total stockholders' equity                                                                                                                                                 |  |                | 97,451,477  |   |                 |   | 89,040,983  |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  
|Total liabilities and stockholders' equity                                                                                                                                 |  | $              | 103,446,944 |   |                 | $ | 94,204,559  |  
|                                                                                                                                                                           |  |                |             |   |                 |   |             |  



See accompanying notes
to condensed financial statements.



1



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##### Table of Contents

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.



CONDENSED STATEMENTS OF OPERATIONS (Unaudited)



|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ----------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                   |  | Three Months Ended January 31, |            |   | Nine Months Ended January 31, |  
|                                                                   |  | 2004                           |            |   | 2005                          |   |            | 2004 |  |   | 2005       |  
|Revenue:                                                           |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net product sales                                                  |  | $                              | 2,753,161  |   |                               | $ | 2,902,889  |      |  | $ | 14,651,721 |   |  | $ | 8,513,483  |  
|Contract revenue                                                   |  |                                | 1,669,201  |   |                               |   | 2,489,413  |      |  |   | 4,373,945  |   |  |   | 8,195,435  |  
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total revenue                                                      |  |                                | 4,422,362  |   |                               |   | 5,392,302  |      |  |   | 19,025,666 |   |  |   | 16,708,918 |  
|                                                                   |  |                                |            |  
|Costs and expenses:                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Cost of product sales                                              |  |                                | 1,632,633  |   |                               |   | 2,300,473  |      |  |   | 9,181,463  |   |  |   | 6,904,434  |  
|Research and development                                           |  |                                | 3,911,166  |   |                               |   | 4,040,157  |      |  |   | 10,455,983 |   |  |   | 12,334,139 |  
|Selling, general and administrative                                |  |                                | 2,135,327  |   |                               |   | 2,248,124  |      |  |   | 6,489,066  |   |  |   | 6,817,560  |  
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total costs and expenses                                           |  |                                | 7,679,126  |   |                               |   | 8,588,754  |      |  |   | 26,126,512 |   |  |   | 26,056,133 |  
|                                                                   |  |                                |            |  
|Operating loss                                                     |  |                                | (3,256,764 | ) |                               |   | (3,196,452 | )    |  |   | (7,100,846 | ) |  |   | (9,347,215 | )
|Interest income, net                                               |  |                                | 159,157    |   |                               |   | 277,142    |      |  |   | 213,744    |   |  |   | 716,324    |  
|Other income (expense), net                                        |  |                                | 2,321      |   |                               |   |           |      |  |   | 26,715     |   |  |   | (18,589    | )
|Provision for income taxes                                         |  |                                |           |   |                               |   | (826       | )    |  |   | (39,345    | ) |  |   | (5,626     | )
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net loss applicable to common stock                                |  | $                              | (3,095,286 | ) |                               | $ | (2,920,136 | )    |  | $ | (6,899,732 | ) |  | $ | (8,655,106 | )
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net loss per share - basic and diluted                             |  | $                              | (0.10      | ) |                               | $ | (0.09      | )    |  | $ | (0.27      | ) |  | $ | (0.27      | )
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Number of shares used in per share calculation - basic and diluted |  |                                | 31,394,268 |   |                               |   | 31,720,288 |      |  |   | 25,860,655 |   |  |   | 31,703,736 |  
|                                                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  



See accompanying notes
to condensed financial statements.



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QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.



CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                            |  |                               |             |   |      |   |             |  
|--------------------------------------------------------------------------- |  | ----------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                            |  | Nine Months Ended January 31, |            
|                                                                            |  | 2004                          |             |   | 2005 |  
|Operating activities:                                                       |  |                               |             |   |      |   |             |  
|Net loss                                                                    |  | $                             | (6,899,732  | ) |      | $ | (8,655,106  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                               |             |   |      |   |             |  
|Depreciation and amortization                                               |  |                               | 3,929,986   |   |      |   | 3,443,998   |  
|Loss on disposal of equipment and leasehold improvements                    |  |                               | 17,947      |   |      |   | 18,563      |  
|Non-cash stock compensation charge                                          |  |                               | 16,714      |   |      |   |            |  
|Changes in operating assets and liabilities:                                |  |                               |             |   |      |   |             |  
|Accounts receivable                                                         |  |                               | 1,793,562   |   |      |   | (125,129    | )
|Inventories                                                                 |  |                               | (1,389,482  | ) |      |   | (747,346    | )
|Other assets                                                                |  |                               | (290,336    | ) |      |   | 71,062      |  
|Accounts payable                                                            |  |                               | (894,876    | ) |      |   | (469,987    | )
|Other liabilities                                                           |  |                               | (527,899    | ) |      |   | (1,062,377  | )
|                                                                            |  |                               |             |   |      |   |             |  
|Net cash used in operating activities                                       |  |                               | (4,244,116  | ) |      |   | (7,526,322  | )
|                                                                            |  |                               |             |   |      |   |             |  
|Investing activities:                                                       |  |                               |             |   |      |   |             |  
|Purchases of equipment and leasehold improvements                           |  |                               | (890,547    | ) |      |   | (1,023,093  | )
|Proceeds from sale of equipment                                             |  |                               |            |   |      |   | 52,000      |  
|Pre-merger transaction costs                                                |  |                               |            |   |      |   | (266,797    | )
|Purchases of marketable securities                                          |  |                               | (37,737,959 | ) |      |   | (30,411,491 | )
|Maturities of marketable securities                                         |  |                               |            |   |      |   | 36,458,197  |  
|                                                                            |  |                               |             |   |      |   |             |  
|Net cash provided by (used in) investing activities                         |  |                               | (38,628,506 | ) |      |   | 4,808,816   |  
|                                                                            |  |                               |             |   |      |   |             |  
|Financing activities:                                                       |  |                               |             |   |      |   |             |  
|Payments on capital lease obligations                                       |  |                               | (138,794    | ) |      |   |            |  
|Proceeds from issuance of common stock                                      |  |                               | 60,135,938  |   |      |   |            |  
|Proceeds from exercises of stock options                                    |  |                               | 2,793,881   |   |      |   | 244,612     |  
|Additional costs related to equity offering                                 |  |                               | (127,013    | ) |      |   |            |  
|                                                                            |  |                               |             |   |      |   |             |  
|Net cash provided by financing activities                                   |  |                               | 62,664,012  |   |      |   | 244,612     |  
|                                                                            |  |                               |             |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                               | 19,791,390  |   |      |   | (2,472,894  | )
|Cash and cash equivalents at beginning of period                            |  |                               | 11,538,873  |   |      |   | 15,728,901  |  
|                                                                            |  |                               |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                  |  | $                             | 31,330,263  |   |      | $ | 13,256,007  |  
|                                                                            |  |                               |             |   |      |   |             |  



See accompanying notes
to condensed financial statements.



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##### Table of Contents

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.



NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)



January 31, 2005



1) Basis of
Presentation and Background



Quantum Fuel Systems Technologies Worldwide,
Inc. (Quantum or the Company) designs, manufactures, and supplies packaged fuel systems to Original Equipment Manufacturers (OEMs) for use in alternative fuel vehicles and fuel cell applications. For automotive
OEMs, the Company provides hydrogen systems for both internal combustion engine and fuel cell vehicles, and natural gas fuel systems for internal combustion engine vehicles. In the area of hydrogen refueling infrastructure, the Company offers
several hydrogen refueling systems focused on early infrastructure development.



