Quantum Fuel Systems Technologies Worldwide Inc. Annual Report 2002

FY2002 Annual Report · Quantum Fuel Systems Technologies Worldwide Inc.

Loading PDF…

GM’s Revolutionary Hy-wire Fuel Cell Vehicle

The GM-Quantum Fuel Cell Alliance went into effect July 2002.

• The alliance members codevelop fuel cell enabling technologies and markets
• The alliance members bring fuel cell applications to market faster
• Quantum gains access to other GM alliances and technologies
• Quantum gains access to global distribution channels and supply chains
• GM becomes QUANTUM’s largest shareholder with a 19.9% equity position

QUANTUM’s Other Market Opportunities

Annual Report

2002

N O L O G I

GM’s Revolutionary Hy-wire Fuel Cell Vehicle

The GM-Quantum Fuel Cell Alliance went into effect July 2002.

QUANTUM’s Other Market Opportunities

Annual Report

2002

N O L O G I

Company Overview
We design, manufacture, and supply integrated high tech fuel systems to original equipment
manufacturers (OEMs) of fuel cell applications and alternative fueled vehicles. These
fuel cell applications include transportation and industrial vehicles, and stationary and
portable power generation. Alternative fuel vehicles include cars, trucks, and buses powered
by internal combustion engines that operate primarily on natural gas or propane. Our
advanced fuel systems comprise the storage, metering, control and injection of gaseous fuels
to improve efﬁ ciency, enhance power output, and optimize pollutant emissions from fuel
cell systems and internal combustion engines. Our fuel systems enable fuel cells and internal
combustion engines to operate on hydrogen, natural gas or propane.

Our integrated gaseous fuel systems are based on the following core competencies:

Letter To the Shareholders

Dear Shareholder:

This past year proved to be an exciting one for Quantum. We completed our spin-off from Impco Technologies in July 2002, which
consummated our strategic position in General Motor’s Global Fuel Cell Alliance, from which we are already seeing beneﬁ ts. Our
ﬁ nancial performance improved dramatically toward the end of ﬁ scal year 2002 with further improvements reported in the ﬁ rst quarter
of ﬁ scal year 2003. We anticipate further reductions in cash used in operations and have solidiﬁ ed our focus on reaching near-term
proﬁ tability. Over the last year, we cultivated 12 new customer relationships, primarily in the area of hydrogen fuel systems for fuel
cell applications. We are expanding our opportunities relating to fuel cell applications and continuing to strengthen our technology
leadership position. We are proud of our accomplishments and are excited by the opportunities that lie ahead of us.

Fuel Storage
Advanced composite, ultra-
lightweight tanks designed and
manufactured by Quantum
provide cost-effective storage of
large quantities of hydrogen or
natural gas.

Fuel Metering
Pressure regulators, fuel
injectors, ﬂ ow control valves,
and other components designed
and manufactured by Quantum
control the pressure and ﬂ ow of
gaseous fuels.

Electronic Controls
Solid-state components and
proprietary software designed,
developed and manufactured
by Quantum monitor and
optimize fuel pressure and ﬂ ow
to meet manufacturers’ fuel cell
or internal combustion engine
requirements.

Systems Integration
Engineering design services
efﬁ ciently package and
optimize the performance and
safety of gaseous fuel storage,
metering and electronic control
components.

Fuel Storage
Fuel Storage

Fuel Metering
Fuel Metering

Electronic Controls
Electronic Controls

Systems Integration
Systems Integration

Alternative
Fuel Vehicles
CNG LPG H2

Fuel Cell
Applications

H2 Refueling
Infrastructure

Mobile

Stationary

Spin-off Completed
July 2002

General Motors /
Quantum Strategic
Fuel Cell System
Alliance

Financial Focus:
Reaching Proﬁ tability

The spin-off was completed in July 2002. We believe that our separation from IMPCO gives us improved
access to the capital markets and allows our management team to focus on hydrogen fuel systems
development and other opportunities with vehicle manufacturers in the OEM alternative fuel market. We
continue our relationship with Impco in the form of a strategic alliance. This will provide us access to
Impco’s global distribution network for our advanced technologies, such as tanks and injectors, for use
in Impco’s vast transportation, bus, truck and industrial markets. Immediately following the spin-off,
General Motors became Quantum’s largest shareholder, with a 19.9% equity stake.

The spin-off set our strategic alliance with General Motors in motion. We believe that this strategic
alliance will advance and commercialize the integration of our hydrogen storage and handling systems
into fuel cell applications. GM is promoting us as their recommended provider of storage and handling
systems. We have already derived beneﬁ ts from the alliance, as evidenced by our recent announcement
with Suzuki, a GM afﬁ liate, in which we will supply our proprietary hydrogen fuel storage and
regulation systems for Suzuki’s fuel cell vehicles. We have also gained access to other GM’s alliances,
technologies, distribution channels, and supply chains. GM’s Global Fuel Cell Alliance is focused on
commercialization of fuel cell products. Other industry leaders joining Quantum in the alliance include:
Giner Electrochemical Systems, Hydrogenics Corporation, and General Hydrogen Corporation.

Our ﬁ nancial focus is to reach proﬁ tability within the next two years. Important components of this
focus include our existing alternative fuel business, which generated over $15 million in natural gas and
propane product sales during ﬁ scal year 2002, and our growing hydrogen storage and handling business
for fuel cell applications. We have alternative fuel systems development and production programs
with General Motors through 2006. We will soon recognize additional product revenues from other
OEM customers. The margins on the ﬁ scal 2002 product sales were disappointing, but have improved
in the ﬁ rst quarter of ﬁ scal year 2003 due to improved pricing arrangements. We anticipate additional
improvements in product margins as we streamline our operations and realize economies of scale on
production.

We experienced an increase in fuel cell related projects including hydrogen storage, and metering related
contracts over the last three ﬁ scal quarters. These programs are advancing rapidly, and we expect to be in
production on certain programs within the next two years.

We made some very difﬁ cult decisions last year in order to reduce cash used in operations. We made
signiﬁ cant staff reductions and consolidated facilities while refocusing our resources to minimize the
impact on customers programs. Additionally, we secured outside funding to offset internal spending
on research and development. We also initiated contract services to provide for full utilization of
testing equipment and facilities. Furthermore, we are transitioning from the pre-production phase to
the commercialization phase of our core technologies, which inherently requires fewer research and
development dollars.

We continue to focus on managing our cash position through cost controls and increased efforts to grow
contract and product revenues, both of which are critical elements to reach proﬁ tability.

Corporate Information

Annual Stockholders’ Meeting

The annual meeting of stockholders for

Officers & Directors
Alan P. Niedzwiecki

President & Chief Executive Ofﬁ cer

Quantum Fuel Systems Technologies Worldwide, Inc.,

W. Brian Olson

will be held November 21, 2002, at 1:30 p.m. at

Quantum’s Advanced Technology Center,

17872 Cartwright Road, Irvine, CA 92614.

Corporate Counsel

Morrison & Foerster LLP

Independent Auditors

Ernst & Young LLP

Transfer Agent and Registrar

Mellon Investor Services LLP

85 Challenger Road

Ridgeﬁ eld, NJ 07660

800-522-6645

Corporate Headquarters

17872 Cartwright Road

Irvine, CA 92614

949-399-4500

Chief Financial Ofﬁ cer & Treasurer

Cathryn T. Johnston

Corporate Secretary

Raymond W. Corbin

Executive Director, Alternative Fuel Programs

Thomas K. Wiedmann

Vice President, Research & Development

Directors

Dale L. Rasmussen, Chairman

Senior Vice President & Secretary of IMPCO
Technologies, Inc.

Brian A. Runkel

Environmental Consultant & Director of the California
Environmental Business Council

Scott Samuelsen

Director of the National Fuel Cell Research Center &
Professor at the University of California Irvine

NASDAQ Symbol: QTWW

Thomas J. Tyson

Consultant & Retired Chief Executive Ofﬁ cer of
General Electric’s Energy & Environmental Research
Corporation

Our integrated gaseous fuel systems are based on the following core competencies:

Letter To the Shareholders

Dear Shareholder:

Fuel Storage
Advanced composite, ultra-
lightweight tanks designed and
manufactured by Quantum
provide cost-effective storage of
large quantities of hydrogen or
natural gas.

Fuel Metering
Pressure regulators, fuel
injectors, ﬂ ow control valves,
and other components designed
and manufactured by Quantum
control the pressure and ﬂ ow of
gaseous fuels.

Systems Integration
Engineering design services
efﬁ ciently package and
optimize the performance and
safety of gaseous fuel storage,
metering and electronic control
components.

Fuel Storage
Fuel Storage

Fuel Metering
Fuel Metering

Electronic Controls
Electronic Controls

Systems Integration
Systems Integration

Alternative
Fuel Vehicles
CNG LPG H2

Fuel Cell
Applications

H2 Refueling
Infrastructure

Mobile

Stationary

Spin-off Completed
July 2002

General Motors /
Quantum Strategic
Fuel Cell System
Alliance

Financial Focus:
Reaching Proﬁ tability

We continue to focus on managing our cash position through cost controls and increased efforts to grow
contract and product revenues, both of which are critical elements to reach proﬁ tability.

Corporate Information

Annual Stockholders’ Meeting

The annual meeting of stockholders for

Officers & Directors
Alan P. Niedzwiecki

President & Chief Executive Ofﬁ cer

Quantum Fuel Systems Technologies Worldwide, Inc.,

W. Brian Olson

will be held November 21, 2002, at 1:30 p.m. at

Quantum’s Advanced Technology Center,

17872 Cartwright Road, Irvine, CA 92614.

Corporate Counsel

Morrison & Foerster LLP

Independent Auditors

Ernst & Young LLP

Transfer Agent and Registrar

Mellon Investor Services LLP

85 Challenger Road

Ridgeﬁ eld, NJ 07660

800-522-6645

Corporate Headquarters

17872 Cartwright Road

Irvine, CA 92614

949-399-4500

Chief Financial Ofﬁ cer & Treasurer

Cathryn T. Johnston

Corporate Secretary

Raymond W. Corbin

Executive Director, Alternative Fuel Programs

Thomas K. Wiedmann

Vice President, Research & Development

Directors

Dale L. Rasmussen, Chairman

Senior Vice President & Secretary of IMPCO
Technologies, Inc.

Brian A. Runkel

Environmental Consultant & Director of the California
Environmental Business Council

Scott Samuelsen

Director of the National Fuel Cell Research Center &
Professor at the University of California Irvine

NASDAQ Symbol: QTWW

Thomas J. Tyson

Consultant & Retired Chief Executive Ofﬁ cer of
General Electric’s Energy & Environmental Research
Corporation

Growing OEM
Customer Base

Opportunities in Fuel
Cell Applications

Technology Leader

General Motors remains our largest customer, and our strategic alliance enhances this relationship. The
alliance allows us to cultivate new relationships with other vehicle manufacturers. Over the last 12
months, we added several new customers. Some of these companies include: BMW, Ford, Opel, Suzuki,
and Toyota. We have also expanded our customer base in new markets including stationary power
generation, aerospace, and contract services. We expect our customer base to continue growing as we
advance our technologies and commercialize additional products and fuel systems.

We believe the market for our fuel cell enabling technologies will develop within the next few years.
Fuel cell vehicle application engineering is advancing at rates unexpected six months ago and we
anticipate vehicle product sales to develop during fiscal 2003. We expect to realize small production
volume levels during 2004 that will have a positive impact on our financial performance. We also believe
that the commercialization of stationary fuel cells for power generation, applications and hydrogen
refueling technologies will precede the volume production of fuel cell vehicles. We have already
diversified into these application areas with customers such as: Hydrogenics (fuel cell stationary power
generation), AeroVironment/NASA (fuel cell unmanned flying wing), and General Motors (refueling
technologies).

Our advanced hydrogen fuel storage and delivery system technologies were recently showcased on
General Motors’ revolutionary Hy-wire fuel cell platform, the world’s first drivable fuel cell and by-
wire vehicle. We developed these technologies and other engineering competencies by serving vehicle
manufacturers in the alternative fuel industry since the early 1990s. Because hydrogen is similar to other
alternative fuels familiar to Quantum, the modification of our technologies and competencies for the fuel
cell market has been an evolutionary process.

We believe our existing proprietary and patented technology base, coupled with our systems integration
expertise, gives us a significant advantage in the fuel cell market.

The year 2002 is noted as a new beginning for Quantum. Our technologies and competencies were built over many years, providing
us a solid foundation and deep technological heritage. We now start anew with a focused business plan, which we are beginning to
execute.

Our new beginning has created a heightened sense of excitement among us here at Quantum, and we are energized by the potential
we have to offer to our shareholders, customers and employees. We embrace the challenges that lie ahead, as we strive to continue
to increase our customer base, strengthen our technology leadership position and focus on profitability. We are looking forward to
our first year of operations as a stand-alone company, and we are confident that our successes to date will set the stage not only for
our first year, but also for many years into the future.

Sincerely,

Alan Niedzwiecki
President and Chief Executive Officer

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTQF8=D:Š
12*
1C

65938 FS 1
PMT

1KWYH2SGNTQF8=D

CLN

17-Sep-2002 20:44 EST

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2002

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
to
For the transition period from

Commission File No. 0-49629

QUANTUM FUEL SYSTEMS TECHNOLOGIES
WORLDWIDE, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

33-0933072
(IRS Employer
Identification Number)

17872 Cartwright Road, Irvine, CA 92614
(Address of principal executive offices, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act:
None

(Title of each class)

(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not

contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ‘

The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of July 26,

2002 was approximately $ 61,344,611, based upon the closing sale price of the Registrant’s Common Stock on
such date, as reported on the Nasdaq National Market. Shares of Common Stock held by each executive officer
and director and each person owning more than 5% of the outstanding Common Stock of the Registrant have
been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.

As of July 26, 2002, the Registrant had outstanding 14,142,036 shares of Common Stock, $.001 par value

per share, and 3,513,439 shares of Series A Common Stock, $.001 par value per share.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTQB7BDCŠ
6*
1C

65938 TX 1
PMT

1KWYH2SGNTQB7BD

CLN

17-Sep-2002 20:45 EST

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties.

These forward-looking statements are not historical facts but rather are based on current expectations, estimates
and projections about our industry, our beliefs and assumptions. We use words such as “anticipate,” “expect,”
“intend,” “plan,” “believe,” “seek,” “estimate” and variations of these words and similar expressions to identify
forward-looking statements. These statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could
cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include those described in “Risk Factors” and elsewhere in this Annual Report. You
should not place undue reliance on these forward-looking statements, which reflect our view only as of the date
of this Annual Report.

Item 1. Business.

Overview

PART I

We design, manufacture and supply integrated fuel systems to original equipment manufacturers (OEMs) of

fuel cell applications and alternative fuel OEM vehicles. These fuel cell applications include transportation and
industrial vehicles, stationary power generation and portable power generation. Alternative fuel OEM vehicles
include cars, trucks and buses powered by internal combustion engines that operate primarily on natural gas or
propane. Our advanced fuel systems comprise the storage, monitoring, control and injection of gaseous fuels to
improve efficiency, enhance power output, and reduce pollutant emissions from fuel cell systems and internal
combustion engines. Our fuel systems enable fuel cells and internal combustion engines to operate on hydrogen,
natural gas or propane.

We supply our advanced gaseous fuel systems for alternative fuel vehicle applications to OEM customers

for use by consumers and commercial and governments fleets. Since 1997, we have sold over 14,000 fuel
systems for alternative fuel vehicle applications, primarily to General Motors. General Motors has sold
substantially all of these vehicles to its customers. We also provide our integrated gaseous fuel systems for fuel
cell applications to major OEMs through funded research and development contracts and on a prototype basis.
These products are not currently used on a commercial basis and will require additional product development
over the next five years. Additionally, we believe that these systems will reach production volumes only if OEMs
produce fuel cell applications using our systems on a commercial basis. We believe that a commercial market for
our fuel cell enabling technologies will develop beginning in 2004 to 2005.

A number of automotive, industrial and power generation manufacturers are developing alternative clean
power systems using fuel cells or clean burning gaseous fuels, which decrease fuel costs, lessen dependence on
crude oil and reduce harmful emissions. We offer the following to enable the development and
commercialization of these systems:

•

fuel-storage—advanced composite, ultra-lightweight tanks that provide cost-effective storage of large
quantities of hydrogen or natural gas;

fuel delivery—pressure regulators, fuel injectors, flow control valves, and other components designed to
control the pressure, flow and metering of gaseous fuels;

electronic controls—solid-state components and proprietary software that monitor and optimize fuel
pressure and flow to meet manufacturers’ fuel cell or engine requirements; and

systems integration—services to integrate gaseous fuel storage, delivery and electronic control
components to meet OEM requirements.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTRS05DpŠ
10*
1C

65938 TX 2
PMT

1KWYH2SGNTRS05D

CLN

17-Sep-2002 20:45 EST

We believe that the market for our fuel cell enabling technologies will develop over the next 3-5 years in

conjunction with the expected commercialization of fuel cells. We plan to continue the development of our fuel
cell enabling technologies to meet this commercialization in 2004. We believe that the commercialization of
stationary fuel cells for residential, emergency back-up, and uninterruptible power supply (UPS) applications will
precede the volume production of fuel cell vehicles. We plan to focus our fuel cell enabling technology
marketing efforts on North America, Europe, and Asia-Pacific. The current market for our integrated gaseous
fuel systems is the expanding global market for OEM natural gas and propane vehicles. Based on the size and
growth rate for alternative fuel vehicles across the globe, we have focused our marketing efforts in Asia-Pacific,
Europe, South America, and North America.

We continually survey and evaluate the benefits of joint ventures, acquisitions and strategic alliances with

our customers and other participants in the alternative fuel vehicle industry and emerging fuel cell industry to
strengthen our global business position. We have focused our strategic alliances on expanding our market
opportunities and advancing the development of our technologies. We currently have strategic marketing
alliances with IMPCO Technologies, Inc., our former parent company, and General Motors. We have technology
development alliances with General Motors and ATK Thiokol Propulsion focused on the development of
enabling technologies for hydrogen fuel cell vehicles.

We were incorporated in Delaware in October 2000 as a wholly-owned subsidiary of IMPCO. On July 23,

2002, IMPCO distributed to its stockholders, on a pro-rata basis, all of the shares of our common stock owned by
IMPCO. In the distribution, IMPCO stockholders received one share of our common stock for each share of
IMPCO common stock owned as of July 5, 2002, the record date for the distribution. Immediately prior to the
distribution, IMPCO transferred to us substantially all of the operations, assets and liabilities constituting
IMPCO’s automotive OEM business, which had been operated by IMPCO as its Quantum division.

On July 24, 2002, we issued to General Motors an aggregate of 3,513,439 shares of our Series A common

stock, representing 19.9% of our total outstanding equity following such issuance, for consideration of a nominal
cash contribution and access to certain General Motors’ proprietary information. Our strategic alliance with
General Motors became effective at the same time. Under the alliance, we have committed to provide minimum
amounts of annual funding to projects approved under the alliance. Each party will retain the ownership of its
existing technology and will jointly own technology that is jointly created under the alliance. We will be free to
use jointly created technologies in certain aspects of our business but will be required to share revenues with
General Motors on fuel cell system-related products that are sold to General Motors or third parties.

Business Strategy

Our business strategy is to take advantage of current opportunities in the rapidly expanding international

market for natural gas and propane vehicles while also advancing our fuel cell enabling technologies. Our
objective is to be the leading developer and supplier of integrated systems that store gaseous fuels and monitor
and control the pressure and flow of those fuels for fuel cells and internal combustion engines. Our strategy for
achieving this objective includes the following elements:

Provide Fuel Systems to the Stationary Fuel Cell Power Generation Market. We plan to address demand

for stationary fuel cell applications by continuing to work with fuel cell manufacturers to develop and supply
integrated fuel systems for their stationary and portable power generation applications. We believe that the
commercialization of stationary fuel cells for residential, emergency back-up, and uninterruptible power supply
applications will precede the volume production of fuel cell vehicles. Several fuel cell manufacturers have
announced intentions of introducing stationary fuel cell products between 2002 and 2005.

Develop and Supply Integrated Fuel Systems for Fuel Cell Vehicle Applications. We will continue to
develop our fuel cell enabling technologies to assist fuel cell OEMs to expedite the commercialization of vehicle

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTRCTKDNŠ
6*
1C

65938 TX 3
PMT

1KWYH2SGNTRCTKD

CLN

17-Sep-2002 20:45 EST

applications. We intend to leverage our systems integration expertise in OEM alternative fuel vehicle
applications and apply that experience in the emerging fuel cell vehicle market. Most of the major OEM
automotive manufacturers have announced intentions to introduce fuel cell vehicles beginning in 2004 to 2005.
We will focus our fuel cell enabling technology business development priorities in North America, Europe and
Asia-Pacific.

Focus Research and Development on Fuel Cell Enabling Technologies. We intend to focus our research

and development efforts on advancing our fuel cell enabling technologies and systems to succeeding generations
to further improve performance and reduce cost. We plan to continue to expand our research and development in
fuel storage, fuel delivery and electronic control systems for fuel cells. We will actively seek to establish joint
development programs and strategic alliances with the major fuel cell developers and industry leaders in these
markets. For example, under our alliance with General Motors, we will co-develop technologies that will aid in
the more rapid commercialization of fuel cell applications.

Expand Participation in the Development of Industry Standards. Members of our management team have

served on the boards of key fuel cell and alternative fuel vehicle industry organizations, including California
Hydrogen Business Council, CalStart/Weststart, National Hydrogen Association, Natural Gas Vehicle Coalition
and U.S. Fuel Cell Council. Codes and standards cover the safety aspects of fuel cell systems in vehicle, test
procedures to establish the performance of the system/components, and interface requirements. We plan to
expand our participation in national and international organizations that can influence international standard
setting organizations for alternative fuel vehicles, fuel cell applications, and related supporting infrastructure. We
will focus our involvement in these organizations to promote standards that are performance-based and consistent
with and inclusive of our technologies.

Increase our Participation in the Alternative Fuel OEM Vehicle Markets. We plan to leverage our

technology and systems integration capabilities in the OEM alternative fuel vehicle markets to expand our
customer base and enter new OEM markets. We believe that significant opportunities for growth exist in
international markets. Based on the size and projected growth rate for alternative fuel vehicles across the globe,
we have prioritized our business development efforts in Asia-Pacific, Europe, South America and North
America.

Business Operations

Overview. We develop and manufacture cost-effective and efficient gaseous fuel storage, fuel delivery and

electronic control systems for OEM passenger and fleet vehicles. We also target the emerging fuel cell industry,
which includes the transportation, industrial vehicle, and stationary and portable power generation markets, and
the hydrogen-refueling infrastructure to be developed to support fuel cell vehicles. Our capabilities include the
following:

•

research and development;

application engineering and validation;

fuel cell power system controls and validation;

hydrogen and compressed natural gas fuel storage and testing;

testing procedures to meet different global regulations and emission control standards;

fuel control devices and technology for gaseous fuels and other gases for use in internal combustion
engines, fuel cells and other applications requiring metering of gases; and

• manufacturing.

Products. Our core products include gaseous fuel storage, fuel delivery and electronic controls for OEM
alternative fuel vehicles and fuel cell systems used in the transportation, stationary power generation and portable

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTRZ3HDYŠ
7*
1C

65938 TX 4
PMT

1KWYH2SGNTRZ3HD

CLN

17-Sep-2002 20:45 EST

power markets. We continue to improve our products and develop new systems to meet increasingly stringent
vehicle operational and durability requirements in automotive OEM fuel cell powered vehicles. We also are
developing improved system technologies using injectors, high-and low-pressure regulators, on-board
diagnostics, high-performance fuel system control modules, fuel lock-offs and related components for application
in the stationary and portable power generation fuel cell markets. We design and manufacture computerized
controls, regulators and automatic shut-off equipment, and lightweight, high-pressure hydrogen and natural gas
storage tanks using our TriShield technology.

We classify the stages of our product development in the following categories:

•

research & development;

prototype;

pre-production prototype; and

production ready.