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 balance sheet at April 30, 2004 has been derived from the audited financial statements of the Company at that date. 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, 2004. The results of operations for the three and nine months ended January 31, 2005 are not necessarily indicative of the results that may be expected for the entire year ending April 30, 2005.



Prior to July 23, 2002, the Company was a wholly-owned subsidiary of IMPCO Technologies, Inc.
(IMPCO). On this date, 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. The Companys accumulated deficit represents its operating results from the distribution date to the date of the periods presented.



The condensed 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 condensed financial statements also include the historical operations transferred to the Company by IMPCO. The Contribution was completed prior to the distribution and resulted in a recapitalization of the
Company.



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



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##### Table of Contents

2) Marketable Securities



Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that all
applicable investments be classified as trading securities, available-for-sale securities or held-to-maturity securities. The Company has determined that its investment portfolio is held-to-maturity and is therefore carrying marketable securities at
amortized cost.



At January 31, 2005, the Companys marketable securities
held-to-maturity consist of the following:



|                            |  |                |            |                  |   |        |  |            |         |  |   |           
|--------------------------- |  | -------------- | ---------- | ---------------- | - | ------ |  | ---------- | ------- |  | - | ----------
|                            |  |                |            | Gross Unrealized |   |       
|                            |  | Amortized Cost |            | Gains            |   | Losses |  | Fair Value
|Short-Term                  |  |                |            |                  |   |        |  |            |         |  |   |           
|Certificates of deposit     |  | $              | 2,725,414  |                  | $ |       |  | $          |        |  | $ | 2,725,414 
|Asset backed securities     |  |                | 1,115,853  |                  |   |       |  |            | 26,078  |  |   | 1,089,775 
|Corporate bonds             |  |                | 17,547,706 |                  |   |       |  |            | 66,691  |  |   | 17,481,015
|U.S. Treasury obligations   |  |                | 518,513    |                  |   |       |  |            | 195     |  |   | 518,318   
|U.S. government agencies    |  |                | 17,064,416 |                  |   |       |  |            | 41,671  |  |   | 17,022,745
|                            |  |                |            |                  |   |        |  |            |         |  |   |           
|                            |  |                | 38,971,902 |                  |   |       |  |            | 134,635 |  |   | 38,837,267
|Long-Term                   |  |                |            |                  |   |        |  |            |         |  |   |           
|Asset backed securities     |  |                | 782,528    |                  |   |       |  |            | 31,328  |  |   | 751,200   
|Corporate bonds             |  |                | 1,920,764  |                  |   |       |  |            | 7,100   |  |   | 1,913,664 
|U.S. government agencies    |  |                | 5,105,667  |                  |   |       |  |            | 39,229  |  |   | 5,066,438 
|                            |  |                |            |                  |   |        |  |            |         |  |   |           
|                            |  |                | 7,808,959  |                  |   |       |  |            | 77,657  |  |   | 7,731,302 
|                            |  |                |            |                  |   |        |  |            |         |  |   |           
|Total marketable securities |  | $              | 46,780,861 |                  | $ |       |  | $          | 212,292 |  | $ | 46,568,569
|                            |  |                |            |                  |   |        |  |            |         |  |   |           



At January 31, 2005, marketable
securities held-to-maturity classified as long-term have maturity dates ranging from February 2006 to October 2007.



3) Accounts Receivable



Accounts receivable consist of the following:



|                                |  |                |           |   |                  |   |           |  
|------------------------------- |  | -------------- | --------- | - | ---------------- | - | --------- | -
|                                |  | April 30, 2004 |           |   | January 31, 2005 |  
|Customer accounts billed        |  | $              | 3,120,131 |   |                  | $ | 4,246,495 |  
|Customer accounts unbilled      |  |                | 2,923,373 |   |                  |   | 1,970,138 |  
|Allowance for doubtful accounts |  |                | (147,000  | ) |                  |   | (195,000  | )
|                                |  |                |           |   |                  |   |           |  
|Accounts receivable, net        |  | $              | 5,896,504 |   |                  | $ | 6,021,633 |  
|                                |  |                |           |   |                  |   |           |  



4) Inventories



Inventories consist of the following:



|                                |  |                |           |   |                  |   |            |  
|------------------------------- |  | -------------- | --------- | - | ---------------- | - | ---------- | -
|                                |  | April 30, 2004 |           |   | January 31, 2005 |  
|Inventories:                    |  |                |           |   |                  |   |            |  
|Materials and parts             |  | $              | 5,198,673 |   |                  | $ | 6,188,313  |  
|Work-in-process                 |  |                | 58,945    |   |                  |   | 75,866     |  
|Finished goods                  |  |                | 1,424,719 |   |                  |   | 1,450,971  |  
|                                |  |                |           |   |                  |   |            |  
|                                |  |                | 6,682,337 |   |                  |   | 7,715,150  |  
|Less provision for obsolescence |  |                | (937,568  | ) |                  |   | (1,223,035 | )
|                                |  |                |           |   |                  |   |            |  
|Inventories, net                |  | $              | 5,744,769 |   |                  | $ | 6,492,115  |  
|                                |  |                |           |   |                  |   |            |  



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##### Table of Contents

5) Equipment and Leasehold Improvements



Equipment and leasehold improvements consist of the following:



|                                               |  |                |             |   |                  |   |             |  
|---------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                               |  | April 30, 2004 |             |   | January 31, 2005 |  
|Equipment and leasehold improvements:          |  |                |             |   |                  |   |             |  
|Dies, molds and patterns                       |  | $              | 2,975,192   |   |                  | $ | 2,971,821   |  
|Machinery and equipment                        |  |                | 8,970,785   |   |                  |   | 9,181,954   |  
|Office furnishings and equipment               |  |                | 7,867,990   |   |                  |   | 7,988,963   |  
|Automobiles and trucks                         |  |                | 136,386     |   |                  |   | 136,386     |  
|Leasehold improvements                         |  |                | 2,547,012   |   |                  |   | 2,645,311   |  
|Capitalized machinery and equipment            |  |                | 623,358     |   |                  |   | 623,358     |  
|Construction in progress                       |  |                | 841,282     |   |                  |   | 1,223,792   |  
|                                               |  |                |             |   |                  |   |             |  
|                                               |  |                | 23,962,005  |   |                  |   | 24,771,585  |  
|Less accumulated depreciation and amortization |  |                | (15,181,909 | ) |                  |   | (17,238,126 | )
|                                               |  |                |             |   |                  |   |             |  
|Equipment and leasehold improvements, net      |  | $              | 8,780,096   |   |                  | $ | 7,533,459   |  
|                                               |  |                |             |   |                  |   |             |  



6) Intangible Asset



The Company has an intangible asset representing the fair value of common stock issued to
General Motors Corporation (General Motors) in connection with a strategic alliance that became effective upon the distribution of the Company by IMPCO. The asset is being amortized over the ten-year term of the strategic alliance with
General Motors ending July 22, 2012.



In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company reviews the intangible asset on an annual basis for impairment or more frequent basis if events or circumstances
change that might indicate that impairment exists. The Company believes that no event or circumstance currently exists that would indicate impairment of this asset. Amortization expense was approximately $415,000 and $1,245,000 for the three and
nine-months ended January 31, 2005, respectively.