Our fuel storage products include cylindrical and conformable tanks. We provide lightweight, all-composite

storage tank technologies for compressed hydrogen. The lightweight nature of the tank, coupled with high
hydrogen mass by volume, improves the range of hydrogen-powered fuel cell vehicles. Our conformable tank
maximizes hydrogen storage in a given space, optimizing the volume of hydrogen stored on board. We expect
that the remaining product development costs for these products will be approximately $20 to $25 million. The
following table describes the features and production stages of our storage products:

Products

Features/Production Stage

TriShield All-Composite Storage Tanks

• Designed for safety, lightweight and cost-

effectiveness

•

Exceeds current regulatory qualification
requirements and also meets OEMs more
stringent requirements for use in natural gas
fueled vehicles

Provides 30% more fuel capacity than
comparably sized aluminum tanks, and lower
cost than steel tanks

The all-composite liner technology acts as a
permeation barrier for stored fuel and
reduces the possibility of hydrogen
embrittlement often present with aluminum
or steel liners in the presence of hydrogen

Production ready for compressed natural gas;
production ready for hydrogen in
approximately 2003 to 2004

Conformable Storage Tanks

• Designed for safety, lightweight and storage

efficiency

• Optimal packaging solution

•

Prototype stage; production ready for
hydrogen in approximately 2005 to 2007

Our fuel delivery products consist of regulators, injectors and valves. We have designed our patented in-tank

regulator for use with hydrogen for fuel cell applications. Our design provides greater safety by eliminating the

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTRNZJDDŠ
9*
1C

65938 TX 5
PMT

1KWYH2SGNTRNZJD

CLN

17-Sep-2002 20:45 EST

need for high-pressure fuel lines outside of the fuel storage tank. The unit is also cost-effective because it
incorporates the features of many independent components, thereby eliminating the need to install several
separate components. We have designed our patented fuel injector for use with dry gases such as hydrogen. Our
fuel injector is capable of handling the high flow rates needed in automotive OEM applications, while offering
superior durability, longer life, less noise and lower cost. This component also allows for very precise metering
of fuel, which is critical to optimize a fuel cell system. We expect that the remaining product development costs
for these products will be approximately $5 million. The following table describes the features of our fuel
delivery products:

Products

In-Tank Regulators

Gaseous Fuel Disc Injectors

Injector Pressure Regulators

Gas Mass Sensors/
Mixture Control Valves

Fuel Shut-off Products

Features/Production Stage

• Reduces the pressure of the fuel stored in the
tank at the tank outlet, eliminating the need
for high-pressure fuel lines running
throughout the system

•

Increased safety

Significant cost reductions versus
competitive products

Prototype stage; production ready for
compressed natural gas and hydrogen in
approximately 2003 to 2004

• Designed specifically for precise gaseous

fuel metering to provide superior flow rate
and increased durability over existing
plunger technologies

• Generally translates into lower costs than

competing technologies

•

Prototype stage; production ready for
compressed natural gas and propane in 2002
and for hydrogen in 2004

Production ready for compressed natural gas;
production ready for hydrogen in
approximately 2004

Provides precise control of fuel required for
injection systems in fuel cell applications

Production ready for compressed natural gas;
production ready for hydrogen in
approximately 2004

• Measures and controls gaseous fuel and

airflow, a critical step in the optimization of
fuel cell systems

•

Production for compressed natural gas
commenced in 1997

• Mechanically or electronically shuts off fuel
flow to the system when fuel leakage occurs
or when the system is turned off

•

Production for compressed natural gas
commenced in 1997

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTS154DKŠ
8*
1C

65938 TX 6
PMT

1KWYH2SGNTS154D

CLN

17-Sep-2002 20:45 EST

Our electronic control products range from 8 to 32-bit architecture. These units precisely control the flow
and pressure of gaseous fuels, such as hydrogen, and other gases, such as air. We currently use these electronic
controls, coupled with our proprietary software, to optimize fuel pressure and flow management for fuel cell
applications. We believe, however, that there are numerous other potential applications for these controls. We
expect that the remaining product development costs for these products will be approximately $5 million. The
following table describes the features of our electronic controls and software products:

Electronic Controls and Proprietary Software

• Manages flow of fuel and air in fuel cell systems

Products

Features/Production Stage

•

to improve optimization of overall system

Provides closed-loop system control

Proprietary designs, software and calibration tools
to develop, calibrate and optimize fuel cell control
systems

Sensors, actuators and controllers specific to our
customers’ needs and specifications

Production for compressed natural gas
commenced in 1997; production ready for
hydrogen in approximately 2004

Services. We provide services in the areas of design, development, validation, certification, manufacture
and after-sales service support. We provide our customers with the following services to support their programs
for transportation, and stationary and portable power generation applications:

•

Systems Integration. We integrate our gaseous fuel storage, fuel delivery and electronic control
components and systems into fuel cell engine applications in the transportation, stationary power and
portable power industries. We also provide rapid prototyping techniques, which accelerate the iterative
design process and result in a more accurate design.

Testing and Validation. To increase the likelihood of high success rates at the system level, we
perform component, subsystem and system testing and validation. These procedures must satisfy our
own internal requirements, customer-specific requirements and industry standards. If no suitable
procedures exist, we generate requirements for the customer.

• Certification and Compliance. Our regulatory and certification engineers implement the latest

emissions and safety regulations to ensure the proper certification and ongoing compliance of our
products and our business.

•

System Level Assembly. We develop and manage the assembly process for integration of our systems
into end products at our facility or at our customers’ facilities.

Training. We develop comprehensive technical training for our customers that sell and service our
products as well as for our customers that use our products.

Service and Warranty. We have extensive capabilities in developing service procedures and programs
for OEMs. We also provide technical support over the telephone or at customer sites to resolve technical
issues.

Sales and Distribution. We derive revenue from alternative fuel and fuel cell development contracts with

OEMs, government contracts focused on fuel cell and alternative fuel research and the sale of our alternative fuel
products for use in alternative fuel vehicles manufactured by General Motors and other OEMs. Through our
Teaming Agreement with General Motors, we sell our jointly developed alternative fuel systems and components
to General Motors. Through our strategic alliance with General Motors, we will be a recommended provider to

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTS78GD(Š
6*
1C

65938 TX 7
PMT

1KWYH2SGNTS78GD

CLN

17-Sep-2002 20:45 EST

General Motors of hydrogen storage, hydrogen handling and associated electronic controls for fuel cell system
applications. We rely on our sales force and strategic partners to sell our products and services, develop new
customers and consummate joint application development programs with leading OEMs in the target alternative
fuel vehicle and fuel cell markets of transportation as well as stationary and portable power generation.

Manufacturing. Our manufacturing activities currently include assembly, system installation and tank

manufacturing. We assemble the majority of our components at our facility in Irvine, California, but outsource
the assembly of complex electronic components and select key suppliers for certain components of developed
fuel systems. Our vendor and service provider supply base is highly diversified. None of our suppliers represents
more than 10% of our raw material purchases. Complete systems are installed on vehicles at the OEM
manufacturing facility or at third-party equipping sites. The criteria for the establishment of a site are proximity
to vehicle manufacturing and delivery points.

Our operations are QS-9000 certified, with the exception of our Sterling Heights, Michigan facilities. Our

Sterling Heights facility is scheduled to be audited for QS-9000 certification before the end of the 2002 calendar
year.

Strategic Relationships

We continually survey and evaluate the benefits of joint ventures, acquisitions and strategic alliances with

our customers and other participants in the alternative fuel vehicle industry and emerging fuel cell industry to
strengthen our global business position. We have focused our strategic alliances on either our marketing strategy
or on our development strategy. Our marketing strategy seeks to expand the distribution channels for our
advanced fuel system technologies. Our development strategy is to advance the state of technology and its
application.

IMPCO.

In connection with the distribution, we entered into a Strategic Alliance Agreement with IMPCO
pursuant to which we will work with IMPCO in identifying and conducting research and development programs
of mutual interest. As part of such research and development activities, we may develop, solely or jointly with
IMPCO, technology that is owned solely by us or jointly with IMPCO. The other purpose of this relationship is
to provide IMPCO access to our advanced technologies products, including the CNG storage tanks, fuel
injectors, in-tank regulators and other products, for use in automotive, bus and truck and industrial aftermarket
applications and in the bus and truck and industrial OEM markets. We believe that this alliance with IMPCO will
expedite the commercialization and integration of our advanced gaseous storage and handling systems into
broader global alternative fuel markets, including automotive after-market, material handling, internal
combustion engine-based stationary and portable power generation, and general industrial markets.

General Motors. Our strategic alliance with General Motors became effective upon the spin-off of

Quantum from IMPCO. We believe that the 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, we and General Motors will co-develop
technologies that will aid in more rapid commercialization of fuel cell applications. Additionally, General Motors
will promote our company throughout the General Motors organization as a recommended provider of hydrogen
storage, hydrogen handling and associated electronic controls that meet OEM requirements. This strategic
alliance expands upon the relationship that has been in place between General Motors and Quantum (as
IMPCO’s Automotive OEM Division) since 1993, through which we provide integrated natural gas and propane
fuel systems for their alternative fuel vehicle products.

ATK Thiokol Propulsion.

In May 2000, we formed a strategic alliance with NASA Space Shuttle rocket
booster manufacturer, ATK Thiokol Propulsion to design, develop, manufacture and commercialize hydrogen
fuel storage vessels for application in an automotive vehicle system. ATK Thiokol’s core competencies include
extensive material science knowledge, advanced analytical capabilities and a 1,050-acre test facility. This

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTR2NLDwŠ
7*
1C

65938 TX 8
PMT

1KWYH2SGNTR2NLD

CLN

17-Sep-2002 20:45 EST

alliance provides us access to over 800 ATK Thiokol scientists, engineers and support personnel experienced in
the handling and management of hydrogen fuel. We have exclusive rights to several of ATK Thiokol’s
technologies for commercialization purposes, including its conformable tank technology for the emerging
automotive fuel cell markets and nondestructive evaluation technology for testing, and we have exclusive rights
to distribute ATK Thiokol products in the North American and European Markets. ATK Thiokol is entitled to
receive royalties on certain technologies for products we sell commercially that incorporate ATK’s technology.

Substantially all of our revenues for the fiscal year ended April 30, 2002 related to product sales to and

development fees from General Motors. Since the beginning of 2001, we have had prototype development
projects or programs with the following entities:

Adam Opel AG
AeroVironment
Ford Motor Company
General Motors (Global Alternative Propulsion Center)
Hydrogenics Corporation
Hyundai America Technical Center
Hyundai Motor Company

ISE Research
Pinnacle West Capital Corporation
Proton Energy Systems, Inc
South Coast Air Quality Management District
Toyota Motor Corporation
U.S. Department of Energy
Yamaha Motor Company

We intend to establish similar relationships with other leading industry OEMs by using our systems

integration capabilities and our leading technology position in fuel storage, fuel delivery and electronic controls.

Research and Development

We conduct research and development in the following areas, with corresponding technical capabilities:

•

Fuel Storage. Composite pressure vessel design and analysis, carbon and epoxy filament winding and
hydraulic, pneumatic, burst and fatigue testing. Evaluation and development test capabilities for
advanced hydrogen storage materials, including hydride, alanates, carbon adsorption and other emerging
materials.

Electronic Control Systems. Specialization in hardware design and selection, engine modeling,
calibration and software design for engine and emission controls.

• Mechanical Design and Development. Specialization in pneumatics, kinematics, hydraulic
components and systems and advanced materials, structural, flow and thermal analysis.

•

Advanced Catalysts. Catalyst synthesis and processing, catalyst and emission testing and fabrication of
corona and conventional prototype converters.

Injectors, compressors and micro machining, including pressure sensors and bi-

Advanced Products.
directional mass flow sensors, fuel management, fuel storage and fuel supplies for fuel cell power
systems, mass flow sensors for natural gas measurement and “smart” sensors using 8-bit micro-
controllers.

• Component and Subsystem Test Facilities. Extended vibrations, shock loads and accelerations,

extreme temperature exposure from -85 F to 392 F and thermal shock, cyclic corrosion, extended salt,
fog, humidity and dryness cycling, severe acid and alkali corrosion, flow simulations and pneumatic
leak checks.

We believe these capabilities are a critical component of our ability to maintain our technology leadership

position in fuel cell and alternative fuel enabling systems. We intend to develop and adapt our current
technologies and products for use in connection with fuel cells, including the following advanced products:

• Micro-Machined Mass Flow Sensors. We have successfully designed, fabricated and tested a micro-

machined single and bi-directional mass flow sensor for air and natural gas mass flow measurement and

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTSBB3D}Š
6*
1C

65938 TX 9
PMT

1KWYH2SGNTSBB3D

CLN

17-Sep-2002 20:46 EST

a micro-machined bi-directional mass flow and concentration sensor. These micro-machined devices
may have several applications for fuel cell systems.

• Continuous Flow Control. We are working on a variety of fuel metering devices for gaseous fuels that

feature continuous flow outputs for use in fuel cell applications.

• Water Management. We have expertise to develop integrated systems to provide water vaporization
and humidification of gas streams, direct water vapor transfer from humid to dry streams, de-ionized
water compatibility, water contamination removal, water pumps and the storage and metering of water
for fuel cells.

• Heat Exchanger and Thermal Management Systems. We have expertise to develop integrated thermal

management systems, including heat transfer components and fluids and HVAC systems.

Competition

In the fuel cell industry, our area of expertise is in hydrogen fuel storage, fuel delivery, electronic controls,
and system integration. We do not manufacture fuel cells or fuel reformers. Our principal competition in the fuel
cell markets primarily consists of companies developing individual components.

We believe that our competitive advantage for current and potential future competitors is our technology
leadership derived from many years of experience with alternative fuels. Our current competitors typically focus
on fuel injection and individual components. We believe we are unique in being able to offer complete integrated
fuel systems based on our own advanced technologies, including gaseous fuel storage, fuel metering, and
electronic controls.

A critical element for fuel cell vehicles and OEM alternative fuel vehicles is fuel storage. The major

competitors for high-pressure gaseous storage cylinders include Dynetek Industries Ltd., Lincoln Composites and
Structural Composites Inc. Liquid hydrogen, metal hydrides, and on-board liquid fuel reformation may also
provide alternatives to high-pressure storage. Companies pursuing these competing technologies include Linde
AG, Energy Conversion Devices, which has recently joined forces with Texaco, and ExxonMobil.

An emerging competitor focused on fuel cell system integration, but without its own technologies, was
XCELLSiS. Ballard Power Systems recently completed the acquisition of XCELLSiS and Ecostar to become a
consolidated fuel cell manufacturer and system integrator.

In the alternative fuel industry, our key competitors in North America for gaseous fuel delivery products in
the automotive OEM market include Alternative Fuel Systems, Baytech Corporation, Clean Air Partners, FEV,
GFI Control Systems, Inc. and Westport Innovations. In international markets, we compete with aftermarket
component and kit manufacturers such as Aisan, Koltec, Landi, Lovato, OMVL, Tartarini and Vialle. In the
future, we may also face competition from traditional automotive component suppliers, such as Bosch, Delphi,
Siemens and Visteon, and from motor vehicle OEMs that develop fuel systems internally. Many of these
potential competitors have been in business longer than us and have substantially greater financial, marketing and
development resources than we have.

Product Certification

We must obtain emission compliance certification from the Environmental Protection Agency to introduce

vehicles or engines into commerce in the United States, and from the California Air Resources Board to
introduce vehicles or engines into commerce in California. Certification requires that each vehicle or engine meet
specific component, subsystem and vehicle-level durability, emission, evaporative, and idle tests.

We strive to meet stringent industry standards set by various regulatory bodies and industry practices,
including the Department of Transportation and Federal Motor Vehicle Safety Standards, the National Fire

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTSFCSDwŠ
7*
1C

65938 TX 10
PMT

1KWYH2SGNTSFCSD

CLN

17-Sep-2002 20:46 EST

Protection Association, TÜV, Underwriters Laboratories, and American Gas Association. Approvals enhance the
acceptability of our products in the domestic marketplace. Many foreign countries also accept these agency
approvals as satisfying the “approval for sale” requirements in their markets.

Backlog

As of July 1, 2002, our backlog for our products was approximately $1.7 million. We measure backlog for
our product sales from the time orders become irrevocable, which generally occurs 60 days prior to the date of
delivery.

Employees

At July 1, 2002, we had 156 full-time employees. We consider our relations with our employees to be good.

None of our employees is represented by a collective bargaining agreement.

Intellectual Property

We rely primarily on patent and trade secret laws to protect our intellectual property. In connection with the

spin-off, IMPCO transferred six domestic patents, three foreign patents and one patent application to us. These
patents will expire between July 2015 and December 2017. Our pending patent applications may not be allowed.
Even if they are allowed, these patents may not provide us a competitive advantage. Competitors may
successfully challenge the validity and scope of our patents and trademarks.

We also rely on a combination of trademark, trade secret and other intellectual property laws and various
contract rights to protect our proprietary rights. However, we do not believe our intellectual property provides
significant protection from competition. We believe that patent, copyright, trademark and trade secret protection
are less significant and that our growth and future success will be more dependent on factors such as the
knowledge and experience of our personnel, new product introductions and continued emphasis on research and
development. We believe that establishing and maintaining strong strategic relationships with valued customers
and OEMs are the most significant factors protecting us from new competitors.

Item 2. Properties.

Our corporate headquarters is in Irvine, California. We operate research and development facilities in
California, Michigan, and Utah. Our research and development facility in Irvine is dedicated to the research and
development of systems and technologies that enable the use of gaseous fuels in internal combustion engines and
fuel cells. This center conducts research and development of advanced fuel storage, systems for light- and
medium-duty OEM alternative fuel vehicles and for fuel cell applications, including transportation, stationary
power generation, and portable power generation.

Together with ATK Thiokol, we have established a hydrogen storage cycling testing facility in Utah. We
use the facility to perform hydrogen cycling testing through repeated fast-fills on compressed gas storage tanks
and subsystems. The fully instrumented fast-filling tests will determine temperature rise and confirm the gas
thermodynamics experienced during filling. We need this critical data for the design, manufacture, testing and
validation of compressed hydrogen storage tanks. While the initial focus of the testing will be on hydrogen
storage and handling for vehicle applications, the facility’s testing capabilities apply directly to storage systems
for hydrogen refueling stations.

We conduct vehicle development and integration at our facilities located in Lake Forest, California and

Sterling Heights, Michigan. We opened these facilities during the 2000 fiscal year. The Advanced Vehicle
Concept Center in Lake Forest, California employs 59 engineers and other professionals focused on systems
integration, validation and certification for concept, prototype and production vehicles the center additionally

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTSJFFDÃŠ
8*
1C

65938 TX 11
PMT

1KWYH2SGNTSJFFD

CLN

17-Sep-2002 20:46 EST

conducts research and development of advanced fuel delivery and electronic control systems for light- and
medium-duty OEM alternative OEM fuel vehicles and for fuel cell applications, including transportation,
stationary power generation, and portable power generation. Our Sterling Heights, Michigan facility employs 8
engineers and other professionals to assist our OEM customers in the Detroit area, acting as a liaison between us
and our customers, performing the following primary functions: program management, vehicle
commercialization, production, service, and specialty vehicle assembly management.

We currently lease additional manufacturing, research and development and general office facilities in the

following locations set forth below:

Location

Principal Uses

Irvine, California . . . . . . . . . . . . . . . . . . . . . . . Corporate offices, manufacturing, R&D and

Lake Forest, California . . . . . . . . . . . . . . . . . . . Design, development and testing
Sterling Heights, Michigan . . . . . . . . . . . . . . . . Design, development and testing

testing

Square
Footage

79,000
65,000
16,000

We believe our facilities are presently adequate for our current core product manufacturing operations and
OEM development programs and production. We anticipate that we will require additional space as we expand
our operations in the fuel cell and alternative fuel industries. We believe that we will be able to obtain suitable
space as needed on commercially reasonable terms.

Item 3. Legal Proceedings.

Except as set forth below, we are not currently a party to any material legal proceeding. In addition to the
proceeding described below, we may from time to time become involved in litigation relating to claims arising in
the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources.

In August 2000, IMPCO proceeded with legal action in federal court (Eastern District of Michigan, case

#00-73633) against GFI Control Systems Inc. and Dynetek Industries Ltd. for patent infringement (U.S. Patent
No.6,041,762), which covers a compressed gas fuel system that includes a tank with an internal pressure
regulator. GFI Control Systems Inc. led a counter-claim for patent infringement. In connection with the
distribution, IMPCO assigned to us all of its rights under this litigation. We intend to vigorously enforce our
intellectual property rights.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders in the fourth quarter of our 2002 fiscal year.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

PART II

ˆ1KWYH2SGNTSMH2DsŠ
10*
1C

65938 TX 12
PMT

1KWYH2SGNTSMH2D

CLN

17-Sep-2002 20:46 EST

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters.

Our common stock began regular-way trading on the Nasdaq National Market under the symbol “QTWW”

on July 24, 2002. Prior to the distribution, our common stock traded on a “when-issued” basis from July 11, 2002
to July 23, 2002. On July 26, 2002, the last reported sale price for our common stock as reported on the Nasdaq
National Market was $4.38 per share. As of July 24, 2002, there were approximately 519 stockholders of record
of our common stock and one stockholder of record of our Series A common stock.

Dividend Policy

We do not anticipate paying any dividends on our common stock in the foreseeable future because we
expect to retain our future earnings for use in the operation and expansion of our business. Our payment and
amount of dividends, however, will be subject to the discretion of our board of directors and will depend, among
other things, upon our results of operations, financial condition, cash requirements, future prospects and other
factors which may be considered relevant by our board of directors.

Sales of Unregistered Securities

On February 11, 2002, we issued 1,000 shares of our common stock to IMPCO for an aggregate purchase
price of $100. The issuance was exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof and Regulation D promulgated thereunder, as such issuance did not involve a public
offering of securities.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

Item 6. Selected Financial Data.

ˆ1KWYH2SGNTS46TD9Š
16*
1C

65938 TX 13
PMT

1KWYH2SGNTS46TD

CLN

17-Sep-2002 20:46 EST

SELECTED FINANCIAL DATA

The following table summarizes certain historical financial and pro forma financial information and is
qualified in its entirety by reference to, and should be read in conjunction with, our historical financial statements
and related notes and other financial information included herein. The historical financial data for the year ended
April 30, 1998 have been derived from our unaudited financial statements, which are not included in this Annual
Report. The historical financial data for the years ended April 30, 1999, 2000, 2001 and 2002 have been derived
from our audited financial statements. The unaudited pro forma financial statements were prepared as if the spin-
off from IMPCO had occurred as of April 30, 2002 for the unaudited pro forma condensed balance sheet and as
of May 1, 2001 for the unaudited pro forma condensed statements of operations. Historical financial information
may not be indicative of our future performance as an independent company. The selected financial data should
be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” “Unaudited Pro Forma Financial Data” and the financial statements and notes thereto included
elsewhere in this Annual Report.

Year Ended April 30,

1998

1999

2000

2001

2002

(unaudited)

Proforma
Fiscal Year
Ended
April 30,
2002 (1)

(unaudited)

$ 3,718
8,610
12,328

$ 13,456
11,013
24,469

$ 13,057
9,284
22,341

$ 15,447
7,911
23,358

$ 15,458
7,945
23,403

4,811
10,889

15,347
8,902

15,081
12,956

19,452
26,687

25,581
32,657

3,439
(6,811)
—
—
—
(6,811)

3,713
(3,493)
—
—
—
(3,493)

4,939
(10,635)
—
—
—
(10,635)

7,459
(30,240)
4
—
—
(30,244)

8,063
(42,898)
489
10
1
(43,378)

Statement of Operations Data:
Net revenue:

Product sales . . . . . . . . . . . . . . . . . .
Contract revenue . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . .
Cost and expenses:
Cost of product sales . . . . . . . . . . . .
Research and development
. . . . . . .
Selling, general and

administrative . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . .
Provision for Income Tax . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .
Pro forma basic and diluted loss per

share (unaudited)

Balance Sheet Data:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . .
Long-term obligations, less current

portion . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . .

0
3,177
7,646

0
11,545
18,597

2
14,364
23,399

4
11,338
32,815

177
(3,375)
28,159

—
6,794

—
115,866

—
19,357

183
23,992

127
10,271

(1) The unaudited pro forma statement of operations and balance sheet data give effect to:

•

our issuance to IMPCO of 14,141,036 additional shares of our common stock prior to the distribution;

IMPCO’s transfer to us of assets and $15 million in cash and the assumption by IMPCO of $8.6 million
of our outstanding debt;

9,463
(44,298)
489
10
1
(44,778)

(2.54)

15,181
20,253
57,163

127
47,899

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTSTLDD[Š
10*
1C

65938 TX 14
PMT

1KWYH2SGNTSTLDD

CLN

17-Sep-2002 20:46 EST

•

the distribution by IMPCO to its stockholders of 14,142,036 shares of our common stock held by
IMPCO;

the conversion of invested equity into stockholders’ equity; and

the issuance of 3,513,439 shares of our Series A common stock to General Motors, which has been
presented at its estimated fair market value on the date of distribution of approximately $14 million and
is subject to a final determination of market value. The amortization expense related to this asset,
estimated at $1.4 million per year, has been reflected in the proforma statement of operations on future
operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read this discussion together with the financial statements and other financial information

included in this Annual Report on Form 10-K.

Overview

We design, manufacture and supply components and systems that store gaseous fuels and monitor and
control the pressure and flow of those fuels for use in fuel cells and internal combustion engines. Historically,
most of our revenues have been derived from the sale of products to automotive OEMs that enable their
traditional internal combustion engines to run on clean burning alternative fuels, such as propane and natural gas,
instead of gasoline. Our goal is to commercialize systems that will provide fuel storage, fuel delivery and
electronic controls for fuel cells and internal combustion engines in the automotive OEM market.

We supply our advanced gaseous fuel systems for alternative fuel vehicle applications to OEM customers

for use by consumers and commercial and government fleets. Since 1997, we have sold over 14,000 fuel systems
for alternative fuel vehicle applications. We also provide our integrated gaseous fuel systems for fuel cell
applications to major OEMs through funded research and development contracts and on a prototype basis. We
believe that a significant portion of our revenues will be derived from our fuel storage and fuel metering products
once those products are available on a commercially manufactured basis.

Although we classify our business operations in one operating segment, our Alternative Fuel Automotive
OEM business, our chief operating decision maker allocates resources and tracks performance in three areas; our
Alternative Fuel business, Research & Development and Corporate Expenses. We generate revenues through the
sale of fuel storage, fuel delivery and electronic control systems to OEMs, primarily to General Motors, and the
installation of our products into OEM vehicles. We also generate 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. For the fiscal year ended April 30, 2001 and 2002,
approximately 98.7% and 79.9% of our revenues were related to sales of our products to and contracts with
General Motors.

In the longer term we will require significant capital expenditures to construct additional manufacturing and

assembly capacity required to support the production of our products. We anticipate that our aggregate
expenditures to move our prototype products to the production stage will be approximately $30 to $35 million,
but actual expenditures may differ materially, depending on the availability of funds, customer requirements, and
the amounts actually contributed by our customers toward development efforts.