7) Warranties



The Company offers a warranty for all of its alternative fuel products.
The specific terms and conditions of those warranties vary depending on the platform and model year. For most alternative fuel products, the Company provides a limited warranty, including parts and labor, extending three years or 36,000 miles,
whichever is achieved first.



The Company generally disclaims all warranties on
its prototype hydrogen fuel storage systems. At its discretion or under certain programs, the Company may provide for the replacement cost or perform additional tests of prototype component parts subsequent to product delivery. The Company includes
an estimate of these types of arrangements as part of its warranty liability.



The Company estimates the costs that may be incurred under its limited warranty or discretionary warranty programs 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 nine months of fiscal 2005 are as follows:



|                                                                                          |  |   |          |  
|----------------------------------------------------------------------------------------- |  | - | -------- | -
|Balance at April 30, 2004                                                                 |  | $ | 948,521  |  
|Warranties issued during the period                                                       |  |   | 135,540  |  
|Settlements made during the period                                                        |  |   | (338,065 | )
|Changes in liability for pre-existing warranties during the period, including expirations |  |   | (36,044  | )
|                                                                                          |  |   |          |  
|Balance at January 31, 2005                                                               |  | $ | 709,952  |  
|                                                                                          |  |   |          |  



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##### Table of Contents

8) 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 January 31, |            |   | Nine Months Ended January 31, |  
|                                                                                                                                                |  | 2004                           |            |   | 2005                          |   |            | 2004 |  |   | 2005       |  
|Net loss, as reported                                                                                                                           |  | $                              | (3,095,286 | ) |                               | $ | (2,920,136 | )    |  | $ | (6,899,732 | ) |  | $ | (8,655,106  | )
|Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax
effects |  |                                | (369,000   | ) |                               |   | (695,000   | )    |  |   | (1,248,000 | ) |  |   | (1,901,000  | )
|                                                                                                                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |             |  
|Pro forma net loss                                                                                                                              |  | $                              | (3,464,286 | ) |                               | $ | (3,615,136 | )    |  | $ | (8,147,732 | ) |  | $ | (10,556,106 | )
|                                                                                                                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |             |  
|Net loss per share, as reported - basic and diluted                                                                                             |  | $                              | (0.10      | ) |                               | $ | (0.09      | )    |  | $ | (0.27      | ) |  | $ | (0.27       | )
|Stock-based employee compensation cost per share                                                                                                |  |                                | (0.01      | ) |                               |   | (0.02      | )    |  |   | (0.05      | ) |  |   | (0.06       | )
|                                                                                                                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |             |  
|Pro forma net loss per share-basic and diluted                                                                                                  |  | $                              | (0.11      | ) |                               | $ | (0.11      | )    |  | $ | (0.32      | ) |  | $ | (0.33       | )
|                                                                                                                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |             |  
|Number of shares used in the calculation of pro forma per share                                                                                 |  |                                | 31,394,268 |   |                               |   | 31,720,288 |      |  |   | 25,860,655 |   |  |   | 31,703,736  |  
|                                                                                                                                                |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |             |  



On March 3, 2005 the Company granted
an additional 1,530,000 options under the 2002 Stock Incentive Plan. The exercise price of the options granted equaled the market price of the underlying stock on the date of the grant.



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based
Payment. SFAS No. 123R is a revision of SFAS No. 123, supersedes APB No. 25 and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R will require the expensing of unvested stock options in the first interim or annual
reporting period that begins after June 15, 2005. As such, the Company plans to adopt the provisions of SFAS No. 123R for the second quarter of fiscal 2006 beginning August 1, 2005. The Company is currently analyzing which method will be the most
appropriate to estimate fair value of stock-based compensation upon adoption of SFAS 123R. The Company anticipates that fair value estimates will be consistent with pro forma disclosures reported above, although actual compensation expense will be
higher as a result of the additional options granted on March 3, 2005.



9)
Warrants



In connection with the spin-off from IMPCO, the Company issued
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 issued these warrants at an exercise price of $5.83 with a term
expiring in January 2006. During the second quarter of fiscal 2005, warrants to purchase an aggregate of 3,556 shares of common stock were exercised on a cashless basis, which resulted in the issuance of 691 shares of common stock. Warrants to
purchase an aggregate of 245,444 shares of common stock are outstanding at January 31, 2005.



7



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##### Table of Contents

10) Earnings Per Share



The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings Per Share. 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.



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 loss per share:



|                                                                         |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ----------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                         |  | Three Months Ended January 31, |            |   | Nine Months Ended January 31, |  
|                                                                         |  | 2004                           |            |   | 2005                          |   |            | 2004 |  |   | 2005       |  
|Numerator:                                                               |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                                                 |  | $                              | (3,095,286 | ) |                               | $ | (2,920,136 | )    |  | $ | (6,899,732 | ) |  | $ | (8,655,106 | )
|Numerator for basic loss per shareto common stockholders                |  | $                              | (3,095,286 | ) |                               | $ | (2,920,136 | )    |  | $ | (6,899,732 | ) |  | $ | (8,655,106 | )
|Numerator for diluted loss per share to common stockholders             |  | $                              | (3,095,286 | ) |                               | $ | (2,920,136 | )    |  | $ | (6,899,732 | ) |  | $ | (8,655,106 | )
|                                                                         |  |                                |            |  
|Denominator for basic and diluted loss per shareweighted-average shares |  |                                | 31,394,268 |   |                               |   | 31,720,288 |      |  |   | 25,860,655 |   |  |   | 31,703,736 |  
|Basic and diluted loss per share                                         |  | $                              | (0.10      | ) |                               | $ | (0.09      | )    |  | $ | (0.27      | ) |  | $ | (0.27      | )
|                                                                         |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  



As further discussed in Note 13, on
March 3, 2005, the Company issued approximately 21.0 million shares in connection with completing the acquisition of Starcraft Corporation.



11) Income Taxes



Income taxes for the three and nine month periods ended January 31, 2005 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. At January 31, 2005, the Company had an estimated net operating loss of approximately $30 million available to offset future federal taxable income. The Company has established a full valuation allowance for deferred income
tax assets due to the lack of earnings history.



12) Business Segment
Information



The Company classifies its business operations into four
reporting segments: the Fuel Cell Systems segment, the Alternative Fuels segment, Advanced Research & Product Development, and Corporate.



The Fuel Cell Systems segment 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 segment 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 their fuel cell applications.



The Alternative Fuels segment
generates revenues through the sale of compressed natural gas (CNG), propane (LPG), and hydrogen fuel storage, fuel delivery, and electronic control systems for internal combustion engine applications. The Alternative Fuels segment 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 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 Fuel Cell Systems and the Alternative Fuels 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-



8



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##### Table of Contents

sponsored research and development that is not allocated to the Fuel Cell Systems or the Alternative Fuels 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 and
collectability is reasonably assured. Contract revenues are recognized based on the percentage of completion method. Corporate represents a sub-category of selling, general, and administrative expense. Corporate consists 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 fuel cell-related hydrogen storage systems and alternative fuel systems for automotive OEM applications. The Companys revenue from unaffiliated customers is primarily
derived from within the United States.



The Company leases facilities in
Irvine, California; Lake Forest, California; and Troy, Michigan. The Companys long-lived assets are principally based in its Irvine and Lake Forest facilities.



Net revenues and operating income (loss) for the Companys business segments are as follows:



|                                        |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|--------------------------------------- |  | ------------------------------ | ---------- | - | ----------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                        |  | Three Months Ended January 31, |            |   | Nine Months Ended January 31, |  
|                                        |  | 2004                           |            |   | 2005                          |   |            | 2004 |  |   | 2005       |  
|Revenue                                 |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Fuel Cell Systems                       |  | $                              | 2,571,989  |   |                               | $ | 4,259,958  |      |  | $ | 10,412,728 |   |  | $ | 10,109,554 |  
|Alternative Fuels                       |  |                                | 1,850,373  |   |                               |   | 1,132,344  |      |  |   | 8,612,938  |   |  |   | 6,599,364  |  
|Advanced Research & Product Development |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Corporate                               |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|                                        |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total                                   |  | $                              | 4,422,362  |   |                               | $ | 5,392,302  |      |  | $ | 19,025,666 |   |  | $ | 16,708,918 |  
|                                        |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Operating Income (Loss)                 |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Fuel Cell Systems                       |  | $                              | (276,748   | ) |                               | $ | (71,879    | )    |  | $ | 1,589,199  |   |  | $ | (291,430   | )
|Alternative Fuels                       |  |                                | (936,870   | ) |                               |   | (1,107,664 | )    |  |   | (2,485,606 | ) |  |   | (3,086,987 | )
|Advanced Research & Product Development |  |                                | (825,665   | ) |                               |   | (689,718   | )    |  |   | (2,535,704 | ) |  |   | (2,123,871 | )
|Corporate (1)                           |  |                                | (1,217,481 | ) |                               |   | (1,327,191 | )    |  |   | (3,668,735 | ) |  |   | (3,844,927 | )
|                                        |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total                                   |  | $                              | (3,256,764 | ) |                               | $ | (3,196,452 | )    |  | $ | (7,100,846 | ) |  | $ | (9,347,215 | )
|                                        |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  

---

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



Identifiable assets for the Companys business segments are as follows:



|                                        |  |                |             |                  |   |           
|--------------------------------------- |  | -------------- | ----------- | ---------------- | - | ----------
|                                        |  | April 30, 2004 |             | January 31, 2005
|Identifiable Assets                     |  |                |             |                  |   |           
|Fuel Cell Systems                       |  | $              | 20,706,325  |                  | $ | 20,057,187
|Alternative Fuels                       |  |                | 9,904,711   |                  |   | 9,481,811 
|Advanced Research & Product Development |  |                | 1,045,969   |                  |   | 881,854   
|Corporate                               |  |                | 2,424,069   |                  |   | 2,041,228 
|                                        |  |                |             |                  |   |           
|Total identifiable assets               |  |                | 34,081,074  |                  |   | 32,462,080
|Assets not specifically identifiable    |  |                | 69,365,870  |                  |   | 61,742,479
|                                        |  |                |             |                  |   |           
|Total assets                            |  | $              | 103,446,944 |                  | $ | 94,204,559
|                                        |  |                |             |                  |   |           



9



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##### Table of Contents

13) Subsequent Events



Merger with Starcraft



On March 3, 2005, at a reconvened Special Meeting of Quantum stockholders held in Irvine, California, the Companys stockholders approved a proposal to issue shares
of Quantum common stock in connection with and pursuant to the previously announced Agreement and Plan of Merger dated as of November 23, 2004 with Starcraft Corporation (Starcraft).



On March 3, 2005, the Company completed its planned merger with Starcraft. Pursuant to the
terms set forth in the merger agreement, the Company will operate Starcraft as a wholly-owned subsidiary. The Company will record the transaction as a purchase/acquisition of Starcraft.



In connection with the merger, each share of Starcraft common stock that was outstanding at the effective time of the merger was converted
into the right to receive 2.341 shares of Quantum common stock. Total Quantum shares issued in connection with the merger amounted to approximately 21.0 million shares and represent approximately 40% of the total Quantum shares outstanding following
the completion of the merger.



Under the purchase method of accounting, the
total estimated consideration for the transaction is $145.9 million and consists of the exchange of Starcraft shares for the Companys common stock valued at $134.6 million, cash payments for Starcraft stock options and directors shares
of $7.1 million, direct transaction fees and expenses of $3.2 million, and a separation agreement with Starcrafts chairman of the board valued at $1.0 million.



The long-term indebtedness of Starcraft remained outstanding following the merger, including Starcrafts 8.5% convertible subordinated
promissory notes due July 1, 2009 in the aggregate principal amount of $15.0 million and approximately $14.7 million in other indebtedness (as of January 2, 2005).



Included in the Companys other assets at January 31, 2005, were capitalized pre-merger transaction costs totaling $967,270.



The selected pro forma financial data set forth below gives effect to the
Companys merger with Starcraft as if the acquisition had been completed on May 1, 2004. Due to different fiscal periods, the pro forma financial data combines the results of the Company for the three and nine month periods ended January 31,
2005 and the historical results of Starcraft for the three and nine months ended January 2, 2005, respectively. The pro forma financial data includes adjustments to eliminate the operating revenues and expenses associated with Starcrafts kit
and parts business that was transferred to the outgoing chairman of Starcraft, incremental changes in amortization expense resulting from fair value adjustments to amortizable intangible assets, and an increase in the number of shares used in per
share calculations as a result of shares issued in connection with the transaction.



|                                       |  |                                                      |        |   |                                    |   |        |             |  |   |           |   |  |   |         |  
|-------------------------------------- |  | ---------------------------------------------------- | ------ | - | ---------------------------------- | - | ------ | ----------- |  | - | --------- | - |  | - | ------- | -
|                                       |  | Three Months Ended January 31, 2005                  |        |   | Nine Months Ended January 31, 2005 |  
|                                       |  | As Reported                                          |        |   | Pro Forma                          |   |        | As Reported |  |   | Pro Forma |  
|                                       |  | (unaudited; in thousands, except per share amounts ) |       
|                                       |  |                                                      |        |  
|Net revenue                            |  | $                                                    | 5,392  |   |                                    | $ | 51,487 |             |  | $ | 16,709    |   |  | $ | 152,838 |  
|Operating loss                         |  | $                                                    | (3,196 | ) |                                    | $ | (2,522 | )           |  | $ | (9,347    | ) |  | $ | (9,316  | )
|Net loss applicable to common stock    |  | $                                                    | (2,920 | ) |                                    | $ | (2,877 | )           |  | $ | (8,655    | ) |  | $ | (9,631  | )
|Net loss per share - basic and diluted |  | $                                                    | (0.09  | ) |                                    | $ | (0.05  | )           |  | $ | (0.27     | ) |  | $ | (0.18   | )
|Number of shares - basic and diluted   |  |                                                      | 31,720 |   |                                    |   | 52,716 |             |  |   | 31,704    |   |  |   | 52,700  |  



Quantum Charter



At the reconvened Special Meeting of stockholders, the stockholders
also approved a proposal pursuant to which the Companys Amended and Restated Certificate of Incorporation (the Quantum Charter) will be amended and restated to increase from 60.0 million to 100.0 million the number of authorized
shares of common stock. The Quantum Charter will also be amended and restated to reduce from 6.0 million to 2.0 million the authorized shares of Series B common stock and to eliminate the currently authorized shares of Series A common stock.