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

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTS=PQD1Š
18*
1C

65938 TX 15
PMT

1KWYH2SGNTS=PQD

CLN

17-Sep-2002 20:46 EST

For all periods presented in our financial statements, we have experienced negative gross margin on our
product sales. For all but one of our GM applications, we generate positive materials gross margin on product
sales. In our inventory values, we have only capitalized labor and manufacturing costs to the extent realizable
based on our current sales prices for our products. Our cost structure is volume-driven, and to date we have not
yet recognized product sales sufficient to cover our fixed investment in manufacturing expenses. We have
implemented measures to make our manufacturing processes efficient and have made efforts to minimize fixed
manufacturing costs.

We expense all research and development when incurred. Research and development expense includes both

customer-funded research and development and company-sponsored research and development. Customer-
funded research and development consists primarily of expenses associated with contract revenue. These
expenses include applications development costs in Quantum funded under customer contracts.

General Motors Relationship. Our strategic alliance with General Motors became effective upon
completion of the spin-off. 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, General Motors will promote us as a
recommended provider of hydrogen storage, hydrogen handling and associated electronic controls that meet
OEM requirements. Additionally, we and General Motors will co-develop technologies that will aid in more
rapid commercialization of fuel cell applications. Furthermore, this experience will position us to be able to
address the stationary power generation and portable power generation markets. Upon effectiveness of the
strategic alliance, we issued to General Motors shares of our Series A common stock representing 19.9% of our
total outstanding capital stock after the distribution in consideration of a nominal cash contribution and access to
certain General Motors proprietary information. General Motors will be entitled to maintain its 19.9% equity
interest at nominal cost until we complete an initial public offering for cash. However, additional shares that
General Motors receives after the initial issuance of shares following the spin-off as a result of our private or
public issuance of additional securities (other than pursuant to employee plans) will not be entitled to vote, so
long as they are held by General Motors or anyone affiliated with General Motors. The agreement calls for
revenue sharing payments, which do not commence until three years after the effective date of the agreement, on
gross revenues from certain applications. Each party will retain the ownership of its existing technology and will
jointly own technology that is jointly created under the alliance. We are free to use jointly created technologies in
certain aspects of our business but will be required to share revenues with General Motors on fuel cell system-
related products that are sold to General Motors or third parties.

Separation from IMPCO. We were incorporated under the laws of the State of Delaware on October 13,
2000, as a wholly owned subsidiary of IMPCO. IMPCO conducted our business through various departments,
first as a division (the Automotive OEM Division) and most recently as a subsidiary (Quantum Fuel Systems
Technologies Worldwide, Inc.). On July 23, 2002, IMPCO completed the distribution and spin-off of Quantum
by distributing one share of Quantum common stock for every share of IMPCO common stock held on the record
date, which was July 5, 2002. Prior to the distribution, we entered into several agreements with IMPCO with
respect to, among other things, intellectual property, interim services and a number of ongoing commercial
relationships. The interim services agreement provides for specified charges generally intended to allow the
providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket
costs and expenses, but without any profit. With limited exceptions, these interim services are not expected to
extend beyond six months from the distribution date. The pricing terms for goods and services covered by the
commercial agreements reflect negotiated prices. Please see Item 13.—“Certain Relationships and Related
Transactions” and “Note 3 —Related Party Transactions” in the notes to the financial statements for a more
detailed discussion of these agreements.

Our financial statements, which are discussed below, reflect the historical financial position, results of
operations and cash flows of the business transferred to us from IMPCO as part of the distribution. The financial
information included herein, however, may not necessarily reflect our financial position, results of operations and

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTSQJRDzŠ
14*
1C

65938 TX 16
PMT

1KWYH2SGNTSQJRD

CLN

17-Sep-2002 20:46 EST

cash flows in the future or what our financial position, results of operations and cash flows would have been had
we been a stand-alone company during the periods presented.

Cash, cash equivalents, debt and interest expense.

IMPCO used a centralized approach to cash

management and the financing of its operations. Cash deposits from our operations were transferred to IMPCO
on a regular basis and are netted against the owner’s net investment account. As a result, none of IMPCO’s cash,
cash equivalents or debt at the corporate level had been allocated to us in the financial statements. Cash in the
financial statements represents amounts held by us as petty cash and immediate funds needed to satisfy
outstanding payables. Changes in invested equity represent any funding required from IMPCO for working
capital, acquisition or capital expenditure requirements after giving effect to our transfers to or from IMPCO of
its cash flows from operations. Until fiscal year 2002, we had been funded by IMPCO with no debt obligations
being transferred to us except for certain capital leases. Therefore due to the low level of interest-bearing debt,
our interest expense has been minimal with total interest expense of $0, $4,167, and $488,442 for fiscal years
2000, 2001, and 2002. Due to the assumption of our line of credit obligation of $8.6 million by IMPCO as part of
the spin-off, we do not expect to incur interest expense in the short-term.

Corporate overhead and research. The financial statements include allocations of IMPCO corporate
headquarters expenses relating to our business. General corporate overhead has been allocated either based on the
ratio of our headcount to IMPCO’s total headcount, on our revenue as a percentage of IMPCO’s total revenue, or
specifically identified costs for our business. General corporate overhead primarily includes salary and expenses
for the executive management, finance, legal, human resources, information services and investor relations
departments and amounted to approximately $2,126,000, $3,117,000, and $3,209,000 in 2000, 2001 and 2002.
Management believes the costs charged for these services are a reasonable representation of the costs that would
have been incurred if we had performed these functions as a stand-alone company. Following the spin-off, we
will perform these functions using our own resources or purchased services.

The financial statements for fiscal years 2000 and 2001 also include an allocation from IMPCO to fund a
portion of the costs of basic research that we conduct. This allocation was based on management’s determination
of which corporate projects were related to the specific intellectual property that IMPCO transferred to us as part
of the contribution. This allocation amounted to approximately $7,050,000, $5,601,000, and $0 for fiscal 2000,
2001 and 2002. Management believes the costs charged are a reasonable representation of the costs that we
would have incurred if we had performed these functions as a stand-alone company. Beginning in fiscal year
2002, we satisfied our basic research requirements using our own resources or through purchased services.

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.

Income taxes.

Income taxes were calculated as if we filed separate tax returns. However, IMPCO was

managing its tax position for the benefit of its entire portfolio of businesses, and its tax strategies are not
necessarily reflective of the tax strategies that we would have followed or will follow as a stand-alone company.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our

consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those
related to bad debts, inventories, warranty obligations, long-term service contracts, and contingencies and
litigation. 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.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTT8VPD@Š
11*
1C

65938 TX 17
PMT

1KWYH2SGNTT8VPD

CLN

17-Sep-2002 20:46 EST

We believe the following critical accounting policies affect the more significant judgments and estimates

used in the preparation of our consolidated 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 revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the
period in which the facts that give rise to the revision become known.

We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage

in product quality programs and processes, including actively monitoring and evaluating the quality of our
component suppliers, our warranty obligation is affected by product failure rates, material usage and service
delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or
service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

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

Results of Operations

Years Ended April 30, 2001 and 2002

Revenues

Operating Loss

Year Ended April 30,

2001

2002

2001

2002

(in thousands)

Alternative fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,358
—
—

$23,403
—
—

$ (1,617) $ (8,512)
(26,323)
(8,063)

(21,164)
(7,459)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,358

$23,403

$(30,240) $(42,898)

Alternative fuels. Net revenues remained relatively unchanged at $23.4 million in fiscal year 2002,

increasing only $0.05 million, or 0.2%. Product sales remained at $15.5 million in fiscal year 2002. Product sales
consist of those associated with General Motors’ mid-size automobiles, pick-up trucks, and van platforms
equipped with our bi-fuel and compressed natural gas fuel systems and General Motors’ medium duty trucks
equipped with dedicated liquid propane gas kits. The slight increase in product sales was generated mainly by
higher service parts sales. Product sales also increased slightly due to higher sales of GM van platforms, partially
offset by lower sales of pick-up trucks, midsize automobiles, and medium duty truck platforms.

Cost of product sales increased $6.1 million, or 31.5%, from $19.5 million in fiscal year 2001 to
$25.6 million in fiscal year 2002. The increase in cost of product sales was due to a $1.4 million increase in
inventory reserves, of which $0.6 million was related to a “lower of cost-or-market” reserve for the General
Motors’ pick-up truck application and $0.5 million related to increases in the provision for obsolescence, $1.4
million in higher material cost related to product mix, a $1.0 million increase in warranty reserves due to
increased vehicles sales and higher warranty claims experienced, primarily in our medium duty applications, a
$1.8 million increase in labor and manufacturing overhead mainly due to pre-production efforts associated with
our fuel storage tanks, a $0.2 million increase in freight charges, and a $0.2 million increase in production related
scrap. The “lower of cost-or-market” reserve on the General Motors’ pick-up truck application is due to a fixed

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTGY=DxŠ
12*
1C

65938 TX 18
PMT

1KWYH2SGNTTGY=D

CLN

17-Sep-2002 20:46 EST

sales price and a higher than expected material cost. The higher expected material cost is due to lower anticipated
volumes and no firm sales commitment from General Motors. As such, once product is received for this
application, we immediately reduce our inventory value to reflect the selling price of the application. We expect
the level of the “lower of cost-or-market” adjustment to be lower in the future as a result pricing increases on the
pick-up truck application.

Gross profits on product sales were $6.1 million, which was 152.9% lower in fiscal year 2002 as compared

to fiscal year 2001, due to a $6.1 million increase in cost of product sales.

Contract revenues remained relatively unchanged, increasing 0.4% to $7.9 million in fiscal year 2002. The

increase is primarily due to new fuel cell contracts, which were offset by a $3.5 million decline in General
Motors’ alternative fuel model year program revenues. Contract revenue is primarily for system development and
application engineering of our products under funded General Motors and other OEM contracts, and other funded
contract work with state and federal agencies.

For the fiscal year 2002, research and development associated with cost of contract revenues included in our

alternative fuels reporting unit increased $0.8 million, or 14.5%, to $6.3 million as compared to $5.5 million in
fiscal year 2001. The increase for fiscal year 2002 is due to a margin decrease from 30.2% to 20.2%. The
decrease in margin is primarily due to $1.3 million in cost overruns on the CNG pick-up truck development
programs and the cancellation of the GM LPG pick-up truck development program.

Research and development. Research and development expense increased by $6.0 million, or 22.4%, to
$32.7 million for fiscal year 2002, from the $26.7 million reported in fiscal year 2001. The increase in research
and development primarily relates to a $4.2 million increase attributable to additional facilities and additional
research and development support activities, a $1.0 million increase for fuel storage, fuel delivery systems, and
vehicle integration for fuel cell and CNG-related OEM programs for internally funded fuel cell and alternate fuel
system and component application development work, and a $0.8 million increase in product application
development support costs.

Corporate Expenses. Corporate expenses increased by $0.6 million, or 8.1%, to $8.1 million for fiscal

year 2002 from $7.5 million for fiscal year 2001. The increase for fiscal year 2002 was mainly due to non-
recurring charges of $2.0 million for legal and consulting services associated with the spin-off transaction, the
strategic alliance with General Motors and legal proceedings related to patent infringement described in
“Business—Legal Proceedings.” These increases were partially offset by cost reduction efforts executed in the
second and third quarter of fiscal year 2002.

Operating losses increased by $12.7 million, or 41.9%, from $30.2 million in fiscal year 2001 to

$42.9 million in fiscal year 2002. The increase in loss was attributable to a $6.1 million increase in negative gross
profits on product sales, a $6.0 million increase in research and development expenses, and a $0.6 million
increase in general and administrative expenses. For the fiscal year 2002, operating losses include $1.2 million in
restructuring charges for the closure of our Mexico assembly operation, the closure of a Michigan facility, and
associated personnel severance costs. We anticipate our operating loss for next fiscal year will be less than
experienced in the last fiscal year, as a result of staff and cost reductions implemented during the second and
third quarters of fiscal year 2002, higher contract revenues and improved pricing on production programs.

While we did not have any amortization charges during fiscal year 2002, we expect that such charges will be

substantial in future years as a result of our strategic alliance with General Motors. We will record the value of
the shares issued to General Motors as an intangible asset at fair market value on the date of distribution. We will
amortize this value over the ten year term of the strategic alliance.

Interest Expense.

Interest expense increased $484,275 from $4,167 in fiscal year 2001 to $488,442 in

fiscal year 2002. The increase is due to a higher level of capital leases and the borrowing under our line of credit
facility. We anticipate that interest expense for fiscal year 2003 will be lower than levels experienced during
fiscal year 2002 due to lower anticipated levels of outstanding debt.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTP19D@Š
11*
1C

65938 TX 19
PMT

1KWYH2SGNTTP19D

CLN

17-Sep-2002 20:46 EST

Provision for Income Taxes.

Income tax expense increased slightly to $800 to record our minimum state

income tax liability. No additional expense was charged due to our net losses during the period. A valuation
allowance has been established for deferred tax assets due to our lack of earnings history. We expect that income
tax expense will be the same for the next fiscal year as we expect to continue to incur operating losses. Income
taxes in our financial statements have been calculated on a separate tax return basis. The tax credits and net
operating losses incurred through the date of the distribution will remain with IMPCO after the spin-off.

Years Ended April 30, 2000 and 2001

Revenues

Operating
Income (Loss)

Year Ended April 30,

2000

2001

2000

2001

(in thousands)

$22,341
—
—

$23,358
—
—

$ 1,475
(7,171)
(4,939)

$ (1,617)
(21,164)
(7,459)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,341

$23,358

$(10,635) $(30,240)

Alternative fuels. Net revenues increased $1.1 million, or 4.6%, from $22.3 million in fiscal year 2000 to

$23.4 million in fiscal year 2001.

Product sales increased $2.3 million, or 18.3%, from $13.1 million in fiscal year 2000 to $15.4 million in
fiscal year 2001. This increase was primarily due to an increase in unit sales to General Motors. Product sales
consists of those associated with General Motors mid-size automobiles, pick-up trucks, and van platforms
equipped with our bi-fuel compressed natural gas fuel system and General Motors medium-duty
trucks equipped with dedicated liquid propane gas kits.

Cost of product sales increased $4.4 million, or 29.0%, from $15.1 million in fiscal year 2000 to

$19.5 million in fiscal year 2001. This increase in cost of product sales was due to $1.4 million in higher material
cost related to higher production volume, a $1.3 million increase in manufacturing overhead mainly due to pre-
production efforts associated with our fuel storage tanks, a $0.5 million increase in production related scrap, a
$0.4 million increase in additions to the provision for inventory obsolescence, a $0.3 million in additional direct
labor for assembled products, and a $0.2 million increase in freight charges. Warranty reserves increased by
$0.4 million during the year due to the increased number of vehicles placed into service. Provision for inventory
obsolescence is made for each model year based on inventory levels necessary to provide for future warranty and
service parts, as well as for parts that cannot be transferred to the next model year program.

Gross margins on product sales were $2.0 million lower in fiscal year 2001 as compared to fiscal year 2000,

primarily due to a $4.4 million increase in cost of product sales, offset partially by a $2.4 million increase in
product sales.

Contract revenue decreased $1.4 million, or 14.8%, from $9.3 million in fiscal year 2000 to $7.9 million in

fiscal year 2001. This decrease was primarily due to lower contract levels, which reflect efficiencies that result
from our ability to transfer knowledge between prior model year and current model year contracts. Additionally,
the contract revenues recognized on pick-up truck platforms declined due to an expanded scope of the 2001
program to include the 2002 model year, which includes higher engineering costs to complete without a
commensurate increase in the contract value.

For the fiscal year 2001, research and development associated with cost of contract revenues included in our

alternative fuels reporting unit decreased $0.3 million, or 4.6% to $5.5 million as compared to the $5.8 million
reported in fiscal year 2000. The decrease for the fiscal year 2001 is due to reduced revenue of $1.4 million

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTS2ZD<Š
8*
1C

65938 TX 20
PMT

1KWYH2SGNTTS2ZD

CLN

17-Sep-2002 20:46 EST

partially offset by a decrease in margin from 37.7% to 30.2%. The decrease in margin is primarily due to
$0.6 million in cost overruns on the CNG and LPG pick-up truck development programs.

Research and development. Research and development expense increased by $14.0 million, or 195.1%,

from $7.2 million in fiscal year 2000 to $21.2 million in fiscal year 2001. The increase in research and
development primarily relates to our $1.7 million increase in application development support costs and a
$9.9 million increase for fuel storage, fuel delivery systems, and vehicle integration for fuel cell OEM programs
with the remaining $2.4 million attributable to additional facilities and additional research and development
activities to support the fuel cell OEM programs. In order to satisfy the anticipated increased OEM demand, we
opened four additional facilities to expand our testing capabilities and vehicle integration capacity.

Corporate expenses. Corporate expenses increased by $2.5 million, or 51.0%, from $4.9 million in fiscal

year 2000 to $7.5 million in fiscal year 2001. The increase was primarily due to a $1.8 million increase in
employment fees and relocation related to our headcount increase. Corporate expenses also include $3.1 million
allocated from IMPCO for fiscal year 2001 for our proportional share of the corporate expenses incurred at
IMPCO. This reflects a $1.0 million increase from the previous year.

Operating losses increased $19.6 million, or 184.3%, from $10.6 million in fiscal year 2000 to $30.2 million

in fiscal year 2001. This increase was primarily attributable to a $14.0 million increase in research and
development expenses, a $2.5 million increase in corporate expenses, a $2.0 million decrease in product gross
margins, a decrease in cost of contract revenues of $0.3 million and a $1.4 million decrease in contract revenues.

Interest Expense.

Interest expense increased $4,167 from $0 in fiscal year 2000 to $4,167 in fiscal year

2001.

Provision for Income Taxes.

Income tax expense remained flat as no expense was charged due to our net

losses during the period. A valuation allowance has been established for deferred tax assets due to our lack of
earnings history. Income taxes in our financial statements have been calculated on a separate tax return basis.

Liquidity and Capital Resources

We have historically used cash generated from IMPCO’s operations, bank financings and investments from

IMPCO to fund capital expenditures and research and development, as well as to invest in and operate our
existing operations and new businesses. In July 2000, IMPCO completed an equity offering in which it received
$53.5 million. Until fiscal year 2002, we had been funded entirely from IMPCO in the form of equity
investments. In fiscal year 2002, we became a co-borrower with IMPCO of $12.0 million on a debt facility with
Bank of America. Due to this capital structure, we have not carried any debt on our balance sheet until the fiscal
year 2002. On April 30, 2001, IMPCO amended its credit facility with Bank of America NT&SA to include a
$5 million line of credit for our use. We and IMPCO were co-borrowers on this line of credit, and it was secured
by our assets. In September 2001, the credit facility with Bank of America was amended to allow us to increase
our use of the line of credit from $5.0 million to $15.0 million. As of April 30, 2002, the outstanding balance on
this line of credit was approximately $8.6 million and bore an interest rate of 7.0%. This revolving line of credit
carried an interest rate of prime plus 2.25%. On June 24, 2002, IMPCO amended its credit facility with Bank of
America to remove us as a co-borrower under the line of credit and to release the pledge of our assets under the
facility, effective upon completion of the distribution.

Prior to the distribution, IMPCO made an additional capital investment of $23.6 million, consisting of the

assumption of outstanding amounts under the debt facility, which was $8.6 million, plus a cash infusion of
$15 million, which we believe will provide the necessary working capital to fund operations for the next 12
months. As of April 30, 2002, we had no material commitments for capital expenditures.

We currently anticipate that we will require additional sources of financing in order to continue operations

beyond the near term and complete the development and commercialization of our fuel cell enabling

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTCXBDÅŠ
12*
1C

65938 TX 21
PMT

1KWYH2SGNTTCXBD

CLN

17-Sep-2002 20:46 EST

technologies. 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 $34.5 million in fiscal year 2002 as compared to $25.8 million for

fiscal year 2001. The increase in cash used in operating activities resulted primarily from the net operating loss
for fiscal year 2002 of $43.4 million as compared to the net operating loss of $30.2 million for fiscal year 2001.
Partially offsetting this increase was a $5.2 million decrease in accounts receivable due to increased collection
efforts and a $0.9 million decrease in other current assets. We expect that our use of cash in operating activities
for fiscal year 2003 will be lower than experienced in fiscal year 2002 as a result of staff and cost reductions
implemented in the second and third quarters of fiscal year 2002.

Net cash used in investing activities in fiscal year 2002 was $3.4 million, a decrease of $5.7 million from
fiscal year 2001. The decrease is a result of the completion of a majority of the initial expansion plans in the prior
fiscal year as well as a realigning of our investment priorities with our available liquidity.

Net cash provided by financing activities for fiscal year 2002 was $38.1 million as compared to $34.9
million for fiscal year 2001. This increase was due to advances on our line of credit in the amount of $8.6
million. The increase was partially offset by a decrease of $5.2 million in advances from IMPCO from 2002 to
2001.

The ratio of current assets to current liabilities was 0.81:1 at April 30, 2002 and 2.3:1 at the end of fiscal
year 2001. During fiscal year 2002, our total working capital decreased by $14.7 million from $11.3 million at
the end of fiscal year 2001.

Derivative Financial Instruments

We are exposed market to risk from exposures to changes in interest rates due to our financing, investing
and cash management activities. Specifically, our line of credit was subject to fluctuations in interest rates. Based
on amounts outstanding at April 30, 2002 a 1% increase in interest rates would result in additional annual interest
expense by $86,250. Our lines of credit outstanding at April 30, 2002 approximates its fair value.

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.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting

Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which
addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for
a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001,
with earlier application encouraged. We expect to adopt FAS 144 as of May 1, 2002 and do not expect that the
adoption of the Statement will have a significant impact on our financial position and results of operations.

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting
Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. We expect to adopt FAS 141 as of May 1, 2002 and do not
expect that the adoption of the Statement will have a significant impact on our financial position and results of
operations.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTW4MD7Š
8*
1C

65938 TX 22
PMT

1KWYH2SGNTTW4MD

CLN

17-Sep-2002 20:46 EST

RISK FACTORS

The preceding discussion 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. We
face a number of risks and uncertainties which could cause actual results or events to differ materially from those
contained in any forward-looking statement. Factors that could cause or contribute to such differences include,
but are not limited to, the following:

Risks Related To Our Separation From IMPCO

We have no history operating as an independent company, and we may be unable to make the changes
necessary to operate successfully as a stand-alone business.

Prior to the distribution, our business was operated by IMPCO as a segment of its broader corporate
organization rather than as a stand-alone company. IMPCO assisted us by providing financing and other
corporate functions such as legal and tax functions. Following the distribution, IMPCO has no obligation to
provide assistance to us other than limited interim services, which will be provided by IMPCO for up to six
months following the distribution. These interim services include, among other things, immigration services,
employee benefits administration, affirmative action administration, and payroll processing. Because we have
never operated as an independent company, we cannot assure you that we will be able to successfully implement
the changes necessary to operate independently. We could also incur significant additional costs operating
independently, which could have a negative effect on our business, results of operations and financial condition.

We are in the process of creating our own, or engaging third parties to provide, systems and business
functions to replace many of the services and business functions IMPCO provides us. We may not be successful
in implementing these changes. If we do not have in place our own business functions or if we do not have
agreements with other service providers once our interim services agreement with IMPCO expires, our business,
results of operations and financial condition may be negatively affected.

Our historical financial information may not be representative of our results as a stand-alone company and,
therefore, may not be reliable as an indicator of our historical or future results.

The historical financial data we have included in this Annual Report may not reflect what our results of

operations, financial position and cash flows would have been had we been a stand-alone company during the
periods presented or what our results of operations, financial position and cash flows will be in the future. This is
because:

•

our financial statements reflect allocations, primarily with respect to corporate overhead and research
and development, for services provided to us by IMPCO, which allocations may not reflect the costs we
will incur for similar services as a stand-alone company; and

the information does not reflect changes that we expect to incur in the future as a result of our separation
from IMPCO, including changes in how we fund our operations, conduct research and development, and
manage tax and employee matters.

Therefore, our financial statements may not be indicative of our future performance as an independent
company. For additional information about our past financial performance and the basis of presentation of our
financial statements, please see “Selected Financial Data,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and the notes thereto included elsewhere in
this Annual Report.

We will no longer be able to access IMPCO’s cash flows or its ability to raise capital.

Historically IMPCO provided financing to us through its cash flows, by incurring debt and obtaining equity

financing at the parent level. We are no longer a co-borrower under the IMPCO debt facility. We will not have
access to financing from IMPCO and we will be responsible for obtaining our own debt and equity financing.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTTZ68DÈŠ
9*
1C

65938 TX 23
PMT

1KWYH2SGNTTZ68D

CLN

17-Sep-2002 20:46 EST

We will need to raise additional capital in order to continue operations and complete our product development
and commercialization plans beyond the near term.

We believe that our cash flow from operations and available cash will be adequate to meet our current
liquidity needs. However, we anticipate that we will need to raise funds to continue operations beyond the near
term and complete the development and commercialization of our fuel cell enabling technologies. These funds
may not be available on acceptable terms, if at all. Our product development and commercialization schedule
could be delayed if we are unable to fund our research and development activities or the development of our
manufacturing infrastructure for new products. We do not know whether we will be able to secure additional
funding on terms acceptable to us, if at all.

Because there has not been any public market for our common stock and our stock may be considered a
technology stock, the market price and trading volume of our common stock may be volatile.