10



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##### Table of Contents

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 within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 which may continue into the foreseeable future without growth in the hydrogen economy and growth in the business of
Starcraft Corporation (Starcraft);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may experience difficulties integrating the operations and employees of Starcraft with our operations and employees;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | we may not be able to achieve profitability of the combined company within the timeframe expected;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the combined company may be unable to execute its business strategy and we may not realize the anticipated benefits of the merger with Starcraft;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential litigation may arise associated with the Starcraft merger;
| | - |  | --------------------------------------------------------------------



| |  |  | our combined revenues will be derived primarily from General Motors (GM) and our business depends to a great extent on our relationship with GM. Starcrafts sole
material customer is GM and GM has publicized its interest to put significant pressures on its suppliers to reduce costs, including GMs intention to change suppliers if suppliers do not comply;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our business may be negatively impacted if GM or one of our other small number of customers were to cease or significantly reduce its purchases from us;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our combined operations will be dependent on the automotive and specialty vehicle markets in the United States that are influenced by a number of factors including the level of
disposable consumer income, OEM plant shutdowns, model year changeovers, atypical weather for any sales region, interest rates, gasoline prices, and OEM programs affecting price and supply;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our business depends on the growth of the hydrogen economy and the fuel cell market, which in turn is dependent on government regulations, hydrogen availability, consumer adoption
of our technologies, and refueling technology advancements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our business depends upon GMs and other OEMs commitment to the commercialization of the fuel cell and alternative fuel automotive markets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may never be able to introduce commercially viable fuel storage, fuel delivery, and electronic control systems for fuel cell systems;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | estimates for the development of a commercial market for fuel cell products and systems have lengthened in recent years, and a mass market may never develop or may take longer to
develop than anticipated;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to design and manufacture fuel systems for fuel cell applications that can be integrated into the products of OEMs will be critical to our business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are dependent on third party suppliers for the supply of key materials and components for our products;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | we may experience delays in the delivery of high-strength fiber from our suppliers due to shortages of this material;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | we may continue to experience delays in shipments due to evolving customer specifications and testing procedures;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | we depend on relationships with strategic partners, and the terms and enforceability of many of these relationships are not certain;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the market for fuel cell vehicles and alternative fuel vehicles may be sensitive to general economic conditions or consumer preferences;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we currently face and will continue to face significant competition;
| | - |  | --------------------------------------------------------------------



11



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##### Table of Contents

| |  |  | we depend on our intellectual property, and our failure to obtain, protect, and maintain the right to use certain intellectual property could adversely affect our future growth and
success;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we have limited experience manufacturing fuel systems for fuel cell applications at low rate initial production levels, and as a result, we may experience process and technical
difficulties that cause product shipments to be delayed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may need to raise additional capital in the future to achieve commercialization of our packaged fuel systems products and technologies and to develop facilities for mass
production of these products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not meet our product development and commercialization milestones;
| | - |  | -------------------------------------------------------------------------



| |  |  | our business could suffer if we fail to attract and maintain key personnel;
| | - |  | ---------------------------------------------------------------------------



| |  |  | we may be affected by skilled labor shortages and labor disputes at OEM facilities;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | we may be subject to warranty claims, and our provision for warranty costs may not be sufficient;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | our insurance may not be sufficient;
| | - |  | ------------------------------------



| |  |  | 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;
| | - |  | -------------------------------------------------------------



| |  |  | changes in environmental policies could hurt the market for our products;
| | - |  | -------------------------------------------------------------------------



| |  |  | the development of uniform codes and standards for hydrogen fuel cell vehicles and related hydrogen refueling infrastructure may not develop in a timely fashion;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the market price and trading volume of our common stock may be volatile;
| | - |  | ------------------------------------------------------------------------



| |  |  | 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; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions of Delaware law and of our charter and bylaws may make a takeover or change in control more difficult.
| | - |  | -----------------------------------------------------------------------------------------------------------------



This list of factors above 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, 2004 and in the Registration Statement on
Form S-4 (No. 333-121436) that we filed with the SEC on January 19, 2005 in connection with our acquisition of Starcraft. All forward-looking statements in this report are made as of the date hereof, based on information available to us as of the
date hereof, and we assume no obligation to update or revise any of these forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.



Merger with Starcraft Corporation



On March 3, 2005, at a reconvened Special Meeting of Quantum stockholders held in Irvine,
California, our stockholders approved a proposal to issue shares of Quantum common stock in connection with and pursuant to the previously announced Agreement and Plan of Merger with Starcraft.



On March 3, 2005, we completed the planned merger with Starcraft. Pursuant to the terms set
forth in the merger agreement, we will operate Starcraft as our wholly-owned subsidiary.



In connection with the merger, each share of Starcraft common stock that was outstanding at the effective time of the merger was converted into the right to receive 2.341 shares of Quantum common stock. Total Quantum
shares issued in connection with the merger amounted to approximately 21.0 million shares and represent approximately 40% of the total Quantum shares outstanding following the completion of the merger.



Under the purchase method of accounting, the total estimated consideration for the
transaction is $145.9 million and consists of the exchange of Starcraft shares for our common stock valued at $134.6 million, cash payments for Starcraft stock options and directors shares of $7.1 million, direct transaction fees and expenses
of $3.2 million, and a separation agreement with Starcrafts chairman of the board valued at $1.0 million.



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The long-term indebtedness of Starcraft and its subsidiaries remained outstanding following the merger, including
Starcrafts 8.5% convertible subordinated promissory notes due July 1, 2009 in the aggregate principal amount of $15.0 million and approximately $14.7 million in other long-term indebtedness (as of January 2, 2005).



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Overview



Prior to our merger with Starcraft, our primary business consisted of design, manufacture, and supply of packaged fuel systems to Original Equipment Manufacturers
(OEMs) for use in alternative fuel vehicles and fuel cell applications. With the addition of Starcraft, our combined business will include Starcrafts automotive supply operations, primarily consisting of second-stage manufacturing
of pick-up trucks and sport utility vehicles. Starcraft also has engineering and design capabilities for concept vehicles and distributes automotive accessories through a dealer network. The discussion that follows describes our operations exclusive
of Starcraft as the merger was completed subsequent to the period covered by this report.



For automotive OEMs, we provide hydrogen systems for both internal combustion engine and fuel cell vehicles, and natural gas fuel systems for internal combustion engine vehicles. In the area of hydrogen refueling
infrastructure, we offer several hydrogen refueling systems focused on early infrastructure development.



Our advanced fuel systems for fuel cell applications are used in transportation and industrial vehicles, for stationary and portable power generation, and in hydrogen refueling products for the infrastructure to
support fuel cell vehicles. Our packaged 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 approximately 18,000 fuel systems for alternative fuel vehicles, primarily to General Motors Corporation and its affiliates
(General Motors), which in turn has sold substantially all of these 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 manufactured in high volumes and will require additional product development over the next five years for commercialization; however,
we believe that a commercial market will begin to develop for these products over the next five years. 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.



Our revenues and cash flows are dependent on
the advancement of OEM fuel cell technologies, our OEM customers internal plans, the technology required of our storage systems to meet evolving OEM specifications and spending levels, and timing for pre-production development programs and
commercial production. Our business depends on the industry-wide growth of the hydrogen and alternative fuel markets, which in turn is dependent on regulations, laws, hydrogen availability and refueling infrastructure, technology advancements,
government advocacy, and consumer adoption of fuel cell and alternative fuel technologies on a commercial scale. In evaluating financial condition and operating results, we assess these industry-wide factors and the potential impact on our business.



Our industry is also dependent on a limited number of third party suppliers of
materials and components for our products, particularly high-strength fiber. Any quality or supply issue with these materials and components can negatively impact our business. During the first half of fiscal 2005, we experienced shortages of
high-strength fiber from our primary supplier due to industry-wide demand and short-term capacity issues. This shortage of fiber negatively impacted the timing of certain contract activities during the first nine months of fiscal 2005. Although the
short-term capacity issues were resolved, we could experience supply shortages or the discontinuance of certain fiber products in the future. These supply issues could negatively impact our ability to develop and manufacture fuel storage systems for
our customers.



A significant portion of our business is generally related to
alternative fuel automotive sales, which vary directly with the production schedules of our OEM customers. The market for alternative fuel vehicles is sensitive to general economic conditions, government agency and commercial fleet spending, and
consumer preferences. The rate at which our customers sell alternative fuel vehicles depends on their marketing strategy, as well as company specific inventory and incentive programs. Any significant reduction or increase in alternative fuel
production by our OEM customers may have a material effect on our business.



In
managing our business, our management utilizes several non-financial factors to analyze our performance. We assess the extent to which current programs are progressing in terms of timing and deliverables and the success to which our systems are
interfacing with our customers fuel cell applications. We also assess the degree to which we secure additional programs or new programs from our current or new OEM customers and the level of government funding we receive for hydrogen-based
systems and storage solutions.



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We classify our business operations into four reporting segments: the Fuel Cell Systems segment, the Alternative Fuels
segment, Advanced Research & Product Development, and Corporate.



The Fuel
Cell Systems segment 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 segment 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.



The Alternative Fuels segment generates revenue through the sale of compressed
natural gas (CNG), propane (LPG), and hydrogen fuel storage, fuel delivery, and electronic control systems for internal combustion engine applications. The Alternative Fuels segment 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 alternative fuel vehicles. The chief operating decision maker allocates resources
and tracks performance by each of the four reporting segments.



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



We expense all research and development when incurred. Research and development expenses include both customer-funded research and
development, and company-sponsored research and development. For segment reporting purposes, research and development expenses are allocated to the Fuel Cell Systems and the Alternative Fuels 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 Fuel Cell Systems or the Alternative Fuels 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.



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.



Customers
representing over 10% of total revenues are as follows:



|                                  |  |                                |   |  |                               |   |  |      |   |  |      |  
|--------------------------------- |  | ------------------------------ | - |  | ----------------------------- | - |  | ---- | - |  | ---- | -
|                                  |  | Three Months Ended January 31, |   |  | Nine Months Ended January 31, |  
|                                  |  | 2004                           |   |  | 2005                          |   |  | 2004 |   |  | 2005 |  
|General Motors and its affiliates |  | 38.0                           | % |  | 36.1                          | % |  | 37.7 | % |  | 55.8 | %
|Toyota Motor Corporation          |  | 30.3                           | % |  | 47.4                          | % |  | 41.2 | % |  | 28.8 | %



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 may 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.



Under the alliance, we have committed to spend $4.0 million annually for specific research and development projects directed by General Motors to speed the
commercialization of our fuel cell related products. While this commitment was waived by General Motors for calendar years 2002 and 2003, we cannot assure you that this commitment will be waived in the future. We have agreed upon a Directed Research
and Development Statement of Work (the SOW) with General Motors that covers the period from May 15, 2004 though May 14, 2005. The SOW outlines specific tasks for the advancement of compressed fuel storage technologies enabling improved
performance. Total spending under the SOW is expected to be approximately $2.9 million and is primarily funded under the Advanced Research & Product Development segment. Each party will retain the ownership of its existing technology and will
jointly own technology that is created under the alliance. We have the opportunity 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.



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##### Table of Contents

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. This intangible asset is being amortized over the ten-year term of the strategic alliance with General Motors, subject to periodic evaluations for impairment.



Separation from IMPCO. On July 23, 2002, IMPCO completed the distribution and spin-off of Quantum 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 pricing terms for goods and services covered by the commercial agreements reflected negotiated prices. These agreements expire thru July 22, 2007.



Critical Accounting Policies and Estimates



The discussion and analysis of our financial condition and results of operations are based
upon our financial statements that have been prepared in accordance with U.S. generally accepted accounting principles 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.



Management considers an accounting estimate to
be critical if:



| |  |  | it requires assumptions to be made that were uncertain at the time the estimate was made; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Our management has discussed the development and selection of
these critical accounting policies and estimates with the audit committee of our board of directors, and the audit committee has reviewed the disclosure presented below relating to them. We believe the critical accounting policies described below
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. Our estimates of contract costs are based on expectations of engineering development time and materials and other support costs. These estimates can change based on unforeseen technology and
integration issues, but known risk factors and contract challenges are generally allowed for in the initial scope and cost estimate of the program. Historically, our final contract costs have approximated the initial estimates and any unforeseen
changes in the estimates have not resulted in a material impact to financial results. 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
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | 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. As part of our estimate, we rely upon future planned design configurations and projected alternative usage of certain components estimated by engineering. We also consider estimated demand for
service and warranty parts based on historical information. If actual usage rates or market conditions are less favorable than those projected by management, inventory write-downs may be required.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We conduct a major portion of our business with a limited number of customers. For the past year and for the foreseeable future, General Motors (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 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 January 31, 2005, 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 include 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Accounting Pronouncements



In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151, Inventory Cost. This Statement amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (scrap). SFAS No. 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that the allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for inventory costs incurred in fiscal years beginning after June 15, 2005. As such, we plan to adopt these provisions for our annual reporting period
beginning May 1, 2006. We are currently evaluating the impact that SFAS No. 151 will have on our financial statements.



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In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation, supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.
SFAS No. 123R requires the expensing of unvested stock options in the first interim or annual reporting period that begins after June 15, 2005. As such, we plan to adopt these provisions for our second quarter beginning August 1, 2005. Currently, we
account for stock options using the intrinsic value method of reporting prescribed by Accounting Principles Board Opinion (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and
provide footnote disclosure of the compensation expense associated with stock options. We are currently analyzing which method will be the most appropriate to estimate fair value of stock-based compensation upon adoption of SFAS 123R. We anticipate
that fair value estimates will be consistent with pro forma disclosures reported in note 8 to the condensed financial statements, although actual compensation expense will be higher as a result of 1,530,000 additional options granted on March 3,
2005.