Prior to July 11, 2002, there was no trading market for our common stock. Accordingly, we cannot predict

the extent to which investors’ interest will lead to a liquid trading market or whether the market price of our
common stock will be volatile. The combined trading prices of IMPCO common stock and our common stock
after the distribution may be less than, equal to or greater than the trading price of IMPCO common stock prior to
the distribution. The market price of our common stock could fluctuate significantly for many reasons, including
in response to the risk factors listed in this Annual Report or for reasons unrelated to our specific performance.
Our common stock may be considered a technology stock by investors. Technology stocks have recently
experienced extreme price and volume fluctuations. Therefore, the market price and trading volume of our
common stock also may be extremely volatile.

The trading prices for our common stock may be adversely affected by the sale of a substantial number of

shares. Prices for our common stock may also be influenced by the depth and liquidity of the market for our
common stock, investor perceptions about us and our businesses, our future financial results, the absence of cash
dividends on our common stock and general economic and market conditions.

There are certain tax risks in connection with the distribution.

If the distribution qualifies under Section 355 of the Internal Revenue Code, it will be tax-free to IMPCO’s
stockholders for federal income tax purposes, except for cash received in lieu of fractional shares. No ruling has
been or will be sought from the Internal Revenue Service with respect to the federal income tax consequences of
the distribution. Although IMPCO received an opinion from Morrison & Foerster LLP to the effect that the
distribution will qualify under Section 355 of the Internal Revenue Code, their opinion is not binding on the
Internal Revenue Service. Accordingly, no assurance can be given that the Internal Revenue Service or the courts
will agree with their opinion. The opinion was also subject to certain assumptions and the accuracy and
completeness of certain factual representations and statements made by us and IMPCO, including a
representation that we would complete an initial public offering of our stock within one year following the
distribution. If these assumptions, representations or statements are incorrect or incomplete in any material
respect, the conclusions set forth in the opinion may not be correct. Although neither we nor IMPCO are aware of
any facts or circumstances which would cause such representations or assumptions to be untrue, we cannot assure
you that the distribution will be tax-free to IMPCO’s stockholders. Neither we nor IMPCO will indemnify any
IMPCO stockholder who receives shares of our common stock in the distribution for any tax liabilities. If the
distribution so qualifies, it will be tax-free to IMPCO as well, unless Section 355(e) of the Internal Revenue Code
applies to the distribution, as discussed below.

Even if the distribution qualifies under Section 355 of the Internal Revenue Code, it will be taxable to
IMPCO (but not its stockholders) if Section 355(e) of the Internal Revenue Code applies to the distribution.
Section 355(e) of the Internal Revenue Code will apply if 50% or more of IMPCO stock or our stock, by vote or
value, is acquired by one or more persons, other than IMPCO’s historic stockholders who received our common
stock in the distribution, acting pursuant to a plan or a series of related transactions that includes the distribution.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTV49LDxŠ
10*
1C

65938 TX 24
PMT

1KWYH2SGNTV49LD

CLN

17-Sep-2002 20:46 EST

Substantial uncertainty exists on the scope of Section 355(e) of the Internal Revenue Code, and we, our
stockholders, IMPCO and its stockholders have undertaken, contemplate undertaking or may otherwise
undertake in the future transactions which may cause Section 355(e) to apply to the distribution. Accordingly, we
cannot provide you any assurance that Section 355(e) of the Internal Revenue Code will not apply to the
distribution.

We may be liable for taxes arising in connection with the distribution, and the tax characteristics of the
distribution may interfere with our ability to engage in desirable strategic transactions and issue equity
securities.

Although any corporate taxes imposed in connection with the distribution generally would be imposed on
IMPCO, we will be liable for all or a portion of such taxes in certain circumstances. As part of the distribution,
IMPCO and we entered into a tax allocation and indemnification agreement. Under this agreement, we generally
are liable for taxes and liabilities relating to the failure of the contribution to be tax-free. In addition, under the
Contribution and Distribution Agreement with IMPCO, if the distribution fails to qualify under Section 355 of
the Internal Revenue Code or Section 355(e) of the Internal Revenue Code applies to the distribution because of
some action or omission by us, then we will be solely liable for any resulting taxes. We also agreed that until
three years after the distribution date, we will not take any of the following actions unless prior to taking such
action we have obtained a written opinion of a law firm or a ruling from the Internal Revenue Service that such
action will not affect the tax-free treatment of the distribution:

• merge or consolidate with another corporation

•

liquidate or partially liquidate;

sell or transfer all or substantially all of our assets;

redeem or repurchase our stock (except in certain limited circumstances); or

take any other action which could reasonably be expected have the effect of causing Section 355(e) of
the Code to apply to the distribution.

While we are not required to obtain an opinion or ruling described above prior to issuing our Series A or

Series B common stock to General Motors or in order to issue our common stock in connection with our initial
public offering, we will still have to indemnify IMPCO if the distribution becomes taxable to IMPCO as a result
of these or any other transaction that we undertake. In the event that we were liable for such taxes, the payment
would have a substantial and material adverse effect on our business, financial position and results of operations.
This obligation may also discourage, delay or prevent a merger, change of control, or other strategic or capital
raising transactions involving our outstanding equity or issuance of new equity.

Risks Relating to Our Business

We may never be able to introduce commercially viable fuel storage, fuel delivery or electronic control
products for fuel cell systems.

We do not know whether or when we will successfully introduce commercially viable fuel storage, fuel

delivery or electronic control products for the fuel cell market. We have produced and are currently
demonstrating a number of test and evaluation systems and are continuing our efforts to decrease the costs of our
systems, improve their overall reliability and efficiency, and ensure their safety. However, we must complete
substantial additional research and development on our systems before we can introduce commercially viable
fuel storage and fuel delivery systems for fuel cells. Even if we are able to do so, our efforts will still depend
upon the success of other companies in producing commercially viable fuel cells. In addition, we are not
currently manufacturing fuel cell enabling products on a large scale and will need to expand our facilities to do
so. The manufacture and use of our TriShield all-composite tank may not be successful, which could have an
adverse impact on our growth in fuel cell enabling technologies.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTT5T0DEŠ
9*
1C

65938 TX 25
PMT

1KWYH2SGNTT5T0D

CLN

17-Sep-2002 20:46 EST

A mass market for fuel storage, fuel delivery and electronic control systems for fuel cells may never develop or
may take longer to develop than we anticipate.

Fuel cell systems represent an emerging technology, and we do not know whether OEMs will incorporate
these technologies into their products or pursue these technologies on a large scale. In particular, if a mass market
fails to develop or develops more slowly than we anticipate for fuel cell powered transportation and power
generation applications, we may be unable to recover the expenditures incurred to develop our fuel systems for
fuel cells and may be unable to achieve profitability in that portion of our business, any of which could
negatively impact our business. Many factors that are beyond our control may have a negative effect on the
development of a mass market for fuel cells and our fuel cell products and systems. These factors include the
following:

•

the cost competitiveness and physical size of fuel cell systems;

the availability, future costs and safety of hydrogen, natural gas or other potential fuel cell fuels;

consumer reluctance to adopt fuel cell or alternative fuel products;

• OEM reluctance to replace current technology;

•

consumer perceptions of fuel cell systems;

regulatory requirements; and

the emergence of newer, breakthrough technologies and products by our competitors in the fuel cell
industry.

We cannot predict the long-term impact of our recent cost reduction measures.

During our 2002 fiscal year, we implemented measures in an effort to reduce costs. These measures
included reductions in our workforce and consolidation of facilities. We reduced the number of full-time
employees from 323 at July 31, 2001 to 156 at April 30, 2002. We cannot predict with any certainty the long-
term impact of our workforce reductions and any reductions we are compelled to make in the future. Reductions
in our workforce could make it difficult to motivate and retain remaining employees, which would affect our
ability to deliver our products in a timely fashion and otherwise negatively affect our business. We also cannot
assure you that these measures will be successful in achieving the expected benefits within the expected time
frames or that the workforce reductions will not impair our ability to achieve current or future business
objectives.

Our revenue depends to a great extent on our relationship with General Motors and General Motors’
commitment to the commercialization of the fuel cell and alternative fuel automotive OEM markets.

A substantial portion of our revenues for the fiscal year ended April 30, 2002 related to sales of our products

to and contracts with General Motors. Our business, results of operations and financial condition would be
significantly harmed by any substantial reduction in purchases of our products by General Motors, and it would
be difficult for us to replace those revenues on a timely basis, or at all.

Our business and results of operations would be adversely affected in the event General Motors were to
significantly reduce its purchases of our products or terminate its relationship with us. Our ability to sell our
products to the fuel cell and automotive OEM markets depends to a significant extent upon General Motors’ and
its partners’ worldwide sales and distribution network and service capabilities. Any change in strategy by
General Motors with respect to fuel cells or alternative fuels could harm our business by reducing or eliminating
a substantial portion of our sales, whether as a result of market, economic or competitive pressures, including any
decision by General Motors:

•

to alter its commitment to our fuel storage, fuel delivery and electronic control technology in factor of
other competing technologies;

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTV17YD"Š
9*
1C

65938 TX 26
PMT

1KWYH2SGNTV17YD

CLN

17-Sep-2002 20:46 EST

•

to exit the automotive OEM alternative fuel market;

to develop fuel cells or alternative fuel systems targeted at different application markets than ours; or

to focus on different energy product solutions.

We intend to make significant investments in the research and development of fuel cell enabling technologies,
which may not result in any corresponding increase in net revenue, and may contribute to continuing
operating losses.

We anticipate that we will make significant investments in research and development as we continue our

efforts in developing fuel cell enabling technologies. We expect to continue to incur operating losses as a result
of these research and development expenditures for at least the next 12 months. We may not recover this
investment.

Our business depends on the growth of the fuel cell and alternative fuel markets.

Our future success depends on the continued expansion of the fuel cell and alternative fuel vehicle
industries, which have not yet gained broad acceptance. In the United States and certain of our other target
markets, alternative fuel such as natural gas currently cannot be readily obtained by consumers for motor vehicle
use and only a small percentage of motor vehicles manufactured in 2000 was equipped to use alternative fuels.
We cannot assure you that the markets for fuel cells or alternative fuel vehicles will gain broad acceptance or, if
they do, that they will result in increased sales of our advanced fuel system products. In addition, we have
designed many of our products for alternative fuel vehicles powered by both fuel cells and internal combustion
engines, but not currently for other alternative power sources, such as electricity or alternate forms of existing
fuels. If the major growth in the alternative fuel market relates solely to existing fuels, our revenues may not
increase and may decline.

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.

Vehicles and equipment powered by gaseous alternative fuels run primarily on natural gas or propane. Fuel

cells run on hydrogen or fuels containing hydrogen. Gasoline requires the development of additional technologies
for its use with fuel cells, namely reformation. The construction of a distribution system to deliver natural gas,
propane or hydrogen, or a suitable fuel containing hydrogen, will require significant investment by third parties.
An adequate fuel distribution infrastructure may not be adopted. We are relying on third parties, most of which
are committed to the existing gasoline infrastructure, to build this infrastructure. If these parties build a fuel
distribution infrastructure, the fuel delivered through it, both due to the cost of the delivery system and the cost of
the fuel itself, may have a higher price than users are willing to pay. If users cannot obtain fuel conveniently or
affordably, a mass market for vehicles and equipment powered by gaseous alternative fuels or fuel cells is
unlikely to develop.

Our ability to attract customers and sell products successfully in the alternative fuel industry also depends

on a price disparity between liquid fuels, such as petroleum and gasoline, and gaseous fuels, such as propane and
natural gas. This price disparity may not continue. Should this disparity narrow or disappear, it could adversely
affect the demand of our products.

We currently face and will continue to face significant competition, which could result in a decrease in our
revenue.

We currently compete with companies that are developing fuel storage, fuel delivery and electronic control
products that may be more commercially feasible than our products. Furthermore, companies that are developing
fuel cells may not require fuel storage, fuel delivery or electronic control products of the type we design and
produce.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTVJJ6D[Š
8*
1C

65938 TX 27
PMT

1KWYH2SGNTVJJ6D

CLN

17-Sep-2002 20:46 EST

Increases in the market for alternative fueled vehicles may cause OEMs to find it advantageous to develop
and produce their own fuel management equipment rather than purchasing the equipment from suppliers such as
us. In addition, greater acceptance of alternative fuel engines or fuel cells may result in new competitors. Should
any of these events occur, the total potential demand for our products could be adversely affected and cause us to
lose existing business.

Our business may be subject to product liability claims, which could be expensive and could result in a
diversion of management’s attention.

The automotive industry experiences significant product liability claims. As a supplier, we face an inherent

business risk of exposure to product liability claims in the event that our products or the equipment into which
our products are incorporated malfunction, resulting in personal injury or death. We may be named in product
liability claims even if there is no evidence that our systems or components caused the accident. Product liability
claims could result in significant losses as a result of expenses incurred in defending claims or the award of
damages. The sale of systems and components for the transportation industry entails a high risk of these claims.
In addition, we may be required to participate in a recall involving these systems if any of our systems prove to
be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various
industry or business practices or the need to maintain good customer relationships. We cannot assure you that our
product liability insurance will be sufficient to cover all product liability claims, that such claims will not exceed
our insurance coverage limits or that such insurance will continue to be available on commercially reasonable
terms, if at all. Any product liability claim brought against us could have a material adverse effect on our
reputation and business.

Our business may become subject to future product certification regulations, which may impair our ability to
market our products.

We must obtain product certification from governmental agencies, such as the Environmental Protection
Agency and the California Air Resources Board, to sell certain of our products in the United States. A significant
portion of our future sales will depend upon sales of fuel management products that are certified to meet existing
and future air quality and energy standards. We cannot assure you that our products will continue to meet these
standards. The failure to comply with these certification requirements could result in the recall of our products,
civil penalties or criminal penalties.

We anticipate that regulatory bodies will establish certification procedures and impose regulations on fuel

cell enabling technologies, which may impair our ability to distribute, install and service these systems. Any new
government regulation that affects our advanced fuel technologies, whether at the foreign, federal, state or local
level, including any regulations relating to installation and servicing of these systems, may increase our costs and
the price of our systems. As a result, these regulations may have a negative impact on our business, results of
operations and financial condition.

New technologies could render our existing products obsolete.

New developments in technology may negatively affect the development or sale of some or all of our
products or make our products obsolete. There are a range of other technologies that could compete with fuel cell
or alternative fuel technologies on which our business is currently focused, including electric and hybrid
vehicles, and methanol-based fuel cell vehicles that require fuel reformation. Our success depends upon our
ability to design, develop and market new or modified fuel storage, fuel delivery and electronic control products
for fuel cells and internal combustion engines. Our inability to enhance existing products in a timely manner or to
develop and introduce new products that incorporate new technologies, conform to increasingly stringent
emission standards and performance requirements, and achieve market acceptance in a timely manner could
negatively impact our competitive position. New product development or modification is costly, involves
significant research, development, time and expense and may not necessarily result in the successful
commercialization of any new products.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTT2RCDCŠ
9*
1C

65938 TX 28
PMT

1KWYH2SGNTT2RCD

CLN

17-Sep-2002 20:46 EST

We depend on our intellectual property, and our failure to protect that intellectual property could adversely
affect our future growth and success.

We rely on patent, trademark and copyright law, trade secret protection, and confidentiality and other
agreements with our employees, customers, partners and others to protect our intellectual property for our fuel
cell enabling and alternative fuel technologies. However, some of our intellectual property is not covered by any
patent or patent application and, despite our precautions, it may be possible for third parties to obtain and use our
intellectual property without authorization.

In connection with the distribution, IMPCO transferred six domestic patents, three foreign patents and one

patent application to us. These patents will expire between July 2015 and December 2017. We do not know
whether any patents will be issued or whether issued patents will be sufficiently broad to protect our technology
or processes. Patent applications and issued patents may be challenged or invalidated. We could incur substantial
costs in prosecuting or defending patent infringement suits.

Furthermore, the laws of some foreign countries may not protect intellectual property rights to the same
extent as do the laws of the United States. It may be difficult for us to enforce certain of our intellectual property
rights against third parties that may have acquired intellectual property rights by filing unauthorized applications
in foreign countries to register the marks that we use because of their familiarity with our worldwide operations.

We cannot assure you that we will be successful in protecting our proprietary rights. Any infringement on

any of our intellectual rights, especially in our developing fuel cell enabling technologies, could have an adverse
effect on our ability to develop and sell successfully commercially competitive systems and components.

We depend on third-party suppliers for the supply of key materials and components for our products.

We have established relationships with third-party suppliers, which provide materials and components for
our products, particularly the high-strength fiber used in our lightweight fuel storage tanks. A supplier’s failure to
supply materials or components in a timely manner or to supply materials and components that meet our quality,
quantity or cost requirements, combined with a delay in our ability to obtain substitute sources for these materials
and components in a timely manner or on terms acceptable to us, would harm our ability to manufacture our
products or would significantly increase our production costs. In particular, a delay in the delivery of
high-strength fiber from our current supplier, TCR Composites, or our decision to change to another supplier
would result in a delay of the production of our products, which could negatively impact our business, results of
operations and financial condition.

We could lose or fail to attract the personnel necessary to run our business.

Our success depends in large part on our ability to attract and retain key management, engineering,
scientific, manufacturing and operating personnel. As we develop our fuel cell business, we will require
additional technically skilled personnel. Recruiting personnel for the industries in which we engage is highly
competitive, and the failure to attract or retain qualified personnel could have a material adverse effect on our
business.

Our business could be harmed if we fail to meet OEM specifications.

We offer integrated alternative fuel systems, which include tanks, brackets, electronics, software and other

components required to allow these products to operate in fuel cells or other alternative fuel applications.
Customers for these systems require that these products meet strict OEM standards. Our compliance with these
requirements has resulted in increased development, manufacturing, warranty and administrative costs. A
significant increase in these costs could adversely affect our business, results of operations and financial
condition. If we fail to meet OEM specifications on a timely basis, our relationships with OEMs may be harmed,
which would have a material adverse effect on our business, results of operations and financial condition.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

We may be subject to increased warranty claims.

ˆ1KWYH2SGNTVQMJDRŠ
8*
1C

65938 TX 29
PMT

1KWYH2SGNTVQMJD

CLN

17-Sep-2002 20:46 EST

In response to consumer demand, vehicle manufacturers have been providing, and may continue to provide,

increasingly longer warranty periods for their products. As a consequence, these manufacturers require their
suppliers, such as us, to provide correspondingly longer product warranties. As a result, we could incur
substantially greater warranty claims in the future.

We may experience labor disputes at OEM facilities.

As we become more dependent on vehicle conversion programs with OEMs, we will become increasingly
dependent on OEM production and the associated labor forces at OEM sites. Labor unions represent most of the
labor forces at OEM facilities. Labor disputes could occur at OEM facilities, which could adversely impact our
direct OEM product sales. For example, in 1998, as a result of a strike at one of our OEM’s facilities, we
experienced lower sales of our products used in General Motors pick-up trucks than we had expected for our
1999 fiscal year.

Changes in environmental policies could hurt the market for our products.

The market for alternative fueled and fuel cell vehicles and equipment, and the demand for our products are
driven, to a significant degree, by local, state and federal regulations in the United States that relate to air quality
and require the purchase of motor vehicles and equipment operating on alternative fuels. Similarly, foreign
governmental regulations also affect our international business. These laws and regulations may change, which
could result in transportation or equipment manufacturers abandoning their interest in alternative fueled and fuel
cell powered vehicles. In addition, a failure by authorities to enforce current domestic and foreign laws or to
adopt additional environmental laws could limit the demand for our products.

Although many governments have identified as a significant priority the development of alternative energy

sources, and fuel cells in particular, we cannot assure you that governments will not change their priorities or that
any change they make would not materially affect our revenue or the development of 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.

All fuels, including hydrogen, pose significant safety hazards and hydrogen vehicles have not yet been
widely used under “real-world” driving conditions. To ensure that hydrogen fuels are handled in a safe manner,
certain characteristics of hydrogen must be addressed.

The use of hydrogen as a vehicle fuel requires the establishment of appropriate codes and standards to

ensure its safe use by the car-driving public. The development of these standards are being undertaken by
numerous organizations, including the American National Standards Institute, American Society of Mechanical
Engineers, European Integrated Hydrogen Project, International Code Council, International Standards
Organization, National Fire Protection Association, National Hydrogen Association, and Society of Automotive
Engineers. Given the number of organizations pursuing hydrogen and fuel cell codes and standards, it is not clear
whether universally accepted codes and standards will result and, if so, when.

Although many organizations have identified as a significant priority the development of codes and

standards, we cannot assure you that the resulting codes and standards would not materially affect our revenue or
the commercialization of our products.

Provisions of Delaware law and of our charter and by-laws may make a takeover more difficult.

Provisions in our certificate of incorporation and by-laws and in the Delaware corporate law may make it
difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that our

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTVTP5DEŠ
11*
1C

65938 TX 30
PMT

1KWYH2SGNTVTP5D

CLN

17-Sep-2002 20:46 EST

management and board of directors oppose. Public stockholders that might desire to participate in one of these
transactions may not have an opportunity to do so. Our amended and restated certificate of incorporation and
amended and restated by-laws contain the following types of provisions:

•

establishing a staggered board of directors, which makes it difficult for stockholders to change the
composition of the board of directors in any one year;

reserving to our board of directors the exclusive right to change the number of directors and fill
vacancies on our board of directors, which could make it more difficult for a third party to obtain control
of our board of directors;

authorizing the issuance of preferred stock which can be created and issued by the board of directors
without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights
senior to those of our common stock, which could make it more difficult of expensive for a third party
to obtain voting control;

establishing advance notice requirements for director nominations or other proposals at stockholder
meetings;

prohibiting stockholder action by written consent, which could delay a third party from acquiring us;
and
requiring the affirmative vote of holders of at lease 66 2⁄ 3% of the outstanding voting stock to amend any
provision in our certificate of incorporation or by-laws, and requiring the affirmative vote of 80% of the
outstanding voting stock to amend certain provisions of our certificate of incorporation and by-laws,
which could make it more difficult for a third party to remove the provisions we have included to
prevent or delay a change of control.

These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from

a change in control or to change our management and board of directors.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information relating to Quantitative and Qualitative Disclosures About Market Risk appear under the
heading “Derivative Financial Instruments” which is included in Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operation.

Item 8. Financial Statements and Supplementary Data.

Our financial statements and supplementary data beginning on page F-1 of this Annual Report on
Form 10-K are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

PART III

ˆ1KWYH2SGNTW2V4D-Š
11*
1C

65938 TX 31
PMT

1KWYH2SGNTW2V4D

CLN

17-Sep-2002 20:46 EST

Item 10. Directors and Executive Officers

The following table sets forth the names, ages and positions of the individuals who serve as our directors

and executive officers:

Name

Age

Position

Alan P. Niedzwiecki . . . . . . . . . . . . . . . . . . . . . . . . . .
Raymond W. Corbin . . . . . . . . . . . . . . . . . . . . . . . . . .
Cathryn T. Johnston . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas K. Wiedmann . . . . . . . . . . . . . . . . . . . . . . . .
Dale L. Rasmussen . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian A. Runkel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Samuelsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Tyson . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44
President; Chief Operating Officer; Director
50 General Manager of GM Alternative Fuel Programs
36 Director of Business Operations; Secretary
42 Vice President of Research and Development
52 Chairman of the Board; Director
40 Director
59 Director
69 Director

Alan P. Niedzwiecki has served as our President and as one of our directors since February 2002.

Mr. Niedzwiecki was appointed as our Chief Operating Officer in November 2001 and continues to serve in that
position. From October 1999 to November 2001, Mr. Niedzwiecki served as our Executive Director of Business
Development. From June 1989 to October 1999, Mr. Niedzwiecki was President and CEO of NGV Corporation,
an engineering and marketing/commercialization consulting company. Mr. Niedzwiecki has more than 25 years
of experience in the alternative fuels industry in product and technology development and commercialization
relating to mobile, stationary power generation and refueling infrastructure solutions. Mr. Niedzwiecki is a
graduate of Southern Alberta Institute of Technology, with a degree in Petroleum Engineering.

Raymond W. Corbin has served as our General Manager of General Motors Alternative Fuel Programs since

February 2001. Mr. Corbin joined us in May 2001 as Director of General Motors Alternative Fuel Programs.
From June 1974 until May 2001, Mr. Corbin worked for General Motors Powertrain and Calsonic-Kansei
Corporation. He has over 30 years of automotive experience in engines, emission systems, powertrain, exhaust
systems and manufacturing. Mr. Corbin holds a B.S. in Mechanical Engineering from Kettering University
(formerly General Motors Institute).

Cathryn T. Johnston has served as our Director of Business Operations since June 2000 and became our

Corporate Secretary in November 2000. From 1993 to June 2000, Ms. Johnston held various positions with
IMPCO, including Manager of Business Administration, Manager of Program and Contracts Administration, and
Program Administrator for OEM programs. Prior to joining IMPCO in 1993, Ms. Johnston held several business
administration positions in a variety of industries, including the residential building industry and the non-profit
sector. She has over 15 years of experience in business administration and operations positions. Ms. Johnston
received a B.S. in Developmental Psychology from the University of California, Santa Barbara and an M.B.A.
from the University of California, Irvine.

Thomas K. Wiedmann has served as our Vice President of Research and Development since February 2001.

Mr. Wiedmann served as a member of our board of directors from February 2001 to February 2002. From June
1997 to February 2001, Mr. Wiedmann served as Director of Vehicle Platforms for IMPCO’s automotive OEM
division. Mr. Wiedmann joined IMPCO in 1984 and has held various key engineering positions covering vehicle
propulsion, conventional and gaseous fuels and engine/powertrain control systems. Mr. Wiedmann received a
B.S. in Engineering from Walla Walla College, Washington.

Dale L. Rasmussen has served as a member of our board of directors since October 2000 and was appointed

as Chairman of the Board in February 2002. Since April 1984, Mr. Rasmussen has held various positions at
IMPCO, including his current position as Senior Vice President and Secretary since June 1989, as well as Vice
President of Finance and Administration. Prior to joining IMPCO, Mr. Rasmussen was a commercial banker for

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTVBDXDTŠ
11*
1C

65938 TX 32
PMT

1KWYH2SGNTVBDXD

CLN

17-Sep-2002 20:46 EST

12 years at banks that were acquired by Key Bank and U.S. Bank. He received a B.A. in Business Administration
and Economics from Western Washington University and is a graduate of the Pacific Coast Banking School.

Brian A. Runkel became a director immediately prior to the distribution. Since June 1993

Mr. Runkel has served as President of Runkel Enterprises, an environmental consulting firm. Mr. Runkel also
serves as Executive Director of the California Environmental Business Council, a non-profit trade and business
association representing the California environmental technology and services industries. He received a B.A. in
International Relations from George Washington University, and a J.D. from Harvard Law School.

Scott Samuelsen became a director immediately prior to the distribution. Since 1990,

Dr. Samuelsen has been a professor of Mechanical and Aerospace Engineering at University of California,
Irvine, where he serves as the Director of the National Fuel Cell Research Center. He also serves as Vice
President of Energy Plus Ltd., an engineering consulting firm. Dr. Samuelsen holds B.S., M.S. and Ph.D. degrees
in Mechanical Engineering from the University of California, Berkeley.

Thomas J. Tyson became a director immediately prior to the distribution. Mr. Tyson currently serves as an

external consultant to GE Energy & Environmental Research Corp., a developer of advanced technologies to
control nitrogen oxide emissions. Mr. Tyson served as Chief Executive Officer of Energy & Environmental
Research Corp. until it was acquired by General Electric in 1999. From July 1999 to December 2001, Mr. Tyson
served in various positions with GE Energy & Environmental Research Corp., including Chief Executive Officer
and Director of Special Projects. Mr. Tyson received a M.S. in Nuclear Engineering from the University of
California, Berkeley and holds a B.S. in Mechanical Engineering and a Ph.D. in Aeronautical Engineering from
the California Institute of Technology.

There are no family relationships among any of our directors or executive officers.

Board of Directors

Our board of directors is comprised of five members. In accordance with our restated certificate of
incorporation and amended and restated by-laws, the terms of office of our board of directors is divided into
three classes as nearly equal in size as possible with staggered three-year terms: Class I, whose term will expire
at the first annual meeting of stockholders held after the distribution, Class II, whose term will expire at the
second annual meeting of stockholders, and Class III, whose term will expire at the third annual meeting of
stockholders. The Class I director is Brian Runkel, the Class II directors are Scott Samuelson and Thomas Tyson,
and the Class III directors are Alan Niedzwiecki and Dale Rasmussen. Pursuant to our strategic alliance with
General Motors, we have agreed to appoint one individual nominated by General Motors to our board of
directors. We also agreed that, during the term of our strategic alliance, we will continue to nominate one
individual designated by General Motors to our proposed slate of directors to be presented to our stockholders as
necessary for General Motors to retain one seat on our board of directors. During the term of our strategic
alliance, General Motors will also be entitled to appoint a non-voting “ex-officio” board member. At each annual
meeting of stockholders, beginning with the first annual meeting after the distribution, the successors to the
directors whose terms will then expire will be elected to serve from the time of their election and qualification
until the third annual meeting following their election or until their successors have been duly elected and
qualified, or until their earlier resignation or removal. The classification of our board of directors could have the
effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring,
control of our company.

Committees of the Board of Directors

Compensation Committee. The members of our compensation committee are Messrs. Rasmussen, Runkel

and Samuelsen. The compensation committee reviews and makes recommendations to our board of directors
concerning salaries and incentive compensation for our directors, officers and employees. The compensation
committee will also administer our 2002 Stock Incentive Plan.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTVMKWDWŠ
13*
1C

65938 TX 33
PMT

1KWYH2SGNTVMKWD

CLN

17-Sep-2002 20:46 EST

Audit Committee. The members of our audit committee are Messrs. Runkel, Samuelsen and Tyson. The

audit committee reviews our internal accounting and auditing procedures, reviews our audit and examination
results and procedures, consults with our management and our independent accountants prior to the presentation
of our financial statements to stockholders, and makes recommendations to the board of directors about selecting
independent accountants.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and
persons who own more than 10% of our common stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.
Executive officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the copies of such
reports furnished to us or advice that no filings were required, since the beginning of our 2002 fiscal year all
executive officers, directors and greater than 10% beneficial owners complied with the Section 16(a) filing
requirements, except that each of our current executive officers and directors filed a Form 3 one day late.

Item 11. Executive Compensation.

The following table sets forth information concerning the annual and long-term compensation for services

rendered in all capacities to IMPCO and its subsidiaries for the fiscal years indicated for the individual who
served as our Chief Executive Officer during the last completed fiscal year and the four other most highly
compensated individuals who will serve as our executive officers. These individuals are referred to as the
“named executive officers” in this Annual Report.

Summary Compensation Table

Name and Principal Position

Alan P. Niedzwiecki(3) . . . . . . . . . . . . . . . . . . . . . . .

President and Chief Operating Officer

Syed F. Hussain(5) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Former Chief Technology Officer

Raymond W. Corbin(7) . . . . . . . . . . . . . . . . . . . . . . .

General Manager of GM Alternative Fuel

Programs

Thomas K. Wiedmann . . . . . . . . . . . . . . . . . . . . . . . .
Vice President of Research and Development . . . . . .

Fiscal
Year

2002
2001
2000

2002
2001

2002
2001
2000

Annual Compensation
Salary(1)
Bonus

$148,560
130,764
67,896

$ —
5,000
4,100

281,097
250,962
203,846

195,000
184,725

175,000
136,923
111,019

—
194,200
49,000

—
11,000

—
7,000
9,000

Long-Term
Compensation
Awards

Securities
Underlying
Options(2) (#)

40,000
7,500
0

—
40,000
10,000

—
5,000

—
3,035
47

All Other
Compensation

$10,521(4)
20,155
33,729

12,135(6)
12,135
12,198

14,632(8)
18,526

16,336(9)
15,491
16,218

(1)

Includes amounts deferred by executive officers pursuant to IMPCO’s Employee Savings Plan and Deferred
Compensation Plan.

(2) Consists of options granted under IMPCO’s incentive option plans. In connection with our spin-off from
IMPCO, each outstanding option to purchase IMPCO common stock was converted into an adjusted
IMPCO option and an option to purchase the same number of shares of our common stock. For a description
of these option adjustments, see “—Treatment of Outstanding IMPCO Options.”

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTW5WTDÆŠ
10*
1C

65938 TX 34
PMT

1KWYH2SGNTW5WTD

CLN

17-Sep-2002 20:46 EST

(3) Mr. Niedzwiecki joined our company during our 2000 fiscal year and was appointed as our President in

(4)

February 2002.
Includes a group term life insurance premium of $135, an automobile allowance of $8,400 and a matching
contribution of $1,986 pursuant to the IMPCO Employee Savings Plan.

(5) Mr. Hussain served as our President and Chief Executive Officer until February 2002 and resigned from

Quantum in April 2002.
Includes a group term life insurance premium of $135 and an automobile allowance of $12,000.

(6)
(7) Mr. Corbin joined our company during our 2001 fiscal year.
(8)

(9)

Includes a group term life insurance premium of $207, an automobile allowance of $8,400 and a matching
contribution of $6,043 pursuant to the IMPCO Employee Savings Plan.
Includes a group term life insurance premium of $90, an automobile allowance of $8,400, a matching
contribution of $5,425 pursuant to the IMPCO Employee Savings Plan and a matching contribution of
$2,421 pursuant to the IMPCO Deferred Compensation Plan.

The positions in the table above are the positions to be held by the named executive officers with us at the

time of the distribution and were not necessarily the positions held by the named executive officers with IMPCO
during the period or periods covered by the table.

Option Grants in Last Fiscal Year

The following table provides summary information regarding options to purchase IMPCO common stock
granted to each of the named executive officers in fiscal 2002. No options to purchase Quantum common stock
were granted to any named executive officers in fiscal 2002. In connection with our spin-off from IMPCO, each
outstanding option to purchase IMPCO common stock was converted into an adjusted IMPCO option and an
option to purchase the same number of shares of our common stock. For a description of these option
adjustments, see “—Treatment of Outstanding IMPCO Options.” No stock appreciation or stock purchase rights
were granted in fiscal 2002.

Individual Grants

Number of
Securities
Underlying
Options
Granted(1)

Percent of
Total
Options
Granted to
Employees
in Fiscal
Year(2)

Exercise
Price
Per Share(1)

Expiration
Date

Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term(3)

10%

Name

Alan P. Niedzwiecki . . . . . . . . . . . . . . . .

40,000

17.3%

$11.00

12/14/11

$276,714

$701,247

(1) Options were granted at fair market value of IMPCO common stock on the date of grant and vest

cumulatively at the rate of 40% after the first two years following the date of the grant and 20% each year
thereafter so that the employee is 100% vested after five years. However, if employment terminates due to
death or disability, retirement at or after age 62, or termination without cause, then options vest at the rate of
25% for each full calendar year of employment. Options may be exercised only while an optionee is
employed by us or IMPCO, or within three months following termination of such employment. If
termination results from death or disability, options may be exercised within one year of the termination
date. In no event may options be exercised more than ten years after date of grant. In the event of a change
of control, the board may in its sole discretion give all or certain optionees the right to exercise all or any
portion of their unvested options. For a description of the adjustment of outstanding IMPCO options in
connection with the distribution, please see “—Treatment of Outstanding IMPCO Options.”

(2) Based on an aggregate of 231,000 options granted to IMPCO’s employees, consultants and directors during

the 2002 fiscal year.

(3) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of
the Securities and Exchange Commission and do not represent our estimate or projection of our future
common stock prices.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTW8YGDqŠ
15*
1C

65938 TX 35
PMT

1KWYH2SGNTW8YGD

CLN

17-Sep-2002 20:46 EST

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth information concerning exercises of options to purchase IMPCO common
stock during fiscal year 2002 and the value of unexercised options to purchase IMPCO common stock held by
the named executive officers at the end of fiscal year 2002.

Shares
Acquired
on
Exercise(#)

Value
Realized
($)(1)

Number of Securities
Underlying Unexercised
Options
at Fiscal Year-End (#)

Value of Unexercised
In-the-Money Options at
Fiscal Year-End(2)

Name

Exercisable Unexercisable Exercisable Unexercisable

Alan P. Niedzwiecki . . . . . . . . . . . .
Syed F. Hussain . . . . . . . . . . . . . . . .
Raymond W. Corbin . . . . . . . . . . . .
Thomas K. Wiedmann . . . . . . . . . .

—
72,000
—
13,491

—
$408,525
—
102,011

0
0
0
43

47,500
0
5,000
7,098

$ 0
0
0
56

$94,958
0
11,900
29,207

(1) Calculated by determining the difference between the fair market value of the common stock underlying the

options on the date each option was exercised and the exercise price of the options.

(2) Calculated by determining the difference between the fair market value of the common stock underlying the

options on April 30, 2002 and the exercise price of the options.

Director Compensation

Each director who is not one of our employees will receive an attendance fee of $1,000, plus out-of-pocket

expenses, for each board meeting he attends. In addition, board members acting as chairman for the audit,
compensation and nominating committees will receive an annual fee of $3,000. Directors are eligible to
participate in our stock plans. Option grants to directors are at the discretion of management, and we have no
specific plans regarding amounts to be granted to our directors in the future.

Compensation Committee Interlocks and Insider Participation

Our compensation committee consists of Messrs. Rasmussen, Runkel and Samuelsen. None of our executive

officers serves as a director or member of the compensation committee or other board committee performing
equivalent functions of another entity that has one or more executive officers serving on the board of directors of
our compensation committee.

Treatment of Outstanding IMPCO Options

On the distribution date, each outstanding option to purchase IMPCO common stock was converted into two

options: an option to purchase the same number of shares of IMPCO common stock covered by the original
IMPCO option and an option to purchase the same number of shares of our common stock. The exercise prices
per share for each converted IMPCO option and Quantum option were adjusted in a manner so that:

•

the aggregate "intrinsic value" (which is the market value of the stock underlying the option, less the
exercise price of that option, multiplied by the number of shares then covered by that option) after the
distribution of the converted IMPCO option plus the intrinsic value of the new Quantum option is not
greater than the intrinsic value of the original IMPCO option immediately prior to the distribution;

the ratio of the exercise price of the converted IMPCO option to the market value per share of IMPCO
common stock after the distribution is not lower than the ratio of the exercise price of the original IMPCO
option to the market value per share of IMPCO common stock immediately prior to the distribution; and

the ratio of the exercise price of the new Quantum option to the market value per share of Quantum
common stock after the distribution is not lower than the ratio of the exercise price of the original IMPCO
option to the market value per share of IMPCO common stock immediately prior to the distribution.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
START PAGE

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTWC=3DtŠ
10*
1C

65938 TX 36
PMT

1KWYH2SGNTWC=3D

CLN

17-Sep-2002 20:47 EST

The terms of each converted IMPCO option and each new Quantum option (other than the exercise price
and the number of shares) remained substantially the same as the original IMPCO options from which they were
converted, except that the converted IMPCO options were amended to allow for vesting based on the
continuation of the holder's employment with either IMPCO or Quantum or their respective subsidiaries, as the
case may be, and will give credit for continuous employment with IMPCO or Quantum or their respective
subsidiaries prior to the distribution date. All of the Quantum options we issued in connection with the
distribution were non-qualified stock options. The vesting of each new Quantum option is subject to the same
vesting schedule as the original IMPCO option and continuation of the holder's employment with either IMPCO
or Quantum or their respective subsidiaries, as the case may be, with credit given for continuous employment
with IMPCO or Quantum or their respective subsidiaries, prior to the distribution date. The Quantum options we
granted with respect to each original IMPCO option were issued under the our 2002 Stock Incentive Plan.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Management and Related
Stockholder Matters.

The following table sets forth information about the beneficial ownership of each class of our securities as

of June 24, 2002. It shows shares beneficially owned by each of the following:

•

each person or group of affiliated persons known by us to beneficially own more than 5% of each class
of our outstanding securities;

each of our directors;

each of the named executive officers; and

all current directors and executive officers as a group.

We have determined the beneficial ownership shown on this table in accordance with the rules of the
Securities and Exchange Commission. Under those rules, if a person held options or warrants to purchase shares
of our common stock that were currently exercisable or exercisable within 60 days of June 24, 2002, those shares
are included in that person’s reported holdings and in the calculation of the percentage of our common stock
owned. Except as otherwise provided below, the percentage of beneficial ownership is based on 14,142,036
shares of our common stock outstanding as of July 24, 2002. To our knowledge, each person named in the table
has sole voting and investment power over the shares listed by that person’s name, except where we have shown
otherwise in the footnotes or where community property laws affect ownership rights. Except where we show
otherwise, the address of each of the persons in this table is: c/o Quantum Fuel Systems Technologies
Worldwide, Inc., 17872 Cartwright Road, Irvine, California 92614.

Name of Beneficial Owner

. . . . . . . . . . . . . . . .

5% or Greater Stockholders:
General Motors Corporation(2)
Directors and Executive Officers:
Dale L. Rasmussen . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian A. Runkel
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Samuelsen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Tyson . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Syed F. Hussain . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alan P. Niedzwiecki . . . . . . . . . . . . . . . . . . . . . . . . .
Raymond W. Corbin . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas K. Wiedman . . . . . . . . . . . . . . . . . . . . . . . .
All current directors and officers as a group . . . . . . .

Series A
Common Stock

Common Stock

Number of
Shares Owned

Percent

Number of
Shares Owned

Percent

Percent
of Total
Capital
Stock(1)

3,513,439(3)

100%

19.9%

0
0
0
0
0
0
0
0
0

*
*
*
*
*
*
*
*
*

205,150(4)

0
0
0
113,858

1,635(5)
0
43(6)
206,933(7)

1.4%
*
*
*

*
*
*
1.5%

1.2%
*
*
*
*
*
*
*
1.2%

(1) The percentage of total capital stock is based on a total of 17,655,475 shares of capital stock outstanding as
of July 24, 2002, which assumes the conversion of all outstanding shares of Series A common stock into
common stock on a one-for-one basis.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTV7C7D_Š
13*
1C

65938 TX 37
PMT

1KWYH2SGNTV7C7D

CLN

17-Sep-2002 20:47 EST

(2) The address of General Motors Corporation is 300 Renaissance Center, Detroit, Michigan 48265.
(3) Shares of Series A common stock will automatically convert into common stock on a one-for-one basis

upon the closing of an initial public offering of our capital stock. For a detailed description of the rights and
preferences of our Series A common stock, please see “Note 10—Stockholders’ Equity” in the notes to the
financial statements included elsewhere in this Annual Report.
Includes 72,113 shares issuable upon exercise of outstanding options that are exercisable within 60 days
after July 24, 2002.
Includes 1,360 shares issuable upon exercise of outstanding options that are exercisable within 60 days after
July 24, 2002.

(4)

(5)

(6) Represents 43 shares issuable upon exercise of outstanding options that are exercisable within 60 days after

(7)

July 24, 2002.
Includes an aggregate of 73,516 shares issuable upon exercise of outstanding options that are exercisable
within 60 days after July 24, 2002.

Equity Compensation Plan Information

As of April 30, 2002, we had no options, warrants or other rights to purchase our securities under any

compensation plans.

Item 13. Certain Relationships and Related Transactions.

Prior to the distribution, each of our current executive officers served as an officer or employee of IMPCO
and/or its other subsidiaries. In acting on our behalf, these officers considered not only the short-term and long-
term impact of operating decisions on our business, but also the impact of such decisions on the business of
IMPCO. One of our directors, Dale Rasmussen, remains employed by IMPCO and will continue to serve as
IMPCO’s Senior Vice President and Secretary.

During the 2002 fiscal year, we had revenue of $29,316 for products sold to IMPCO, and we purchased

$156,041 in products from IMPCO.

Agreements with IMPCO

In connection with the contribution of assets by IMPCO to us, IMPCO also contributed $15 million in cash

and assumed $8.6 million of our outstanding debt. In connection with the distribution, we entered into a
Contribution and Distribution Agreement and several ancillary agreements with IMPCO that defines our ongoing
relationship after the distribution and to allocate tax, employee benefits and certain other liabilities and
obligations arising from periods prior to the distribution date. We entered into these agreements with IMPCO
while we were still a wholly-owned subsidiary of IMPCO and, while we believe the terms of these agreements
reflect arms’ length transactions, these agreements may not be the same as would have been obtained through
negotiations with an unaffiliated third party. Each of these agreements has been filed as exhibits to this Annual
Report. The following description is only a summary and is qualified by reference to the filed exhibits.

Contribution and Distribution Agreement

We entered into a Contribution and Distribution Agreement with IMPCO which provides for, among other

things, certain corporate transactions required to effect the distribution and other arrangements among us and
IMPCO subsequent to the distribution. The agreement provided that IMPCO would transfer to us the assets
constituting IMPCO’s automotive OEM business. The agreement provides for, among other things, assumptions
of liabilities and cross-indemnities designed to place financial responsibility on each of us and IMPCO for the
liabilities of its respective business.

Under the agreement, if we or IMPCO act or fail to act in a manner which causes the distribution to fail to

qualify under Section 355 of the Code or Section 355(e) of the Internal Revenue Code to apply to the
distribution, we or IMPCO will indemnify the other for any tax liability arising from such failure or application.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTVFGKD\Š
9*
1C

65938 TX 38
PMT

1KWYH2SGNTVFGKD

CLN

17-Sep-2002 20:47 EST

The agreement also provides for a full release and discharge of all liabilities existing or arising from all acts

and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions
existing or alleged to have existed on or before the date of the agreement, between or among us or any of our
subsidiaries or affiliates, on the one hand, and IMPCO or any of its subsidiaries or affiliates other than our
company, on the other hand, except as expressly set forth in the agreement. The agreement also provides that,
except as otherwise set forth therein or in any related agreement, all costs or expenses incurred in connection
with the distribution and not paid prior to the distribution will be charged to and paid by us. Each party will pay
its own expenses after the Distribution.

Employee Benefit Matters Agreement

We entered into an Employee Benefit Matters Agreement with IMPCO pursuant to which we agreed to

create independent retirement and other employee benefit plans that are substantially similar to IMPCO’s
existing retirement and other employee benefit plans. Under the agreement and effective immediately after the
distribution, IMPCO will transfer the assets and liabilities of its existing 401(k) retirement and other benefit plans
related to our employees to the comparable Quantum benefit plans. Generally, following the distribution, IMPCO
ceased to have any continuing liability or obligation to our current employees and their beneficiaries under any of
IMPCO’s benefit plans, programs or practices.

Pursuant to the Employee Benefit Matters Agreement, all IMPCO stock options that were outstanding on

the record date and that had not been exercised prior to the distribution date were converted into two stock
options: (1) an option to purchase the number of previously-unexercised IMPCO stock options as of the record
date, and (2) an option to purchase a number of shares of our common stock equal to the number of previously-
unexercised IMPCO stock options times a fraction, the numerator of which is the total number of shares of our
common stock distributed to IMPCO stockholders in the distribution and the denominator of which is the total
number of IMPCO shares outstanding on the record date for the distribution.

Tax Allocation and Indemnification Agreement

We and IMPCO entered into a Tax Allocation and Indemnification Agreement, which allocates tax
liabilities between us and IMPCO and addresses certain other tax matters such as responsibility for filing tax
returns and the conduct of audits and other tax proceedings for taxable periods before and after the distribution
date. IMPCO will be responsible for and will indemnify us against all tax liabilities relating to the assets and
entities that will constitute IMPCO and its subsidiaries, and we will be responsible for and will indemnify
IMPCO against all tax liabilities relating to the assets and entities that will constitute our business. In addition,
we generally will indemnify IMPCO for all tax liabilities arising if the contribution is not tax-free, other than tax
liabilities arising in connection with the our assumption of certain IMPCO liabilities.

Transition Services Agreement

We entered into a Transition Services Agreement with IMPCO pursuant to which IMPCO will continue to

provide us with various administrative services. These services consists of administrative services including
employee benefits administration, affirmative action and immigration administration, and payroll processing.
This agreement will terminate after a period of six months, but may be terminated earlier by either party as to
specific services on certain conditions. We will pay fees to IMPCO for services provided in amounts based on
IMPCO’s loaded costs incurred in providing such services.

Strategic Alliance Agreement

We entered into a Strategic Alliance Agreement with IMPCO pursuant to which we will work with IMPCO

in identifying and conducting research and development programs of mutual interest. As part of such research
and development activities, we may develop, solely or jointly with IMPCO, technology that is owned solely by

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTWH0SD+Š
10*
1C

65938 TX 39
PMT

1KWYH2SGNTWH0SD

CLN

17-Sep-2002 20:47 EST

us or jointly with IMPCO. The other purpose of this relationship is to provide IMPCO access to our advanced
technologies, including the CNG storage tanks, fuel injectors, in-tank regulators and other products, for use in
automotive, bus and truck and industrial aftermarket applications and in the bus and truck and industrial OEM
markets.

Agreements with General Motors

We have entered into a strategic alliance with General Motors regarding the development of fuel cell

systems. Under the terms of the strategic alliance, General Motors acquired shares of our Series A common stock
representing 19.9% of our issued and outstanding capital stock following the distribution. We entered into the
agreements described below with General Motors in connection with the alliance. These agreements have been
filed as exhibits to this Annual Report. The following description is only a summary and is qualified by reference
to the filed exhibits.

Corporate Alliance Agreement

The Corporate Alliance Agreement between us and General Motors serves to formalize our agreement to

work together to advance and commercialize, on a global basis, fuel cell systems and the market for fuel cells to
be used in transportation, mobile, stationary and portable applications. The Corporate Alliance Agreement
became effective upon the distribution and has a term of ten years. The agreement provides that:

• General Motors is obligated to actively support, endorse and recommend us to its customer base;

• General Motors will assist and provide guidance with respect to our directed research and development

of fuel cell applications;

• we will appoint one individual nominated by General Motors to our board of directors prior to or

promptly after the distribution, and thereafter during the term of the agreement we will continue to
nominate one individual designated by General Motors to our proposed slate of directors to be presented
to our stockholders as necessary for General Motors to retain one seat on our board of directors;

• General Motors will be entitled to appoint an “ex officio” board member with non-voting capacity

during the term of the agreement;

• we will provide minimum amounts of annual funding to projects approved under the alliance; and

•

beginning three years after the effective date of the agreement, we will pay General Motors a percentage
of gross revenues derived from sales of applications developed under the strategic alliance.

We retain the ownership of our existing technology and we and General Motors will jointly own technology

that is jointly created under the alliance. We are free to use jointly created technologies in certain aspects of our
business but will be required to share revenues with General Motors on fuel cell system-related products that are
sold to General Motors or third parties. Under the agreement, General Motors has a right of first refusal in the
event that we propose to sell, or otherwise transfer our fuel cell related intellectual property contemplated under
the Corporate Alliance Agreement. In the event that we decide to discontinue operations or are deemed insolvent,
General Motors has the right to purchase the intellectual property contemplated under the Corporate Alliance
Agreement at a price to be determined by an independent appraisal firm approved by both us and General Motors.