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##### Table of Contents

Results of Operations



Three and nine months ended January 31, 2004 and 2005



Net revenues and operating income (loss) for our reportable business segments were as follows:



|                                        |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|--------------------------------------- |  | ------------------------------ | ---------- | - | ----------------------------- | - | ---------- | ------ |  | --- | ---- |  | - | ---------- | - |  | ------ | ---------- | - |  | ---- | --
|                                        |  | Three Months Ended January 31, |            |   | Nine Months Ended January 31, |  
|                                        |  | 2004                           |            |   | 2005                          |   |            | Change |  |     | 2004 |  |   | 2005       |   |  | Change |           
|Revenue                                 |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|Fuel Cell Systems                       |  | $                              | 2,571,989  |   |                               | $ | 4,259,958  |        |  | 66  | %    |  | $ | 10,412,728 |   |  | $      | 10,109,554 |   |  | (3   | )%
|Alternative Fuels                       |  |                                | 1,850,373  |   |                               |   | 1,132,344  |        |  | (39 | )%   |  |   | 8,612,938  |   |  |        | 6,599,364  |   |  | (23  | )%
|Advanced Research & Product Development |  |                                |           |   |                               |   |           |        |  | 0   | %    |  |   |           |   |  |        |           |   |  | 0    | % 
|Corporate                               |  |                                |           |   |                               |   |           |        |  | 0   | %    |  |   |           |   |  |        |           |   |  | 0    | % 
|                                        |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|Total                                   |  | $                              | 4,422,362  |   |                               | $ | 5,392,302  |        |  | 22  | %    |  | $ | 19,025,666 |   |  | $      | 16,708,918 |   |  | (12  | )%
|                                        |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|Operating Income (Loss)                 |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|Fuel Cell Systems                       |  | $                              | (276,748   | ) |                               | $ | (71,879    | )      |  | 74  | %    |  | $ | 1,589,199  |   |  | $      | (291,430   | ) |  | (118 | )%
|Alternative Fuels                       |  |                                | (936,870   | ) |                               |   | (1,107,664 | )      |  | (18 | )%   |  |   | (2,485,606 | ) |  |        | (3,086,987 | ) |  | (24  | )%
|Advanced Research & Product Development |  |                                | (825,665   | ) |                               |   | (689,718   | )      |  | 16  | %    |  |   | (2,535,704 | ) |  |        | (2,123,871 | ) |  | 16   | % 
|Corporate (1)                           |  |                                | (1,217,481 | ) |                               |   | (1,327,191 | )      |  | (9  | )%   |  |   | (3,668,735 | ) |  |        | (3,844,927 | ) |  | (5   | )%
|                                        |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   
|Total                                   |  | $                              | (3,256,764 | ) |                               | $ | (3,196,452 | )      |  | 2   | %    |  | $ | (7,100,846 | ) |  | $      | (9,347,215 | ) |  | (32  | )%
|                                        |  |                                |            |   |                               |   |            |        |  |     |      |  |   |            |   |  |        |            |   |  |      |   

---

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



Overall total revenue increased $1.0 million and decreased $2.3 million during the three and nine-month periods in fiscal 2005, respectively, as compared to the same
periods in fiscal 2004. The increase in the third quarter was mainly attributable to higher product sales and contract revenues in the Fuel Cell Systems segment partially offset by decreases in product sales in the Alternative Fuels segment. Third
quarter product sales in the Fuel Cell Systems segment include shipments of fuel storage systems that had been delayed during the first half of fiscal 2005 due to interruptions in our storage system production in order to satisfy requirements on
product specifications and to perform additional testing and process validation. The increase in customer-funded development contract revenue was mainly attributable to new and expanded programs in the Fuel Cell Systems segment for the development
of fuel delivery systems on behalf of automotive OEM customers and military programs. Lower order volume was the primary factor in decreased product sales in the Alternative Fuels segment as compared to the third quarter of fiscal 2004.



The decline in product sales was primarily responsible for the increase in overall net
operating loss for the nine-month period in fiscal 2005 as compared to the same period in fiscal 2004.



Fuel Cell Systems. Product sales increased 85% for the third quarter of fiscal 2005 compared to fiscal 2004 from $1.3 million to $2.4 million and decreased 46% for the first nine months of fiscal 2005 compared
to fiscal 2004 from $8.0 million to $4.3 million. Product sales primarily consists of sales associated with Toyota Motor Corporations (Toyota) fuel cell SUV platform and bus platform equipped with our hydrogen fuel metering and
fuel storage systems. We anticipate that we will be able to ship the remaining delayed orders, amounting to approx $0.2 million, during the fourth quarter. Revenue from product sales has decreased for the first nine months of fiscal 2005 as compared
to the same period in fiscal 2004 primarily due to lower passenger vehicle SUV platform orders.



Cost of product sales for the Fuel Cell Systems segment increased 375% for the third quarter of fiscal 2005 compared to fiscal 2004 from $0.4 million to $1.9 million and decreased 3% for the first nine months of
fiscal 2005 compared to fiscal 2004 from $2.9 million to $2.8 million. The increase in costs during the third quarter was a result of larger volume of product sales for the period in addition to higher unit costs incurred as a result of the
additional product testing and process validation implemented during the second and third quarters.



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Contract revenue for the Fuel Cell Systems segment increased 58% for the third quarter of fiscal 2005 compared to fiscal
2004 from $1.2 million to $1.9 million and increased 142% for the first nine months of fiscal 2005 compared to fiscal 2004 from $2.4 million to $5.8 million. Contract revenue is derived primarily from system development and application engineering
of our products under funded OEM contracts, and other funded contract work with the military and other government agencies. The increase was primarily due to new and expanded programs for the development of fuel delivery systems on behalf of
automotive OEM customers and military programs. We anticipate that contract revenue from these development programs for the 2005 fiscal year will remain higher than the 2004 fiscal year.



Research and development expenses associated with cost of contract revenue included in our Fuel Cell Systems segment increased 50% for the
third quarter of fiscal 2005 compared to fiscal 2004 from $0.8 million to $1.2 million and increased 113% for the first nine months of fiscal 2005 compared to fiscal 2004 from $1.6 million to $3.4 million. The increase in research and development
expenses associated with cost of contract revenues was due to the increase in contract revenue for the third quarter and first nine months of fiscal 2005.



Internally funded research and development expense for the Fuel Cell Systems segment decreased 40% for the third quarter of fiscal 2005 compared to fiscal 2004 from $1.5
million to $0.9 million and decreased 15% for the first nine months of fiscal 2005 compared to fiscal 2004 from $4.0 million to $3.4 million. The decrease in the third quarter and for the nine months of fiscal 2005 is mainly attributable to a
greater emphasis on utilizing internal resources for customer specific projects as compared to the previous year.



Operating loss for the Fuel Cell Systems segment decreased 67% for the third quarter of fiscal 2005 compared to fiscal 2004 from $0.3 million to $0.1 million and
operating income decreased from $1.6 million for the first nine months of fiscal 2004 to an operating loss of $0.3 million for the same period in fiscal 2005. The favorable decrease in operating loss for the third quarter is mainly attributable to
the higher volume of product sales. The unfavorable decrease in operating income for the nine-month period is primarily due to lower margins realized on product sales.



Alternative Fuels. Product sales decreased 64% for the third quarter of fiscal 2005 compared to fiscal 2004 from $1.4 million to $0.5
million and decreased 37% for the first nine months of fiscal 2005 compared to fiscal 2004 from $6.7 million to $4.2 million. Product revenue consists of sales associated with General Motors mid-size automobiles and pick-up trucks equipped
with our compressed natural gas fuel systems. The decrease in the third quarter is mainly due to lower volume and to a lesser extent lower average unit prices related to fuel storage systems designed for truck applications. Additionally, the
decrease in revenues was a result of General Motors discontinuance of the mid-size vehicle platform. We expect most of our product sales in this segment for the remainder of fiscal 2005 to be related to fuel storage systems designed for truck
applications.



Cost of product sales for the Alternative Fuels segment
decreased 67% for the third quarter of fiscal 2005 compared to fiscal 2004 from $1.2 million to $0.4 million and decreased 35% for the first nine months of fiscal 2005 compared to fiscal 2004 from $6.3 million to $4.1 million. The decrease in costs
was mainly due to the decline in units produced.