Stock Transfer Agreement

We entered into a Stock Transfer Agreement pursuant to which we agreed to issue to General Motors shares

of our Series A Common Stock representing 19.9% of our total issued and outstanding capital stock after the
distribution. We issued the Series A common stock immediately following the distribution. The Series A
Common Stock will automatically convert into common stock upon the closing of an initial public offering of
our stock. We also agreed that, subject to limited exceptions, we would not issue any stock in a private placement
transaction without the prior written consent of General Motors.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

Registration Rights Agreement

ˆ1KWYH2SGNTWL2FD&Š
15*
1C

65938 TX 40
PMT

1KWYH2SGNTWL2FD

CLN

17-Sep-2002 20:47 EST

We entered into a Registration Rights Agreement with General Motors pursuant to which General Motors

may demand that we file a registration statement under the Securities Act covering some or all of General
Motors’ common stock into which the Series A common stock is convertible. General Motors may make this
demand any time after the earlier of three years following the distribution or six months after the effective date of
our first registration statement for a public offering of our securities to the general public. We are not required to
effect more than two demand registrations nor are we required to effect a registration if the requested registration
would have an aggregate offering price to the public of less than $20 million. In an underwritten offering, the
managing underwriter of any such offering has the right, to limit the number of registrable securities to be
included in the registration statement.

General Motors will also have “piggyback” registration rights. If we propose to register any of our equity

securities under the Securities Act other than pursuant to the demand registration rights described above or
certain excluded registrations, General Motors may require us to include all or a portion of its registrable
securities in the registration and in any related underwriting. Further, if we are eligible to effect a registration on
Form S-3, General Motors may demand that we file a registration statement on Form S-3 covering all or a
portion of its registrable securities, provided that the registration has an aggregate offering price of $10 million.
We will not be required to effect more than two such registrations in any 12 month period. In general, we will
bear all fees, costs and expenses of such registrations, other than underwriting discounts and commissions. We
also agreed to take such reasonable actions as are necessary to make Rule 144 available to General Motors for the
resale of its registrable securities without registration under the Securities Act.

Master Technical Development Agreement

Under the terms of the Master Technical Agreement with General Motors, we have agreed to work with
General Motors to facilitate the integration, interface, and optimization of General Motors’ fuel cell systems with
our gaseous fuel storage and handling modules. To that end, the agreement provides for the establishment of joint
Quantum/General Motors technical teams to implement statements of work with respect to the development of
fuel cell applications. In addition, the agreement provides that both we and General Motors will license our fuel
cell related technologies to each other for the purpose of developing, manufacturing and selling the fuel cell
applications developed under our strategic alliance.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTWW7DDhŠ
11*
1C

65938 TX 41
PMT

1KWYH2SGNTWW7DD

CLN

17-Sep-2002 20:47 EST

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Documents filed as part of this report:

(1) Financial Statements:

Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Balance sheets as of April 30, 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Statements of operations for the years ended April 30, 2000, 2001, and 2002 . . . . . . . . . . . F-4

Statements of changes in invested equity for the years ended April 30, 2000, 2001, and

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Statements of cash flows for the years ended April 30, 2000, 2001, and 2002 . . . . . . . . . . . F-6

Notes to financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

(2) Supplemental Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26

Unaudited Pro Forma Financial Data:

Unaudited Pro Forma Condensed Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . F-28

Unaudited Pro Forma Condensed Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29

Unaudited Pro Forma Condensed Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-30

All other schedules are omitted because the information is not applicable or is not material, or because the

information is included in the financial statements or the notes thereto.

(3) Exhibits:

Exhibit
Number

2.1

3.1

3.2

4.1

Description

Contribution and Distribution Agreement, dated as of July 23, 2002, between IMPCO Technologies,

Inc. and the Registrant (filed as Exhibit 10.1 hereto)

Amended and Restated Certificate of Incorporation of the Registrant

Amended and Restated By-laws of the Registrant

Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to the Registrant’s Registration

on Form 10 (File No. 0-49629) and incorporated herein by reference)

10.1

Contribution and Distribution Agreement, dated as of July 23, 2002, between IMPCO Technologies,

Inc. and the Registrant

10.2

Tax Allocation and Indemnification Agreement, dated as of July 23, 2002, between IMPCO

Technologies, Inc. and the Registrant

10.3

Transition Services Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc. and

the Registrant

10.4

Employee Benefit Matters Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc.

and the Registrant

10.5

Strategic Alliance Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc. and the

Registrant

10.6

Quantum Fuel Systems Technologies Worldwide, Inc. 2002 Stock Incentive Plan (filed as Exhibit
10.1 to the Registrant’s Registration Statement on Form S-8 (No. 333-96923) on July 23, 2002,
and incorporated herein by reference)*

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

Exhibit
Number

Description

ˆ1KWYH2SGNTVXQVDMŠ
3*
1C

65938 TX 42
PMT

1KWYH2SGNTVXQVD

CLN

17-Sep-2002 20:47 EST

10.7†

Corporate Alliance Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.8

Master Technical Development Agreement dated June 12, 2001 between the Registrant and General

Motors Corporation(1)

10.9

Stock Transfer Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.10

Registration Rights Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.11

Lease between Klein Investments, Family Limited Partnership, as Lessor, and IMPCO Technologies,

Inc. as Lessee, dated August 18, 1997(2)

10.12

Lease dated as of March 31, 2000 by and between IMPCO Technologies, Inc. and Braden Court

Associates(3)

10.13

Memorandum of Understanding and Teaming Agreement, dated May 22, 2000 between IMPCO
Technologies, Inc. and ATK Thiokol Propulsion (previously filed as Exhibit 10.14 to the
Registrant’s Registration on Form 10 (File No. 0-49629) and incorporated herein by reference)

10.14

Amendment Nos. 1, 2 and 3 to Memorandum of Understanding and Teaming Agreement, among the

Registrant, IMPCO Technologies, Inc. and ATK Thiokol Propulsion

10.15

First Amendment to Corporate Alliance Agreement, dated as of July 19, 2002, between the

Registrant and General Motors

10.16

First Amendment to Stock Transfer Agreement, dated as of July 19, 2002, between the Registrant

and General Motors

10.17

Amendment to Lease Agreement, dated October 18, 2000, among, the Registrant, IMPCO

Technologies, Inc. and Braden Court Associates

10.18

Amendment to Lease Agreement, dated October 31, 2000, among the Registrant, IMPCO

Technologies, Inc. Klein Investments Family Limited Partnership

21.1

23.1

Subsidiaries of the Registrant

Consent of Ernst & Young LLP, Independent Auditors

† Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange

Commission. Confidential treatment has been granted with respect to the omitted portions.

* The referenced exhibit is a compensatory contract, plan or arrangement.
(1)

Incorporated by reference to Amendment No. 1 to the Registration Statement on Form S-3 (No. 333-63726)
of IMPCO Technologies, Inc., filed with the Commission on July 9, 2001.
Incorporated by reference to the Annual Report on Form 10-K of IMPCO Technologies, Inc. for the fiscal
year ended April 30, 1998.
Incorporated by reference to the Annual Report on Form 10-K of IMPCO Technologies, Inc. for the fiscal
year ended April 30, 2000.

(2)

(3)

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of fiscal year 2002.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM3TG7DpŠ
6*
1C

65938 FIN 1
PMT

1KWYH2SGVM3TG7D

CLN

17-Sep-2002 20:42 EST

INDEX TO FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance Sheets

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Changes in Invested Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-2

F-3

F-4

F-5

F-6

F-7

Financial Statement Schedule:

Schedule II—Valuation and Qualifying Accounts for the three fiscal years ended April 30, 2002 . . . . . . . . F-26

Unaudited Pro Forma Financial Data:

Unaudited Pro Forma Condensed Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28

Unaudited Pro Forma Condensed Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29

Unaudited Pro Forma Condensed Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30

F-1

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM3=KKDAŠ
12*
1C

65938 FIN 2
PMT

1KWYH2SGVM3=KKD

CLN

17-Sep-2002 20:42 EST

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Quantum Fuel Systems Technologies Worldwide, Inc.

We have audited the accompanying balance sheets of Quantum Fuel Systems Technologies Worldwide, Inc.

(a wholly owned subsidiary of IMPCO Technologies, Inc.) as of April 30, 2001 and 2002, and the related
statements of operations, changes in invested equity, and cash flows for each of the three years in the period
ended April 30, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial

position of Quantum Fuel Systems Technologies Worldwide, Inc. at April 30, 2001 and 2002, and the results of
its operations and its cash flows for each of the three years in the period ended April 30, 2002, in conformity with
accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Long Beach, California
July 18, 2002
except for the 1st paragraph of Note 1,
as to which the date is July 23, 2002

F-2

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM42M6DXŠ
16*
1C

65938 FIN 3
PMT

1KWYH2SGVM42M6D

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

BALANCE SHEETS

Year Ended April 30

2001

2002

Proforma at
April 30,
2002

(unaudited)

Current assets:

ASSETS

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable less $40,000 allowance for doubtful accounts for
each period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . .
Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,300

177,414

$15,180,927

9,691,197
9,125,998
1,157,590

19,979,085
12,701,624
—
134,779

4,494,328
9,626,616
87,713

14,386,071
13,419,353
—
354,000

4,494,328
9,626,616
87,713

29,389,584
13,419,353
14,000,000
354,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$32,815,488

$28,159,424

$57,162,937

LIABILITIES AND INVESTED EQUITY

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,673,095
1,872,663
—
95,345

$ 6,761,294
2,186,396
8,625,000
188,832

$ 6,761,294
2,186,396
—
188,832

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current portion . . . . . . . . . . . . . . . . . . .
Commitments and contingencies

8,641,103
182,778

17,761,522
127,355

9,136,522
127,355

Invested and stockholders’ equity

Invested equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.001 per share, 42,000,000 shares
authorized, 1,000 shares issued and outstanding at April 30,
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital relating to common stock . . . . . . . . . . . . . .

23,991,607

10,270,447

—
—

1
99

Invested and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,991,607

10,270,547

Proforma stockholders’ equity (unaudited):

Preferred stock, par value $0.001 per share, 20,000,000 shares

authorized, none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Series A common stock, par value $0.001 per share, 12,000,000
shares authorized, pro forma 3,513,439 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Series B common stock, par value $0.001 per share, no shares

authorized and issued (historical), 6,000,000 shares authorized (pro
forma), 0 shares issued and outstanding (pro forma) . . . . . . . . . . . .

Common stock, par value $0.001 per share, 42,000,000 shares

authorized, proforma 14,142,036 shares issued and outstanding . . .
Additional paid in capital relating to common stock . . . . . . . . . . . . . .

Proforma total stockholders’ equity (unaudited)

. . . . . . . . . . . . . . . . .

—

—
—

—

3,513

—

14,142
47,881,405

47,899,060

Total liabilities and invested equity . . . . . . . . . . . . . . . . . . . . . . .

$32,815,488

$28,159,424

$57,162,937

See accompanying notes.

F-3

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM45NWDTŠ
9*
1C

65938 FIN 4
PMT

1KWYH2SGVM45NWD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

STATEMENTS OF OPERATIONS

2000

April 30

2001

2002

Net revenue:

Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 13,056,901
9,283,877

$ 15,447,389
7,910,540

$ 15,458,529
7,944,766

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,340,778

23,357,929

23,403,295

Costs and expenses:

Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . .

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,081,039
12,956,426
4,938,612

32,976,077
(10,635,299)

—
—
—

19,452,343
26,686,691
7,458,991

53,598,025
(30,240,096)
4,167
—
—

25,581,284
32,656,683
8,063,421

66,301,388
(42,898,093)
488,442
9,555
800

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,635,299) $(30,244,263) $(43,377,780)

Pro forma net loss (unaudited)

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma basic and diluted loss per share (unaudited)

. . . . . . . . .

Pro forma number of shares used in the basic and diluted per

share calculation (unaudited)

. . . . . . . . . . . . . . . . . . . . . . . . . . .

$(44,777,780)

(2.54)

17,655,475

See accompanying notes.

F-4

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM3MBYDÆŠ
5*
1C

65938 FIN 5
PMT

1KWYH2SGVM3MBYD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

STATEMENTS OF CHANGES IN INVESTED EQUITY

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transfers from IMPCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,865,579
14,127,083
(10,635,299)

$ 19,357,363
34,878,507
(30,244,263)

$ 23,991,607
29,656,620
(43,377,780)

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 19,357,363

$ 23,991,607

$ 10,270,447

Year Ended April 30

2000

2001

2002

See accompanying notes.

F-5

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM48QJDPŠ
11*
1C

65938 FIN 6
PMT

1KWYH2SGVM48QJD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

STATEMENTS OF CASH FLOWS

Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in

operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Year Ended April 30

2000

2001

2002

$(10,635,299) $(30,244,263) $(43,377,780)

1,217,438
—

1,687,401
—

2,903,036
277,760

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,626,001)
(2,263,361)
(237,888)
1,291,122
18,501

(459,439)
(393,395)
(853,633)
3,416,929
1,087,652

5,196,869
(500,618)
850,656
88,199
35,973

Net cash used in operating activities . . . . . . . . . . . . . . . .

(12,235,488)

(25,758,748)

(34,525,905)

Investing activities
Proceeds from sale of equipment and leasehold improvements . . .
Purchases of equipment and leasehold improvements . . . . . . . . . .

—

(1,890,827)

50,089
(9,146,546)

77,785
(3,471,134)

Cash used in investing activities . . . . . . . . . . . . . . . . . . .

(1,890,827)

(9,096,457)

(3,393,349)

Financing activities
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . .
Borrowing under line of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net advances from parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—
14,127,083

(20,770)
—
34,878,507

(189,352)
8,625,000
29,656,720

Net cash provided by financing activities . . . . . . . . . . . .

14,127,083

34,857,737

38,092,368

Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

768
1,000

2,532
1,768

173,114
4,300

Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,768

4,300

177,414

Supplemental schedule of non-cash activity
Assets acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . . .

— $

298,893

227,415

See accompanying notes.

F-6

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(Start Page)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM4GTVD7Š
8*
1C

65938 FIN 7
PMT

1KWYH2SGVM4GTVD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS
April 30, 2002

1. Background and Basis of Presentation

Background

On July 23, 2002, IMPCO Technologies, Inc. (IMPCO) completed the distribution and spin-off of Quantum

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

On October 13, 2000, the Company was incorporated in Delaware as a wholly owned subsidiary of IMPCO.

On the date of the distribution and spin-off, IMPCO distributed the stock of the Company to stockholders’ of
IMPCO based on a distribution ratio of one share of the Company’s common stock for every share of IMPCO
common stock outstanding on the record date. The Company’s authorized capital stock consists of 20,000,000
shares of preferred stock, par value $0.001 per share, no shares issued and outstanding and 60,000,000 shares of
common stock, par value $0.001 per share, 17,655,475 shares issued and outstanding. Of the 60,000,000
authorized shares of common stock, 12,000,000 are designated as Series A common stock and 6,000,000 are
designated as Series B common stock. Pro forma loss per share for the year ended April 30, 2002 has been
computed based on the number of shares distributed on the distribution date and gives effect to the issuance of
3,513,439 shares of the Company’s Series A common stock immediately following the distribution and the
corresponding amortization expense arising from the related intangible asset (see note 6). No employee stock
options were included in the computation of pro forma diluted loss per share because their inclusion would be
anti-dilutive to the net loss.

The pro forma balance sheet at April 30, 2002 gives effect to the distribution to IMPCO’s stockholders of
14,142,036 shares of common stock in connection with the distribution, the issuance of 3,513,439 shares of the
Company’s Series A common stock to General Motors, the infusion of approximately $15 million in cash from
IMPCO and the assumption by IMPCO of the Company’s debt facility of approximately $8.6 million (see Notes
6 and 7).

Basis of Presentation

The financial statements include the Company, as well as certain assets, liabilities, and related operations

that were transferred to the Company (the Contribution) from IMPCO. The financial statements include the
historical operations to be transferred to the Company by IMPCO (the Company’s Businesses). The Contribution
was completed prior to the distribution and resulted in a recapitalization of the Company.

The financial statements have been derived from the financial statements and accounting records of IMPCO

using the historical results of operations and historical basis of the assets and liabilities of the Company’s
Businesses. Management believes the assumptions underlying the financial statements are reasonable. However,
the financial statements included herein may not necessarily reflect the Company’s results of operations,
financial position and cash flows in the future or what its results of operations, financial position and cash flows
would have been had the Company been a stand-alone company during the periods presented.

The financial statements include allocations of certain IMPCO corporate headquarters’ assets, liabilities, and

expenses relating to the Company’s Businesses that were transferred to the Company from IMPCO. General
corporate overhead has been allocated either based on the ratio of the Company’s headcount to IMPCO’s total
headcount, on the Company’s revenue as a percentage of IMPCO’s total revenue, or specifically identified costs
for the Company. General corporate overhead primarily includes salary and expenses for the executive

F-7

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM4RZTD†Š
7*
1C

65938 FIN 8
PMT

1KWYH2SGVM4RZTD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

management, finance, legal, human resources, information services and investor relations departments and
amounted to approximately $2,126,000, $3,117,000 and $3,209,000 in 2000, 2001 and 2002, respectively.
Management believes the costs of these services charged to the Company are a reasonable representation of the
costs that would have been incurred if the Company had performed these functions as a stand-alone company.
Following the Contribution, the Company will perform these functions using its own resources or purchased
services.

The financial statements also include an allocation from IMPCO to fund a portion of the costs of research

conducted by the Company. This allocation was based on management’s determination of which corporate
projects were related to the specific intellectual property that will be transferred to the Company as part of the
contribution. This allocation amounted to approximately $7,050,000, $5,601,000 and $0 for fiscal 2000, 2001
and 2002, respectively. Beginning in fiscal year 2002, the Company satisfied its research requirements using its
own resources or through purchased services.

IMPCO used a centralized approach to cash management and the financing of its operations. Cash deposits

from the Company’s Businesses were transferred to IMPCO on a regular basis and were netted against the
owner’s net investment account. As a result, none of IMPCO’s cash or debt at the corporate level has been
allocated to the Company in the financial statements. Changes in invested equity represented any funding
required from IMPCO for working capital, acquisition or capital expenditure requirements after giving effect to
the Company’s transfers to or from IMPCO of its cash flows from operations. Until May 2001, the Company had
been funded by IMPCO with no debt obligations being transferred to the Company except for capital leases.

The accompanying financial statements have been prepared assuming that the Company will continue as a
going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction
of its liabilities in the normal course of conducting business. The Company uses cash generated from IMPCO’s
operations, bank financings and investments to fund capital expenditures and research and development, as well
as to invest in and operate existing operations and new businesses. In July 2000, IMPCO completed an equity
offering in which it received $53.5 million. Until fiscal year 2002, the Company was funded entirely from
IMPCO in the form of equity investments. In fiscal year 2002, the Company and IMPCO were co-borrowers of a
$12 million Bank of America debt facility. Prior to the distribution, IMPCO made an additional capital
investment of $23.6 million into the Company, which consisted of the assumption of the $8.6 million outstanding
under the debt facility plus a cash infusion of $15 million.

It is currently anticipated that the Company will require additional sources of financing in order to capitalize

on opportunities that management believes to exist in the emerging fuel cell market. These additional sources of
financing may include bank borrowings or public or private offerings of equity or debt securities. No assurance
can be given that such additional sources of financing will be available on acceptable terms, if at all. Without the
additional financing, the Company will be required to delay, reduce the scope of and eliminate one or more of its
research and development projects; significantly reduce its capital expenditures; and/or retrench its efforts to
meeting short-term production goals. Management believes its available working capital following the
distribution will be sufficient to fund its plan operations through April 30, 2003.

Interest Expense

The Company’s financial statements include interest expense totaling $0, $4,167 and $488,442 in 2000,

2001 and 2002, respectively. Until 2001, the Company was funded entirely through investments from IMPCO,
who for a significant portion of that period funded the Company from its operations or equity proceeds. It was
management’s intention of both companies that these advances were interest-free and would never be repaid.
These advances were forgiven as part of the Distribution. The interest expense reflected in the statement of

F-8

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM5JD1DaŠ
7*
1C

65938 FIN 9
PMT

1KWYH2SGVM5JD1D

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

operations is due to the Company’s capital lease obligations and, for the fiscal year ending April 30, 2002, debt
specifically entered into by the Company. Below is the detailed schedule of IMPCO’s Invested Equity (in
thousands).

Year Ended April 30

2000

2001

2002

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Costs from IMPCO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Intercompany Purchases (Sales) . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Transfers from IMPCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,866
2,126
232
11,768
(10,635)
$ 19,357
$ 18,946

$ 19,357
3,117
76
31,686
(30,244)
$ 23,992
$ 22,825

$ 23,992
3,209
127
26,320
(43,378)
$ 10,270
$ 16,664

Income Taxes

The Company’s income taxes are calculated on a separate tax return basis. However, IMPCO was managing

its tax position for the benefit of its entire portfolio of businesses, and its tax strategies are not necessarily
reflective of the tax strategies that the Company would have followed or will follow as a stand-alone entity.

2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. These estimates include an allocation of
costs by IMPCO, assessing the collectability of accounts receivable, the use and recoverability of inventory, the
realization of deferred tax assets, useful lives for depreciation periods of tangible assets, provisions for warranty
claims, among others. The markets for the Company’s products are characterized by competition, technological
development and new product introduction, all of which could impact the future realizability of the Company’s
assets. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized on product sales when goods are shipped in accordance with the Company’s shipping

terms. Contract revenue for customer funded research and development is principally recognized by the
percentage of completion method. Amounts expected to be realized on contracts are based on the Company’s
estimates of total contract value and costs at completion. These estimates are reviewed and revised periodically
throughout the lives of the contracts. Percentage of completion is determined based on costs incurred as a
percentage of total estimated costs at completion. Also, the Company includes the costs of shipping and
handling, when incurred, in cost of goods sold.

Research and Development Costs

Research and development costs are charged to expense as incurred. This line item includes an allocation

from IMPCO for the costs of research conducted by IMPCO (see Note 1). Equipment used in research and

F-9

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM68T9DmŠ
5*
1C

65938 FIN 10
PMT

1KWYH2SGVM68T9D

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

development with alternative future uses is capitalized and only the current period depreciation is charged to
research and development.

Financial Instruments and Concentration of Credit Risk

The estimated fair values of cash, accounts receivable, accounts payable, and accrued expenses approximate

their carrying value because of the short-term maturity of these instruments.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist
principally of trade receivables. The Company conducts a major portion of its business with a limited number of
customers. For the past three years and for the foreseeable future, General Motors Corporation (and subsidiaries
of General Motors) represents a significant portion of the Company’s 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, the Company does not require collateral from customers.

The Company may use derivative financial instruments for the purpose of reducing its exposure to adverse

fluctuations in interest and foreign exchange rates. While these hedging instruments could be subject to
fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being
hedged. The Company has not had any derivative financial instruments for any of the periods reported. The
Company is not a party to leveraged derivatives and does not hold or issue financial instruments for speculative
purposes.

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash

equivalents.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO)
method while market is determined by replacement cost for raw materials and parts and net realizable value for
work-in-process and finished goods. The Company’s business is subject to the risk of technological and design
changes. The Company provides for obsolete or slow-moving inventory based on management’s analysis of
inventory levels and future sales forecasts at the end of each accounting period.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at historical cost. Depreciation of equipment is

determined using a straight-line method over the assets’ estimated useful lives ranging from three to seven years.
Amortization of leasehold improvements, and equipment financed by the Company’s capital lease facility or
capital expenditure facility, is provided using the straight-line method over the shorter of the assets’ estimated
useful lives or the lease terms.

Major renewals and improvements are capitalized and minor replacements, maintenance and repairs are
charged to current operations as incurred. Upon retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the balance sheets and any gain or loss is reflected in the statements of operations.

F-10

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM4KWHD1Š
6*
1C

65938 FIN 11
PMT

1KWYH2SGVM4KWHD

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Warranty Costs

Estimated future warranty obligations related to certain products are provided by charges to operations on a
per unit sold accrual rate in the period in which the related revenue is recognized. Estimates are based, in part, on
historical experience.

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board (FASB) Statement No. 121, “Accounting for the

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,” impairment losses are recorded
on long-lived assets used in operations when an indicator of impairment (significant decrease in market value of
an asset, significant change in extent or manner in which the asset is used or significant physical change to the
asset) is present and the undiscounted cash flows estimated to be generated by those assets are less than the
assets’ carrying amount. The Company has not experienced any significant changes in the business climate or in
the use of assets that would require the Company to write-down the value of the assets recorded in the balance
sheet.

Income Taxes

Historically, the Company’s operations have been included in IMPCO’s consolidated income tax returns.
Income tax expense in the Company’s financial statements has been calculated on a separate tax return basis. The
asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Deferred tax assets and liabilities are determined based on the differences between financial reporting and

tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 “Accounting for Stock
Based Compensation,” which established accounting and reporting standards for stock based compensation plans
effective after fiscal year 1996. SFAS 123 encourages entities to adopt the fair value based method of
accounting; however, it also allows an entity to continue to measure compensation cost using the intrinsic value
based method prescribed by Accounting Principles Board No. 25. Such entities who elect to remain on the
“intrinsic value based” method must make certain pro forma disclosures as if the new fair value method had been
applied. At this time, the Company has not adopted the recognition provision of SFAS 123, but has provided pro
forma disclosures (see Note 10).

Comprehensive Loss

Comprehensive loss would include, in addition to net loss, unrealized gains and losses excluded from the

statements of operations and would be recorded directly into a separate section of invested equity on the balance
sheet. These unrealized gains and losses are referred to as other comprehensive loss items. The Company had no
items of other comprehensive loss, and hence there is no difference between the reported net loss and the
comprehensive loss during the years ended April 30, 2000, 2001 and 2002.

Recently Issued Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting

Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which

F-11

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM6KZ8D\Š
6*
1C

65938 FIN 12
PMT

1KWYH2SGVM6KZ8D

CLN

17-Sep-2002 20:42 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for
a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001,
with earlier application encouraged. We expect to adopt FAS 144 as of May 1, 2002 and do not expect that the
adoption of the Statement will have a significant impact on our financial position and results of operations.

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting
Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company expects to adopt FAS 141 as of May 1, 2002 and
does not expect that the adoption of the Statement will have a significant impact on its financial position and
results of operations.

3. Related Party Transactions

For the years 2000, 2001, and 2002, respectively, the Company had $48,609, $19,467 and $29,316 of
revenue for products sold to IMPCO. For the years 2000, 2001, and 2002, respectively, the Company had
$280,803, $95,683 and $156,041 of products purchased from IMPCO. In connection with the Contribution and
Distribution, the Company and IMPCO executed the Contribution and Distribution Agreement (the Contribution
and Distribution Agreement), and certain related agreements that are summarized below. This summary is
qualified in all respects by the terms of the Contribution and Distribution Agreement and such related
agreements.

Prior to the distribution, each of the Company’s current executive officers served as an officer or employee

of IMPCO and/or its other subsidiaries. In acting on the Company’s behalf, these officers considered not only the
short-term and long-term impact of operating decisions on the Company’s business, but also the impact of such
decisions on the business of IMPCO. One of the Company’s directors remains employed by IMPCO and will
continue to serve as IMPCO’s Senior Vice President and Secretary.

Contribution and Distribution Agreement

The Company and IMPCO entered into a Contribution and Distribution Agreement which provides for,
among other things, certain corporate transactions required to effect the distribution and other arrangements
among IMPCO and the Company subsequent to the distribution. The agreement provided that IMPCO would
transfer to the Company the assets constituting IMPCO’s automotive OEM business. The agreement provides
for, among other things, assumptions of liabilities and cross-indemnities designed to place financial
responsibility on each of the Company and IMPCO for the liabilities of its respective business.

Under the agreement, if the Company or IMPCO acts or fails to act in a manner which causes the

distribution to fail to qualify under Section 355 of the Code or Section 355(e) of the Internal Revenue Code to
apply to the distribution, the Company or IMPCO will indemnify the other for any tax liability arising from such
failure or application.

The agreement also provides for a full release and discharge of all liabilities existing or arising from all acts

F-12

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM8L11DqŠ
9*
1C

65938 FIN 13
PMT

1KWYH2SGVM8L11D

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Company, on the other hand, except as expressly set forth in the agreement. The agreement also provides that,
except as otherwise set forth therein or in any related agreement, all costs or expenses incurred in connection
with the Distribution and not paid prior to the Distribution will be charged to and paid by Quantum. Each party
will pay its own expenses after the Distribution.

Employee Benefit Matters Agreement

The Company entered into an Employee Benefit Matters Agreement with IMPCO pursuant to which the
Company agreed to create independent retirement and other employee benefit plans that are substantially similar
to IMPCO’s existing retirement and other employee benefit plans. Under the agreement and effective
immediately after the distribution, IMPCO will transfer the assets and liabilities of its existing 401(k) retirement
and other benefit plans related to the Company’s employees to the comparable Quantum benefit plans. Generally,
following the distribution, IMPCO ceased to have any continuing liability or obligation to the Company’s current
employees and their beneficiaries under any of IMPCO’s benefit plans, programs or practices.

Pursuant to the Employee Benefit Matters Agreement, all IMPCO stock options that were outstanding on

the record date and that had not been exercised prior to the distribution date were converted into two stock
options: (1) an option to purchase the number of previously-unexercised IMPCO stock options as of the record
date, and (2) an option to purchase a number of our common stock equal to the number of previously-unexercised
IMPCO stock options times a fraction, the numerator of which is the total number of shares of our common stock
distributed to IMPCO stockholders in the distribution and the denominator of which is the total number of
IMPCO shares outstanding on the record date for the distribution.

Tax Allocation and Indemnification Agreement

The Company and IMPCO entered into a Tax Allocation and Indemnification Agreement, which allocates
tax liabilities between the Company and IMPCO and addresses certain other tax matters such as responsibility for
filing tax returns and the conduct of audits and other tax proceedings for taxable periods before and after the
distribution date. IMPCO will be responsible for and will indemnify the Company against all tax liabilities
relating to the assets and entities that will constitute IMPCO and its subsidiaries, and the Company will be
responsible for and will indemnify IMPCO against all tax liabilities relating to the assets and entities that will
constitute the Company’s business. In addition, the Company generally will indemnify IMPCO for all tax
liabilities arising if the contribution is not tax-free, other than tax liabilities arising in connection with the
Company’s assumption of certain IMPCO liabilities.

Transition Services Agreement

The Company entered into a Transition Services Agreement with IMPCO pursuant to which IMPCO will

continue to provide the Company with various administrative services. These services consists of administrative
services including employee benefits administration, affirmative action and immigration administration, and
payroll processing. This agreement will terminate after a period of six months, but may be terminated earlier by
either party as to specific services on certain conditions. The Company will pay fees to IMPCO for services
provided in amounts based on IMPCO’s loaded costs incurred in providing such services.

Strategic Alliance Agreement

The Company entered into a Strategic Alliance Agreement with IMPCO pursuant to which the Company
will work with IMPCO in identifying and conducting research and development programs of mutual interest. As
part of such research and development activities, the Company may develop, solely or jointly with IMPCO,

F-13

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM919BDÁŠ
10*
1C

65938 FIN 14
PMT

1KWYH2SGVM919BD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

technology that is owned solely by the Company or jointly with IMPCO. The other purpose of this relationship is
to provide IMPCO access to the Company’s advanced technologies, including the CNG storage tanks, fuel
injectors, in-tank regulators and other products, for use in automotive, bus and truck and industrial aftermarket
applications and in the bus and truck and industrial OEM markets.

Inventories

Inventories consist of the following:

Year Ended April 30

2001

2002

Inventories:

Materials and parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,725,294
247,048
1,210,565

$ 8,483,374
206,921
3,467,262

Less provision for obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,182,907
1,056,909

12,157,557
2,530,941

Net inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,125,998

$ 9,626,616

5. Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

Year Ended April 30

2001

2002

Equipment and leasehold improvements:

Dies, molds and patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furnishings and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles and trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Capitalized machinery and equipment
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,663,548
3,966,211
3,338,192
121,980
1,570,753
395,803
7,016,661

$ 2,676,538
6,462,513
7,145,671
121,979
2,460,714
623,358
1,967,735

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . .

18,073,148
5,371,524

21,458,508
8,039,155

Net equipment and leasehold improvements . . . . . . . . . . . . . . . . . . .

$12,701,624

$13,419,353

Equipment and leasehold improvements with a net book value of $209,000 and $0 at April 30, 2001 and

2002, respectively, are located outside of the United States.

6. General Motors Relationship

On June 12, 2001, IMPCO announced a strategic alliance between the Company and General Motors (GM)

in which GM would acquire an equity position the Company. The strategic alliance with GM became effective
upon completion of the Distribution. Under the alliance, GM will promote the Company as a recommended
provider of hydrogen storage, hydrogen handling and associated electronic controls that meet OEM requirements.
Additionally, the Company and GM will co-develop technologies that will aid in more rapid commercialization
of fuel cell applications. Furthermore, this experience will position the Company to be able to address the

F-14

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM97DNDqŠ
6*
1C

65938 FIN 15
PMT

1KWYH2SGVM97DND

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

stationary power generation and portable power generation markets. Upon effectiveness of the strategic alliance,
GM acquired Series A common stock representing 19.9% of the Company’s outstanding capital stock in
consideration of a nominal cash contribution and access to certain GM’s proprietary information. The Company
has committed to provide minimum amounts of annual funding to projects approved under the alliance, which
the Company has exceeded in all of the past three years. The agreement calls for revenue sharing payments,
which do not commence until three years after the effective date of the agreement, on gross revenues from
certain applications. Each party retains the ownership of its existing technology and will jointly own technology
that is jointly created under the alliance. The Company will be free to use jointly created technologies in certain
aspects of the Company’s business but will be required to share revenues with GM on fuel cell system-related
products that are sold to GM or third parties. Pursuant to the strategic alliance with General Motors, the
Company agreed to appoint one individual nominated by General Motors to the Company’s board of directors
prior to the distribution. The Company also agreed that, during the term of the strategic alliance, the Company
will continue to nominate one individual designated by General Motors to the proposed slate of directors to be
presented to the Company’s stockholders as necessary for General Motors to retain one seat on the Company’s
board of directors. During the term of the strategic alliance, General Motors will also be entitled to appoint a
non-voting “ex-officio” board member.

The value of the Series A common stock issued to General Motors after the completion of the Distribution

represents the access to certain of General Motors’ proprietary information obtained in connection with the
strategic alliance and will be recorded at the fair value of the Series A common shares issued at the date of
distribution. The issuance of the Series A common stock to General Motors has an expected market value on the
date of the distribution of approximately $14 million, in accordance with Statement of Financial Accounting
Standards No. 123, “Accounting for Stock Based Compensation,” and EITF 96-18, “Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or
Services.” The intangible asset was recorded in accordance with the consensus reached by the Emerging Issues
Task Force during their November 2001 meeting with respect to EITF 00-18, “Accounting Recognition for
Certain Transactions involving Equity Instruments Granted to Other than Employees.” The resulting intangible
asset will be amortized, subject to periodic evaluations for impairment, over the term of the Corporate Alliance
Agreement, 10 years. Additionally, the Company will record the nominal cash contribution to be received. The
amortization expense, expected to be $1.4 million per year, will reduce future operating results, with no effect on
operating cash flows.

7. Debt Payable

On April 30, 2001, IMPCO amended its credit facility with Bank of America NT&SA to include a

$5,000,000 line of credit for the Company. This line of credit was secured by the assets of the Company and was
guaranteed by the parent. This revolving line of credit carried an interest rate of prime plus 2.25%. In September
2001, the credit facility with Bank of America was amended to allow the Company to increase its portion of the
line of credit from $5.0 million to $15.0 million. As of April 30, 2002, the outstanding balance on this line of
credit was approximately $8,625,000 and bore an interest rate of 7%.

On June 24, 2002, IMPCO amended its credit facility with Bank of America NT&SA in which IMPCO

released the Company as a borrower under the line of credit.

F-15

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM9JKMDmŠ
7*
1C

65938 FIN 16
PMT

1KWYH2SGVM9JKMD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Income taxes

Income taxes in the Company’s financial statements have been calculated on a separate tax return basis. The

following table presents the principal reasons for the difference between the effective tax rate and the federal
statutory income tax rate:

Income tax benefit at U.S. statutory rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses and research and development credits retained by IMPCO . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended April 30

2000

2001

2002

(34.0)% (34.0)% (34.0)%
(5.8)% (5.9)% (5.9)%
34.9% 35.1% 35.0%
4.0%
3.6%
4.0%
0.9%
1.2%
0.9%

0.0%

The following table presents the federal and state and local provision for income taxes on a separate tax

return basis:

Current:

2000

April 30

2001

2002

Federal
State and local

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $
—

— $
—

—
—

Deferred:

Federal
State and local

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80,000
14,000

300,000
53,000

359,000
63,000

Less: Change in Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

94,000
(94,000)

353,000
(353,000)

422,000
(422,000)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Income tax benefit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $

— $

—

The components of deferred tax assets and liabilities are as follows:

2000

April 30

2001

2002

Deferred income tax assets:

Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 139,000
85,000
214,000
16,000

$ 246,000
166,000
457,000
16,000

144,000
500,000
1,041,000
16,000

Less: Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

454,000
(321,000)

885,000
(674,000)

1,701,000
(1,096,000)

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . .

133,000

211,000

605,000

Deferred income tax liabilities:

Equipment and leasehold improvements . . . . . . . . . . . . . . . . . . . . . .

(133,000)

(211,000)

(605,000)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(133,000)

(211,000)

(605,000)

Net deferred tax (liabilities) assets . . . . . . . . . . . . . . . . . . . . . . .

— $

—

F-16

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM9QNYD[Š
9*
1C

65938 FIN 17
PMT

1KWYH2SGVM9QNYD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

The tax credits and net operating losses incurred through the date of the distribution will remain with
IMPCO after the spin-off. The valuation allowance has been established for deferred tax assets due to the lack of
earnings history by the Company.

9. Commitments and Contingencies

Leases

The Company has certain non-cancelable operating leases for facilities and equipment, and non-cancelable

capital leases for machinery, equipment and motor vehicles. Future minimum lease commitments under non-
cancelable leases at April 30, 2002 are as follows:

Lease Obligations

Capital

Operating

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$188,844
141,633
—
—
—
—

$1,625,789
1,623,691
1,289,307
848,572
622,879
687,430

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

330,477

$6,697,668

Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,290

Present value of future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

316,187
188,832

Long-term capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$127,355

Total rental expense under the operating leases for fiscal years ended April 30, 2000, 2001, and 2002 was
approximately $656,000, $1,763,000 and $2,442,000, respectively. These leases are non-cancelable and certain
leases have renewal options and escalation clauses.

Royalties

The Company has entered into contracts under which it is required to pay royalties for products sold using

certain technologies covered by these contracts. No royalty expense was incurred under these contracts for any of
the periods reported in the financial statements.

Contingencies

The Company is currently subject to certain legal proceedings and claims arising in the ordinary course of
business. Management does not believe that the outcome of any of these matters will have a materially adverse
effect on the Company’s financial statements.

Investment and Tax Savings Plan

For the period covered under these financial statements, the Company participated in IMPCO’s Investment

and Tax Savings Plan. The Company intends to create an Investment and Tax Savings Plan similar to the plan
offered by IMPCO. IMPCO’s Investment and Tax Savings Plan (the Plan) is a defined contribution plan, which
is qualified under Internal Revenue Service Code Section 401(k). The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974. All employees who are at least age twenty-one or older are
eligible to participate in the Plan on the first day of employment with the Company. Employees of the Company
who elect to participate in the Plan may contribute into the Plan not less than 1% nor more than 15% of

F-17

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM8Z7PDHŠ
7*
1C

65938 FIN 18
PMT

1KWYH2SGVM8Z7PD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

compensation. The Company’s matching contributions are discretionary and match elective salary deferrals up to
3% of compensation. Approximately 72% of eligible employees were enrolled in the IMPCO 401(k) plan at
April 30, 2002. Contributions attributable to the Company approximated $201,000, $308,000, and $333,000 for
fiscal years ended 2000, 2001 and 2002, respectively.

10. Stockholders’ Equity

(a) Authorized Capital Stock

The Company has authority to issue a total of 80,000,000 shares of all classes of stock, of which 20,000,000

may be shares of preferred stock and 60,000,000 may be shares of common stock. Of those shares of common
stock, 12,000,000 will be designated as Series A common stock and 6,000,000 will be designated as Series B
common stock. On February 11, 2002, the Company issued 1,000 shares of common stock to IMPCO for $100.

(b) Quantum Common Stock

Holders of the Company’s common stock will be entitled to one vote for each share on all matters voted on

by stockholders. Holders of common stock will not have cumulative voting rights in the election of directors.

Holders of the Company’s common stock will not have subscription, redemption or conversion privileges.
Subject to the preferences or other rights of any preferred stock that may be issued from time to time, holders of
the Company’s common stock will be entitled to participate ratably in dividends the Company’s common stock
as declared by the board of directors. Holders of common stock will be entitled to share ratably in all assets
available for distribution to stockholders in the event of liquidation or dissolution of the Company, subject to
distribution of the preferential amount, if any, to be distributed to holders of preferred stock. No holder of any
capital stock of the Company authorized at the distribution date will have any preemptive right to subscribe for or
purchase any securities of any class or kind of the Company.

As part of the GM Strategic alliance, the Company agreed to issue to GM, and GM agreed to acquire, that

number of shares of the Company’s Series A Common Stock, $0.001 par value per share, which, when combined
with all shares of capital stock of the Company then issued and outstanding, shall equal 19.9% of the issued and
outstanding shares of the capital stock of the Company. Upon the closing of an initial public offering of the
Company’s securities to the general public, the outstanding shares of Series A common stock will automatically
be converted into an equal number of shares of common stock. Holders of the Company’s Series A common
stock will have the same voting rights as holders of the Company’s common stock.

Prior to an initial public offering of the Company’s securities, in the event of the issuance of additional

shares of common stock as a dividend or other distribution on the Company’s outstanding common stock, or a
subdivision or combination of the Company’s common stock into a smaller or greater number of shares, the
number of shares of Series A common stock will be adjusted to that number of shares of Series A common stock
that is equal to the percentage of all outstanding shares of all series of the Company’s common stock (excluding
shares issued pursuant to a board-approved stock option or equity incentive plan) that the holders of Series A
common stock held prior to such event. In the event the Company effects any other issuance of additional shares
of common stock (including any shares issued in an initial public offering of the Company’s securities, but
excluding shares or options issued pursuant to a board-approved stock option or equity incentive plan), the
holders of Series A common stock will receive shares of non-voting Series B common stock in an amount that
will cause the issued and outstanding Series A and Series B common stock, taken together, to equal 19.9% of the

F-18

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM9TQLDWŠ
6*
1C

65938 FIN 19
PMT

1KWYH2SGVM9TQLD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

issued and outstanding shares of all series of the Company’s common stock (excluding shares issued pursuant to
a board-approved stock option or equity incentive plan). Subject to the preferences or other rights of any
preferred stock that may be issued from time to time, holders of Series A common stock will be entitled to
participate ratably in dividends on the Company’s common stock as declared by the Company’s board of
directors. Holders of Series A common stock will be entitled to share ratably in all assets available for
distribution to stockholders in the event of liquidation or dissolution of the Company, subject to distribution of
the preferential amount, if any, to be distributed to holders of preferred stock.

(d) Series B Common Stock

Shares of the Company’s Series B common stock will not be entitled to vote on any matters voted on by
stockholders except as otherwise specifically required by law. In the event the Company issues additional shares
of common stock as a divided or other distribution on the Company’s outstanding common stock, or a
subdivision or combination of the Company’s common stock into a smaller or greater number of shares, the
number of shares of Series B common stock will be adjusted to that number of shares of Series B common stock
that is equal to the percentage of all outstanding shares of all series of the Company’s common stock (excluding
shares issued pursuant to a board-approved stock option or equity incentive plan) that the holders of Series B
common stock held prior to such event. Upon the transfer of any of the outstanding shares of Series B common
stock to any person or entity that is not controlled by or under common control with General Motors, the
transferred shares of Series B common stock will convert into an equal number of shares of the Company’s
common stock. Subject to the preferences or other rights of any preferred stock that may be issued from time to
time, holders of the Company’s Series B common stock will be entitled to participate ratably in dividends on the
Company’s common stock as declared by the Company’s board of directors. Holders of the Company’s Series B
common stock will be entitled to share ratably in all assets available for distribution to stockholders in the event
of liquidation or dissolution of Quantum, subject to distribution of the preferential amount, if any, to be
distributed to holders of preferred stock.

(e) Preferred Stock

The Company’s certificate of incorporation authorizes the board of directors, without any vote or action by

the holders of the Company’s common stock, to issue up to 20,000,000 shares of preferred stock from time to
time in one or more series. The Company’s board of directors are authorized to determine the number of shares
and designation of any series of preferred stock and the dividend rights, dividend rate, conversion rights and
terms, voting rights (full or limited, if any), redemption rights and terms, liquidation preferences and sinking fund
terms of any series of preferred stock. Issuances of preferred stock would be subject to the applicable rules of the
NASDAQ National Market or other organizations on whose systems the Company’s stock may then be quoted or
listed. Depending upon the terms of preferred stock established by the Company’s board of directors, any or all
series of preferred stock could have preference over the Company’s common stock with respect to dividends and
other distributions and upon liquidation of the Company. Issuance of any such shares with voting powers, or
issuance of additional shares of the Company’s common stock, would dilute the voting power of the Company’s
outstanding common stock. The Company has no present plans to issue any preferred stock.

(f) Warrants

In connection with the Contribution and Distribution Agreement with IMPCO, the Company agreed to issue
warrants to purchase shares of the Company's common stock to holders of outstanding IMPCO warrants as of the
distribution date. Holders of unexercised IMPCO warrants will be entitled to receive a warrant to purchase one
share of the Company's common stock for each share of IMPCO common stock covered by such holder's warrant

F-19

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBD0JD4Š
14*
1C

65938 FIN 20
PMT

1KWYH2SGVMBD0JD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

that was outstanding as of the distribution record date. The exercise prices of the existing IMPCO warrants and
the new warrants the Company will issue to IMPCO warrant holders will be calculated in the same manner as the
IMPCO options described below. The other terms of the new warrants the Company will issue to IMPCO
warrant holders will be substantially the same as the IMPCO warrants to which they relate. Based on the IMPCO
warrants outstanding at July 23, 2002, the Company expects to issue warrants to purchase an aggregate of
300,000 shares of the Company's common stock at an exercise price of $5.83 per share.

(g) Stock options

The Company has adopted a Stock Incentive Plan with a maximum number of shares available for grant of

options to purchase up to 3,500,000 shares of the Company’s common stock. As part of the spin-off from
IMPCO, all stock options from IMPCO split into stock options of the Company and IMPCO. The IMPCO
options outstanding on the distribution date were split into one option of IMPCO and one option of Quantum
stock. The exercise price of both the IMPCO and Quantum stock options was adjusted based on the relative
market values of the common stock of both companies on the first trading day following the spin-off. All vesting
schedules remain the same and the option holders will not be required to exercise their options concurrently.
Accordingly, the adoption of the Company’s stock option plan did not give rise to a compensation charge.

IMPCO had six stock option plans that provided for the issuance of options to key employees and directors
of the Company at the fair market value at the time of grant. Options under the plans generally vested in four or
five years and are generally exercisable while the individual is an employee or a director, or ordinarily within one
month following termination of employment. In no event may options be exercised more than ten years after date
of grant. The exercise price of the IMPCO options granted equaled the market price of the IMPCO stock on the
grant date. Exercise prices shown below reflect the grant of options to purchase the Company’s common stock
granted in connection with the spin-off at their adjusted prices.

Number of
Shares

Weighted Average
Exercise Price

Outstanding at April 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options outstanding at April 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options outstanding at April 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,502,658
104,974
(163,326)
(122,375)

1,321,931
416,453
(97,572)
(46,047)

1,594,765
232,000
(328,459)
(120,826)

Options outstanding at April 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,377,480

Shares exercisable at April 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

685,334

Shares exercisable at April 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

774,889

Shares exercisable at April 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

666,623

$3.70
4.60
3.16
3.67

$3.84
5.72
3.97
6.90

$4.23
4.84
3.52
5.18

$4.35

$3.82

$3.67

$3.77

F-20

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

10.233.197.224
7.0.8

CHMwithd0cm
LAN

ˆ1KWYH2SG=S4SK2D†Š
10*
1C

65938 FIN 21
PMT

1KWYH2SG=S4SK2D

CLN

18-Sep-2002 05:36 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

The following table sets forth summarized information with respect to stock options outstanding and

exercisable at April 30, 2002:

Outstanding

Exercisable

Exercise Price
Range

$1.96 to $2.95
$2.95 to $3.93
$3.93 to $4.91
$4.91 to $5.89
$5.89 to $6.87
$6.87 to $7.86
$7.86 to $9.82

Number of Shares

Average Life

Average Price

Number of Shares

Average Price

93,111
486,796
548,416
151,152
69,405
10,000
18,600

1,377,480

3.2
4.9
8.5
4.5
8.9
0.0
8.3

$2.58
3.41
4.75
5.24
6.29
7.15
9.82

93,111
385,796
68,005
109,132
579
10,000
—

666,623

$2.58
3.42
4.64
5.12
6.08
7.15
—

The Company has elected to account for its employee stock options under Accounting Principles Board
Opinion 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations in accounting for
employee stock options. No compensation expense is recorded under APB 25 because the exercise price of the
Company’s employee common stock options equals the market price of the underlying common stock on the
grant date.

SFAS 123 requires “as adjusted” information regarding net income and net income per share to be disclosed
for new options granted after fiscal year 1996. The fair value of these options was determined at the date of grant
using the Black-Scholes option pricing model with the following weighted-average assumptions:

Year Ended April 30

2000

2001

2002

Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculated volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of the option in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.0%

0.729

0.683

0.801

8.82

7.45

10.00

The estimated fair value of the options is amortized to expense over the options’ vesting period for “as
adjusted” disclosures. The net income per share “as adjusted” for the effects of SFAS 123 is not indicative of the
effects on reported net income/loss for future years. The Company’s reported “as adjusted” information at
April 30 is as follows (in thousands, except per share amounts):

Year Ended April 30

2000

2001

2002

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma net loss per share as reported—basic and dilutive . . . . . . .
Pro Forma net loss per share as adjusted—basic and dilutive . . . . . . .

$(10,635) $(30,244) $(43,378)
$(10,807) $(30,547) $(43,504)
(2.46)
(2.46)

The number of shares used in the calculation of the “as adjusted” per share amounts was 17,655,475.

11. Business Segment and Geographic Information

Business Segments

Although the Company classifies its business operations in one operating segment, the Alternative Fuel
business, the Company’s chief operating decision maker allocates resources and tracks performance in three
areas: the Alternative Fuel business, Research & Development and Corporate Expenses.

F-21

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM9BG9D]Š
7*
1C

65938 FIN 22
PMT

1KWYH2SGVM9BG9D

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

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. Customer
funded research and development consists primarily of expenses associated with contract revenue. These
expenses include applications development costs funded under customer contracts.

The Company evaluates performance based on profit or loss from operations before interest and income
taxes. The accounting policies of the reportable segments are the same as those described in the Summary of
Significant Accounting Policies.