Contract revenue for the
Alternative Fuels segment increased 50% for the third quarter of fiscal 2005 compared to fiscal 2004 from $0.4 million to $0.6 million and increased 26% for the first nine months of fiscal 2005 compared to fiscal 2004 from $1.9 million to $2.4
million. Contract revenue is derived primarily from 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. The increase in
revenue for the first nine months of fiscal 2005 was primarily attributable to engineering, design, and integration activities related to hydrogen internal combustion engine applications.



Research and development associated with cost of contract revenues for the Alternative Fuels segment increased 33% for the second quarter of
fiscal 2005 compared to fiscal 2004 from $0.3 million to $0.4 million and increased 83% for the first nine months of fiscal 2005 compared to fiscal 2004 from $0.6 million to $1.1 million. The increased spending in the first nine months of fiscal
2005 was due to higher levels of contract activities.



Operating loss for the
Alternative Fuels segment increased 22% for the third quarter of fiscal 2005 compared to fiscal 2004 from $0.9 million to $1.1 million and increased 24% for the first nine months of fiscal 2005 compared to fiscal 2004 from $2.5 million to $3.1
million. The higher operating losses were primarily attributable to lower product revenue and declines in gross margins due to the lower volumes during the first nine months of fiscal 2005.



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Advanced Research & Product Development. Advanced research & product development activities decreased 12%
for the third quarter of fiscal 2005 compared to fiscal 2004 from $0.8 million to $0.7 million and decreased 16% for the first nine months of fiscal 2005 compared to fiscal 2004 from $2.5 million to $2.1 million. Research and development activities
during fiscal 2005 have focused a greater percentage of efforts on development contracts with our customers resulting in declines in research and development projects that are internally funded.



Corporate. Corporate expenses increased 8% for the third quarter of fiscal 2005
compared to fiscal 2004 from $1.2 million to $1.3 million and increased 3% for the first nine months of fiscal 2005 compared to fiscal 2004 from $3.7 million to $3.8 million. The increase for the third quarter is primarily related to additional
activities for investor relations.



Interest Income, Net. During the
first nine months of fiscal 2005, we recorded approximately $0.7 million in interest income, net of advisor fees, associated with our marketable securities. In the first nine months of fiscal 2004, we recorded approximately $0.2 million in net
interest income. The higher level of net interest income earned is due to the investment of the proceeds of our public equity offering completed in the second quarter of fiscal 2004.



Provision for Income Taxes. Income tax expense remained minor due to our net losses during the current period. A full valuation
allowance has been established for our net deferred tax assets due to our lack of earnings history. We expect that income tax expense for fiscal 2005 will be the same as fiscal 2004 as we expect to continue to incur operating losses during the
remainder of fiscal 2005. The tax credits and net operating losses incurred through the date of the distribution remained with IMPCO.



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Liquidity and Capital Resources



Our principal sources of liquidity at January 31, 2005 include cash and cash equivalents of $13.3 million, short-term marketable securities
of $39.0 million, and long-term marketable securities of $7.8 million.



In July
2002, we received $15.0 million in connection with our spin-off from IMPCO. 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, all of which has been used for working capital purposes and is now fully exhausted. In October 2003, we completed a public equity offering of an aggregate of 8,050,000 shares of our common stock at a price of $8.00 per share, which
yielded net proceeds of $60.1 million.



We believe that working capital will be
adequate to meet the liquidity needs of the combined operations of our business and Starcrafts business for at least the next twelve months. As of January 31, 2005, we had no material indebtedness or commitments for capital expenditures.



Our long-term cash requirements depend on numerous factors. Our Fuel Cell
Systems segment and the Alternative Fuels segment are dependent on factors such as the advancement of OEM fuel cell technologies, development and commercialization timing of our products, customer funding of application development programs, and
other industry-wide growth factors. Starcrafts business is dependent on factors such as economic conditions, including levels of disposable consumer income, the availability and price of gasoline, the level of interest rates, and the
availability of consumer financing. Competition and a reliance on a single customer, General Motors, are additional factors that may impact our future combined operations.



We may require additional sources of financing to complete product and application development, develop facilities for commercialization and
mass production of our products and systems, and to take advantage of strategic opportunities. 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.



Net cash used in operating activities was $7.5 million during the first nine months of fiscal 2005 as compared to a net use of $4.2 million for the same period in fiscal 2004. The increase in cash used in operating activities primarily
resulted from higher net losses in the current period and higher customer collections in the prior year period. Specifically, the net loss was $8.7 million in the current period versus a net loss of $6.9 million in the prior period and accounts
receivable increased $0.1 million in the current period versus a decline of $1.8 million in the prior period.



Net cash provided by investing activities during the first nine months of fiscal 2005 was $4.8 million as compared to a net use of $38.6 million during the first nine months of fiscal 2004. The net use reflected in
the prior period was primarily due to the initial investment of the proceeds from the October 2003 public equity offering into marketable securities in the amount of $37.7 million. The net cash provided in the current period is mainly as a result of
maturities on our marketable securities exceeding the levels of reinvestment in longer-term securities by $6.0 million near the end of the current quarter; thus providing us with sufficient liquidity to complete the merger transaction with
Starcraft. Purchases of equipment and leasehold improvements were $1.0 million for the first nine months of fiscal 2005 as compared to $0.9 million for the first nine months of the prior fiscal year. Pre-merger costs paid during the current period
amounted to $0.3 million.



Net cash provided by financing activities during the
first nine months of fiscal 2005 was $0.2 million as compared to $62.7 million provided during the first nine months of fiscal 2004. Cash provided during the first nine months of fiscal 2004 was principally from proceeds from the public equity
offering in October 2003.



The ratio of current assets to current liabilities
was 10.6:1 at April 30, 2004 and 12.7:1 at January 31, 2005. During the first nine months of fiscal 2005, our total working capital increased by $2.5 million, from $57.7 million at the end of fiscal 2004 to $60.2 million at January 31, 2005.



Quantitative and Qualitative Disclosures About Market Risk



We are exposed to market risk from changes in interest rates due to our financing,
investing, and cash management activities. Specifically, our cash and marketable securities are subject to fluctuations in interest rates. Based on our cash and marketable securities balance at January 31, 2005, a 1% decrease in interest rates would
result in reduced annual interest income of approximately $0.6 million.



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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.



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 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.



PART IIOTHER INFORMATION



Item 6. Exhibits.



|              |  |                                                                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                 
|2.1           |  | Agreement and Plan of Merger, by and among Registrant, Quake Sub, Inc. and Starcraft Corporation, dated as of November 23, 2004 (previously filed as Exhibit 2.1 to the Registrant's Current
Report on Form 8-K, filed on November 23, 2004)
|              | 
|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                                                                                                            



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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: March 9, 2005



QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.By:

/s/ WILLIAM B. OLSONWilliam B. Olson, Chief Financial Officer and Treasurer [Authorized Signatory and Principal Financial Officer]






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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                 
|              | 
|2.1           |  | Agreement and Plan of Merger, by and among Registrant, Quake Sub, Inc. and Starcraft Corporation, dated as of November 23, 2004 (previously filed as Exhibit 2.1 to the Registrant's Current
Report on Form 8-K, filed on November 23, 2004)
|              | 
|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                                                                                                            



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