All of the Company’s product revenues are generated from alternative fuel systems for automotive OEM

applications. The Company’s revenue to unaffiliated customers is derived from within the United States. All of
the Company’s long-lived assets are based either in its offices in Sterling Heights, Michigan, Irvine, California,
and Lake Forest, California.

Financial Information by Business Segment.

Financial information by business segment for continuing operations follows (in thousands):

Revenues

Fiscal Year Ended April 30

2000

2001

2002

$22,341
—
—

$23,358
—
—

$23,403
—
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,341

$23,358

$23,403

Operating Income (Loss)

Fiscal Year Ended April 30

2000

2001

2002

$ 1,475
(7,171)
(4,939)

$ (1,617
(21,164)
(7,459)

$ (8,512)
(26,323)
(8,063)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(10,635) $(30,240) $(42,898)

The research and development segment of the total operating loss does not include the product application

development costs included in cost of contract revenues. In the statements of operations for the fiscal years ended
2000, 2001, and 2002, the cost of contract revenues of $5,786, $5,522, and $6,334, respectively, have been
included in research and development costs.

Identifiable Assets

Fiscal Year Ended April 30

2000

2001

2002

Alternative fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets not specifically identifiable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$20,668
849
1,441
22,958
441

$23,266
1,801
6,452
31,519
1,296

$19,676
3,691
4,173
27,540
619

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,399

$32,815

$28,159

F-22

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBH25D&Š
11*
1C

65938 FIN 23
PMT

1KWYH2SGVMBH25D

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Capital Expenditures

Fiscal Year Ended April 30

2000

2001

2002

Alternative fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,404
352
135

$4,336
2,234
2,577

$ 659
1,145
1,667

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,891

$9,147

$3,471

Depreciation and Amortization

Fiscal Year Ended April 30

2000

2001

2002

$ 659
207
351

$ 591
239
857

$ 844
751
1,308

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,217

$1,687

$2,903

12. Revenue

The Company has been engineering, testing and validating CNG systems for certain 1997-2003 model year

car and truck platforms in compliance with GM’s specifications.

Revenues for development efforts are principally recognized by the percentage of completion method and

principally related to contracts with GM. During fiscal year 2000, 2001 and 2002, GM and affiliated companies’
revenues comprised 99.1%, 98.7% and 79.9% of the Company’s total revenues, respectively. As of April 30,
2001 and 2002, GM and affiliated companies’ accounts receivable comprised 95.3% and 81.8% of the
Company’s total outstanding accounts receivable, respectively.

As of April 30, 2001 and 2002, accounts receivable includes amounts due under long-term contracts in the

amounts of approximately $5,004,000 and $2,085,000, respectively. These amounts represent the recognized
sales value of performance that had not been billed and were not billable to customers at these dates. The billing
terms for all long-term contracts are based on milestone billings or discrete activities. All amounts due under
long term contracts are expected to be collected by the end of the following fiscal year.

13. Purchases

During fiscal years 2000, 2001, and 2002, respectively, purchases from one vendor constituted

approximately 12%, 7% and 10% of net purchases. In fiscal year 2000, 2001, and 2002, 10 suppliers accounted
for approximately 43%, 31% and 46% of net purchases, respectively.

14. Restructuring Charges

Beginning in June 2000, following a successful follow-on offering of common stock by IMPCO, the

Company developed a cost structure that included substantial research and development activity, as well as
investments in new facilities, to take advantage of its position in the emerging fuel cell industry. In September
2001, in reaction to prevailing market conditions, management enacted a plan to, among other things,
significantly reduce the Company’s operating costs.

In December 2001, the Company adopted a plan to close its Guaymas, Mexico manufacturing operations,

close one of its Sterling Heights, Michigan offices and terminate the employees supporting these facilities.

F-23

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMB2WKD0Š
13*
1C

65938 FIN 24
PMT

1KWYH2SGVMB2WKD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Accordingly, the Company recorded a charge of approximately $1,162,000 during fiscal year 2002 for headcount
reduction, lease and contract exit costs and other asset writedowns. In connection with these actions, the
Company initiated involuntary separation plans that included headcount reductions of approximately
62 employees at a cost of $180,000 for severance and related costs. Additional costs of $982,000 were recorded
to include losses on asset writedowns, office leases, net of anticipated sublease income over the lease term and
contract exit costs.

The major components of the restructuring charges and the remaining accrual balance as of April 30, 2002

are as follows (in thousands):

Employee termination and severance costs . . . . . . . . . . . . . . . . .
Lease exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset writedowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Charge Amounts Used

$ 180
394
114
474

$1,162

$180
116
114
474

$884

Accrued
Restructuring
Costs

$ —
278
—
—

$ 278

15. Quarterly Results of Operations (unaudited)

A summary of the unaudited quarterly results of operations follows (in thousands, except per share

amounts):

Fiscal year 2001

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) on product sales . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . .
Net loss(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,323
2,669
6,992
4,732
(409)
4,570
(3,641)

$ 2,171
2,695
4,866
2,858
(687)
5,660
(5,107)

$ 2,782
1,116
3,898
3,977
(1,195)
7,059
(9,224)

$ 6,171
1,431
7,602
7,885
(1,714)
9,398
(12,272)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Fiscal Year 2002

Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,591 $ 4,593 $ 2,205
1,312
Contract revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,517
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,374
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,169)
Gross profit (loss) on product sales . . . . . . . . . . . . . . . . . . . . . . . . .
7,353
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . .
(10,215)
Net loss(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,338
6,929
6,590
(1,999)
9,750
(11,231)

1,247
5,840
7,548
(2,955)
9,179
(13,704)

$ 4,069
3,048
7,117
7,069
(3,000)
6,375
(8,228)

(A) The Company made certain adjustments in the following quarters of fiscal years 2001 and 2002 resulting

from changes in estimates, unusual, or infrequently occurring items and that were material to the results of
those quarters.

F-24

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBL3VD.Š
10*
1C

65938 FIN 25
PMT

1KWYH2SGVMBL3VD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

These adjustments increased net loss as follows (in thousands):

Third quarter adjustment:

Inventory adjustments due to obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 150

Fourth quarter adjustment:

Inventory adjustments due to obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 289

For the fiscal
year 2001

First quarter adjustment:

Increase “lower of cost-or-market” reserve related to the GM pick-up truck application . . . . . .
Inventory adjustments due to obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Second quarter adjustment:

Increase “lower of cost-or-market” reserve related to the GM pick-up truck application . . . . . .
Increase in warranty reserves due to change in estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in non-recurring legal and consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Third quarter adjustment:

Inventory adjustments due to obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in warranty reserves due to change in estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in non-recurring legal and consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fourth quarter adjustment:

Inventory adjustments due to obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in warranty reserves due to change in estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease “lower of cost-or-market” reserve related to the GM pick up truck application . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in non-recurring legal and consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 485
100

$ 585

$ 557
154
1,344

$2,055

269
562
647
256

$1,734

367
524
(528)
515
417

$1,295

F-25

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBP5HDÆŠ
5*
1C

65938 FIN 26
PMT

1KWYH2SGVMBP5HD

CLN

17-Sep-2002 20:43 EST

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Balance at
Beginning of
Year

Additions
Charged/
(Credited)
to Cost and
Expenses

Write-offs
and Other
Adjustments

Balance at
End of Year

Allowance for Doubtful Accounts for the year ended:

April 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$
$

(40,000)
(40,000)
(40,000)

(209,624)

—
(8,172)

209,624
—
8,172

(40,000)
(40,000)
(40,000)

Provision for Obsolescence Reserve for the year ended:

$ (152,981)
$ (381,461)
$(1,056,909)

(255,315)
(675,447)
(2,089,380)

26,835
—
615,348

(381,461)
(1,056,909)
(2,530,941)

Warranty Reserve for the year ended:

$ (246,831)
$ (213,367)
$ (414,993)

(281,827)
(426,939)
(1,475,052)

315,291
225,313
664,147

(213,367)
(414,993)
(1,225,898)

F-26

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVM9=TXDyŠ
7*
1C

65938 FIN 27
PMT

1KWYH2SGVM9=TXD

CLN

17-Sep-2002 20:43 EST

UNAUDITED PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed financial statements have been prepared in accordance with

Article 11 of Regulation S-X to illustrate the effect of the distribution. The unaudited pro forma condensed
balance sheet illustrates the Company’s post distribution balance sheet. The unaudited pro forma condensed
statement of operations illustrates the Company’s post distribution statement of operations for the year ended
April 30, 2002 as if the distribution had occurred on May 1, 2001.

Prior to distribution, IMPCO transferred to the Company the assets and liabilities constituting its automotive
OEM business. Based on the pro forma April 30, 2002 balance sheet, these assets and liabilities include assets of
$57.2 million, consisting primarily of cash, accounts receivables, inventory and equipment, and liabilities of
$9.3 million, consisting primarily of accounts payable.

The following unaudited pro forma condensed financial statements reflect the Company’s issuance to
IMPCO of 14,141,036 shares of the Company’s common stock prior to the distribution; IMPCO’s transfer to the
Company of assets and $15.0 million in cash and the assumption by IMPCO of $8.6 million of the Company’s
outstanding debt; the distribution by IMPCO to its stockholders of 14,142,036 shares of the Company’s common
stock held by IMPCO; the conversion of invested equity into stockholders’ equity; and the issuance of
3,513,439 shares of the Company’s Series A common stock to General Motors in connection with the
Company’s strategic alliance with General Motors. The issuance of the Series A common stock to General
Motors has been presented at its expected fair market value on the date of the distribution of approximately
$14 million and is subject to a final determination of market value. The resulting intangible asset will be
amortized, subject to periodic evaluations for impairment, over the term of the Corporate Alliance Agreement,
10 years.

The pro forma adjustments are based upon available information and upon certain assumptions that
management believes are reasonable under the circumstances. The unaudited pro forma condensed financial
statements should be read in conjunction with the historical financial statements and the notes thereto. The
unaudited pro forma condensed financial statements do not purport to represent what the Company’s actual
results of operations or actual financial position would have been if the spin-off from IMPCO in fact occurred on
such dates or to project the Company’s results of operations or financial position for any such future period or
date.

F-27

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBW8TDpŠ
12*
1C

65938 FIN 28
PMT

1KWYH2SGVMBW8TD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the Fiscal Year Ended April 30, 2002
(dollars in thousands, except per share amounts)

Historical Adjustments

Pro Forma(E)

Net revenue:

Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,458
7,945

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,403

Cost and expenses:

Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,581
32,657
8,063

(42,898)
488
9
1

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(43,378)

Pro forma loss per share (A):

Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma number of shares used in per share calculation (A):

1,400(F)

15,458
7,945

23,403

25,581
32,657
9,463

(44,298)
488
9
1

(44,778)

(2.54)

Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,655,475

See accompanying notes to unaudited pro forma condensed financial statements.

F-28

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMBS74DvŠ
11*
1C

65938 FIN 29
PMT

1KWYH2SGVMBS74D

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
As of April 30, 2002
(dollars in thousands)

ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Historical Adjustments

Pro
Forma

177

15,000(B) $15,181

4(C)

Receivables, less allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,494
9,627
88

$14,386
13,419

354

4,494
9,627
88

29,390
13,419
14,000(F) 14,000
354

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,159

$57,163

LIABILITIES:
Accounts payable and current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturity of capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term debt

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,948
8,625
189

17,762
127

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,889

8,948
(8,625)(B) —
189

9,137
127

9,264

Equity:

Invested and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock, par value $0.001 per share, 15,000,000 shares authorized
(historical), 20,000,000 shares authorized (pro forma), none issued
(historical and pro forma) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A common stock, par value $0.001 per share, no shares authorized

and issued (historical), 12,000,000 shares authorized (pro forma),
3,513,439 shares issued and outstanding (pro forma) . . . . . . . . . . . . . . .
Series B common stock, par value $0.001 per share, no shares authorized

and issued (historical), 6,000,000 shares authorized (pro forma),
0 shares issued and outstanding (pro forma) . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.001 per share, 35,000,000 shares authorized
(historical), 0 shares issued and outstanding (historical), 42,000,000
shares authorized (pro forma), 14,142,036 shares issued and
outstanding (pro forma) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional paid-in capital

10,270

(10,270)(D) —

—

4(C)

—

14(D)

14
23,625(B) 47,881
10,256(D)
14,000(F)

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,270

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,159

47,899

$57,163

See accompanying notes to unaudited pro forma condensed financial statements.

F-29

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMC1D3DRŠ
12*
1C

65938 FIN 30
PMT

1KWYH2SGVMC1D3D

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

(A) The computation of pro forma basic and diluted loss per share for the periods presented is based upon

17,655,475 shares of common stock issued and outstanding upon completion of the distribution. The distribution
was made on the basis of one share of the Company’s common stock for every share of IMPCO common stock.
The computation also includes 3,513,439 shares of Series A common stock issued to General Motors as part of
the Company’s strategic alliance with General Motors. For a description of the issuance of Series A common
stock to General Motors, please see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—General Motors Relationship.” No employee stock options or warrants were included in the
computation of pro forma diluted loss per share because their inclusion would be anti-dilutive to the net loss. The
following table sets forth the basis for the pro forma loss per share and the pro forma number of shares used in
the per share calculation:

Pro Forma
Fiscal Year
Ended
April 30,
2002

Pro Forma loss per common share—basic and diluted:

Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(2.54)

Number of shares (in millions):

Common shares—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of dilutive stock options:

Common shares—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma options and warrants excluded from the computation of earnings per

share—diluted since inclusion would be anti-dilutive . . . . . . . . . . . . . . . . . . . . . . . .

17.7

1.7

(B) Represents a capital investment of $23.6 million the Company received from IMPCO prior to the
distribution, consisting of the assumption of $8.6 million outstanding under the Company’s debt facility, plus a
cash infusion of $15 million. Until 2001, the Company’s operations were funded entirely through investments
from IMPCO, who for a significant portion of that period funded the Company’s operations from IMPCO’s own
operations or equity proceeds. Management of both companies intended that these advances would be
interest-free and would never be repaid. The interest expense reflected in the statement of operations results from
the Company’s capital lease obligations and, for the fiscal year 2002, debt specifically entered into by the
Company. This debt was assumed prior to the distribution, and the Company will finance operations through the
Company’s working capital and any additional sources of financing as required. The pro forma statements of
operations do not reflect any adjustment for interest expense that may be incurred on any future borrowings.
Significant amounts of interest expense in future periods could adversely and materially impact the Company’s
results of operations.

(C) Represents the Series A common stock issued to General Motors as part of the Company’s strategic
alliance with General Motors. The pro forma adjustment has been made to record the consideration received
from General Motors, which consists of a nominal cash contribution and access to certain of General Motors’
proprietary information to be provided in connection with the strategic alliance, recorded at General Motors’
historical cost basis. For a more detailed description of this equity investment, please see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—General Motors Relationship.”

(D) On a historical basis, this amount reflects IMPCO’s net investment in Quantum, which was recorded as

invested equity in the Company’s financial statements.

(E) The historical financial statements include allocations of a portion of IMPCO corporate headquarters’

assets, liabilities, and expenses relating to the Company’s business. General corporate overhead has been

F-30

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGVMB8ZWDyŠ
10*
1C

65938 FIN 31
PMT

1KWYH2SGVMB8ZWD

CLN

17-Sep-2002 20:43 EST

QUANTUM FUEL SYSTEMS TECHNOLOGIES WORLDWIDE INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS—(Continued)

allocated either based on the ratio of the Company’s headcount to IMPCO’s total consolidated headcount, on the
Company’s revenue as a percentage of IMPCO’s total consolidated revenue, or specifically identified costs for
the Company’s business. General corporate overhead primarily includes salary and expenses for the executive
management, finance, legal, human resources, information services and investor relations departments and
amounted to approximately $3,209,000 for the year ended April 30, 2002. Management believes the costs of
these services charged to the Company are a reasonable representation of the costs that would have been incurred
if the Company had performed these functions as a stand-alone company. As such, no adjustments for these costs
have been included in the pro forma condensed statements of operations. Following the contribution to the
Company by IMPCO of the assets constituting the Company’s business, the Company will perform these
functions using the Company’s own resources or purchased services. The Company believes that the services
purchased from IMPCO under the Transition Services Agreement will be immaterial to the Company’s
statements of operations.

(F) The issuance of the Series A common stock to General Motors has been presented at its estimated fair

market value on the date of the distribution of approximately $14 million, in accordance with Statement of
Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation,” and EITF 96-18,
“Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction
with Selling Goods or Services.” The intangible asset was recorded in accordance with the consensus reached by
the Emerging Issues Task Force during their November 2001 meeting with respect to EITF 00-18, “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to Other than Employees.” The
resulting intangible asset will be amortized, subject to periodic evaluations for impairment, over the ten year term
of the Corporate Alliance Agreement. The amortization expense, expected to be $1.4 million per year, is
expected to reduce future operating results, with no effect on operating cash flows.

The Company has not allocated any portion of the fair value of the Series A common stock to the Company’s

prior customer relationship with General Motors. Under our historical arrangement with General Motors, the
Company performed research and development activities to design alternative fuel systems for vehicles that
operate primarily on natural gas or propane. The Company’s historical product sales, which have been primarily to
General Motors, have related primarily to these natural gas and propane systems. These activities were performed
under arrangements entered into with General Motors over the past several years and were not contemplated by
the Company’s June 2001 strategic alliance with General Motors. The June 2001 strategic alliance with
General Motors provides for the facilitation, interface and optimization of General Motors fuel cell systems with
the Company’s gaseous fuel storage and handling modules. The Company and General Motors will then license
the co-developed fuel cell related technologies to each other for the purpose of developing, manufacturing and
selling the fuel cell applications developed under this strategic alliance. Further, the Company and General Motors
will work together to advance and commercialize fuel cell systems, which will include efforts on the part of
General Motors to introduce and recommend the Company to its customer base for General Motors fuel cell
systems as a source for future product sales, and as a recommended partner for the design and supply of gaseous
storage and handling systems and sub-systems. Based on the differences between the past and future customer
relationship between the Company and General Motors, including the nature of the application development as
well as an increased level of support by General Motors under the strategic alliance, the Company does not plan to
allocate any portion of the value of the Series A common stock to the Company’s previous customer relationship
with General Motors.

F-31

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

SIGNATURES

ˆ1KWYH2SGNTQ75PDiŠ
10*
1C

65938 S 1
PMT

1KWYH2SGNTQ75PD

CLN

17-Sep-2002 20:44 EST

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on July 29, 2002.

QUANTUM FUEL SYSTEMS TECHNOLOGIES
WORLDWIDE, INC.

By:

/s/ ALAN P. NIEDZWIECKI
Alan P. Niedzwiecki
President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name and Signature

Title

Date

/s/ ALAN P. NIEDZWIECKI

Alan P. Niedzwiecki

/s/ WILLIAM B. OLSON

William B. Olson*

President, Chief Operating Officer,
Director (Principal Executive
Officer)

Chief Financial Officer of IMPCO
Technologies, Inc.* (Principal
Financial and Accounting Officer)

July 29, 2002

/s/ DALE L. RASMUSSEN

Chairman of the Board; Director

July 29, 2002

Dale L. Rasmussen

/s/ BRIAN A. RUNKEL

Director

Brian A. Runkel

/s/ SCOTT SAMUELSEN

Director

Scott Samuelsen

/s/ THOMAS J. TYSON

Director

Thomas J. Tyson

July 29, 2002

As Chief Financial Officer of IMPCO Technologies, Inc., which was the parent of the Registrant during the
period covered by this Report, Mr. Olson performed the functions of Principal Financial and Accounting
Officer of the Registrant during the period covered by this Report.

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

ˆ1KWYH2SGNTQJBND>Š
3*
1C

65938 EXIND 1
PMT

1KWYH2SGNTQJBND

CLN

17-Sep-2002 20:44 EST

Exhibit
Number

2.1

3.1

3.2

4.1

EXHIBIT INDEX

Description

Contribution and Distribution Agreement, dated as of July 23, 2002, between IMPCO Technologies,

Inc. and the Registrant (filed as Exhibit 10.1 hereto)

Amended and Restated Certificate of Incorporation of the Registrant

Amended and Restated By-laws of the Registrant

Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to the Registrant’s Registration

on Form 10 (File No. 0-49629) and incorporated herein by reference)

10.1

Contribution and Distribution Agreement, dated as of July 23, 2002, between IMPCO Technologies,

Inc. and the Registrant

10.2

Tax Allocation and Indemnification Agreement, dated as of July 23, 2002, between IMPCO

Technologies, Inc. and the Registrant

10.3

Transition Services Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc. and

the Registrant

10.4

Employee Benefit Matters Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc.

and the Registrant

10.5

Strategic Alliance Agreement, dated as of July 23, 2002, between IMPCO Technologies, Inc. and the

Registrant

10.6

10.7†

Corporate Alliance Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.8

Master Technical Development Agreement dated June 12, 2001 between the Registrant and General

Motors Corporation(1)

10.9

Stock Transfer Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.10

Registration Rights Agreement dated June 12, 2001 between the Registrant and General Motors

Corporation(1)

10.11

Lease between Klein Investments, Family Limited Partnership, as Lessor, and IMPCO Technologies,

Inc. as Lessee, dated August 18, 1997(2)

10.12

Lease dated as of March 31, 2000 by and between IMPCO Technologies, Inc. and Braden Court

Associates(3)

10.13

10.14

Amendment Nos. 1, 2 and 3 to Memorandum of Understanding and Teaming Agreement, among the

Registrant, IMPCO Technologies, Inc. and ATK Thiokol Propulsion

10.15

First Amendment to Corporate Alliance Agreement, dated as of July 19, 2002, between the

Registrant and General Motors

10.16

First Amendment to Stock Transfer Agreement, dated as of July 19, 2002, between the Registrant

and General Motors

QUANTUM FUEL SYSTEMS
ANNUAL REPORT

R.R. Donnelley ProFile
(START PAGE)

chmprfrs2.rrd.c
7.0.8

CHMpf_rend
LAN

Exhibit
Number

Description

ˆ1KWYH2SGNTQQFZD9Š
4*
1C

65938 EXIND 2
PMT

1KWYH2SGNTQQFZD

CLN

17-Sep-2002 20:44 EST

10.17

Amendment to Lease Agreement, dated October 18, 2000, among, the Registrant, IMPCO

Technologies, Inc. and Braden Court Associates

10.18

Amendment to Lease Agreement, dated October 31, 2000, among the Registrant, IMPCO

Technologies, Inc. Klein Investments Family Limited Partnership

21.1

23.1

Subsidiaries of the Registrant

Consent of Ernst & Young LLP, Independent Auditors

† Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange

Commission. Confidential treatment has been granted with respect to the omitted portions.

* The referenced exhibit is a compensatory contract, plan or arrangement.
(1)

(2)

(3)

Our integrated gaseous fuel systems are based on the following core competencies:

Letter To the Shareholders

Dear Shareholder:

Fuel Storage
Advanced composite, ultra-
lightweight tanks designed and
manufactured by Quantum
provide cost-effective storage of
large quantities of hydrogen or
natural gas.

Fuel Metering
Pressure regulators, fuel
injectors, ﬂ ow control valves,
and other components designed
and manufactured by Quantum
control the pressure and ﬂ ow of
gaseous fuels.

Systems Integration
Engineering design services
efﬁ ciently package and
optimize the performance and
safety of gaseous fuel storage,
metering and electronic control
components.

Fuel Storage
Fuel Storage

Fuel Metering
Fuel Metering

Electronic Controls
Electronic Controls

Systems Integration
Systems Integration

Alternative
Fuel Vehicles
CNG LPG H2

Fuel Cell
Applications

H2 Refueling
Infrastructure

Mobile

Stationary

Spin-off Completed
July 2002

General Motors /
Quantum Strategic
Fuel Cell System
Alliance

Financial Focus:
Reaching Proﬁ tability

We continue to focus on managing our cash position through cost controls and increased efforts to grow
contract and product revenues, both of which are critical elements to reach proﬁ tability.

Corporate Information

Annual Stockholders’ Meeting

The annual meeting of stockholders for

Officers & Directors
Alan P. Niedzwiecki

President & Chief Executive Ofﬁ cer

Quantum Fuel Systems Technologies Worldwide, Inc.,

W. Brian Olson

will be held November 21, 2002, at 1:30 p.m. at

Quantum’s Advanced Technology Center,

17872 Cartwright Road, Irvine, CA 92614.

Corporate Counsel

Morrison & Foerster LLP

Independent Auditors

Ernst & Young LLP

Transfer Agent and Registrar

Mellon Investor Services LLP

85 Challenger Road

Ridgeﬁ eld, NJ 07660

800-522-6645

Corporate Headquarters

17872 Cartwright Road

Irvine, CA 92614

949-399-4500

Chief Financial Ofﬁ cer & Treasurer

Cathryn T. Johnston

Corporate Secretary

Raymond W. Corbin

Executive Director, Alternative Fuel Programs

Thomas K. Wiedmann

Vice President, Research & Development

Directors

Dale L. Rasmussen, Chairman

Senior Vice President & Secretary of IMPCO
Technologies, Inc.

Brian A. Runkel

Environmental Consultant & Director of the California
Environmental Business Council

Scott Samuelsen

Director of the National Fuel Cell Research Center &
Professor at the University of California Irvine

NASDAQ Symbol: QTWW

Thomas J. Tyson

Consultant & Retired Chief Executive Ofﬁ cer of
General Electric’s Energy & Environmental Research
Corporation

GM’s Revolutionary Hy-wire Fuel Cell Vehicle

The GM-Quantum Fuel Cell Alliance went into effect July 2002.

QUANTUM’s Other Market Opportunities

Annual Report

2002

N O L O G I