UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(_x_) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
or
(___) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From To .
------------ ---------------
Commission File No. 0-25184
ENOVA SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
- ---------- ----------
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
19850 South Magellan Drive Torrance, CA 90502
-----------------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (310) 527-2800
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (_X_) No (___)
As of November 10, 2001, there were 297,520,941 shares of Common Stock, no par
value, outstanding.
1
INDEX
ENOVA SYSTEMS, INC.
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)...................................3
Balance Sheets:
September 30, 2001 and December 31, 2000...........................3
Statements of Operations:
Three and Nine months ended September 30, 2001 and 2000............4
Statements of Cash Flows:
Nine months ended September 30, 2001 and 2000......................5
Notes to Financial Statements:
for the Nine months ended September 30, 2001 and 2000..............7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................9
Item 3. Quantitative and Qualitative Disclosure about Market Risk.........13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................14
Item 2. Changes in Securities and Use of Proceeds.........................14
Item 3. Defaults upon Senior Securities...................................14
Item 4. Submission of Matters to a Vote of Security Holders...............14
Item 5. Other Information.................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14
SIGNATURE ..............................................................15
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
(In thousands, except for share and per share data)
- ---------------------------------------------------------------------------------------------------------------------
As of As of
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 1,743 $ 1,310
Accounts receivable 1,159 1,004
Inventory 1,029 406
Stockholder receivable -- 25
Prepaids and other current assets 127 68
-------- --------
Total Current Assets 4,058 b 2,813
PROPERTY, PLANT AND EQUIPMENT - NET 270 214
OTHER ASSETS, NET 650 67
-------- --------
TOTAL ASSETS $ 4,978 $ 3,094
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 229 $ 106
Accrued payroll and related expense 260 301
Other accrued expenses 63 119
Bonds and notes payable 120 129
-------- --------
Total Current Liabilities 672 655
ACCRUED INTEREST PAYABLE 624 514
LONG TERM PAYABLES 162 210
CAPITAL LEASE OBLIGATIONS 32 31
LONG TERM DEBT 3,332 3,332
-------- --------
TOTAL LIABILITIES $ 4,822 $ 4,742
-------- --------
SHAREHOLDERS EQUITY (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
2,844,000 shares issued and outstanding at 9/30/01 and 12/31/00 1,867 1,867
-------- --------
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,217,000 shares issued and outstanding at 9/30/01 and 12/31/00 2,434 2,434
-------- --------
Stock notes receivable (1,282) (1,149)
Common Stock - No par value; 500,000,000 shares authorized; 297,520,941
and 244,249,000 shares issued and outstanding at 9/30/01 and 12/31/00 78,884 75,680
Common stock subscribed 2 13
Additional paid-in capital 6,949 6,372
Accumulated deficit (88,698) (86,865)
-------- --------
Total Shareholders Equity (Deficit) 156 (1,648)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) $ 4,978 $ 3,094
======== ========
<FN>
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date.
See notes to financial statements.
</FN>
3
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
NET SALES $ 690 $ 951 $ 2,577 $ 1,911
COST OF SALES 638 683 1,801 1,571
------------- ------------- ------------- -------------
GROSS MARGIN 52 268 776 340
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES:
Research & development 204 186 714 396
Selling, general & administrative 622 577 1,900 1,450
Interest and financing fees 55 30 114 127
Other (income)/expense (4) (2) (4) (11)
Interest income (16) (22) (47) (67)
------------- ------------- ------------- -------------
Total other costs and expenses 861 769 2,677 1,895
------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS $ (809) $ (501) $ (1,901) $ (1,555)
------------- ------------- ------------- -------------
GAIN ON DEBT RESTRUCTURING 33 371 68 648
NET LOSS $ (776) $ (130) $ (1,833) $ (907)
NET LOSS PER COMMON SHARE: $ (0.01) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 297,520,941 230,826,664 297,520,941 230,826,664
4
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except for share and per share data)
- -------------------------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
2001 2000
------- -------
OPERATIONS
Net loss $(1,833) $ (907)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 142 116
Gain on Debt Restructuring (68) 0
Gain on Sale of Property, plant and equipment (4) 0
Stock issued for Services 20 0
Change in operating assets and liabilities:
Accounts Receivable (155) (163)
Inventory (623) (58)
Stockholder receivable 25 38
Prepaids and other assets (91) (14)
Accounts payable and accrued expenses 156 (932)
------- -------
Net cash used by operating activities (2,431) (1,920)
------- -------
INVESTING:
Purchases of property, plant and equipment, net of disposals (172) 0
Proceeds on sale of property, plant and equipment 4 (109)
------- -------
Net cash used by investing activities (168) (109)
------- -------
FINANCING:
Net borrowing on leases and notes payable (8) 25
Re-purchase of common stock 0 (100)
Proceeds from issuance of common stock 3,040 2,458
------- -------
Net cash provided by financing activities 3,032 2,383
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 433 354
CASH AND EQUIVALENTS:
Beginning of period 1,310 1,465
------- -------
End of period $ 1,743 $ 1,819
======= =======
5
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
(UNAUDITED)
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------
2001 2000
--------- ---------
Cash paid for interest $ - $ 38
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock $ - $ 187
Conversion of Series A preferred stock to common stock $ - $ 52
Conversion of debt to common stock $ - $ 14
Conversion of accrued interest to equity $ - $ 39
Issuance of common stock for services $ 33 $ 62
Issuance of common stock for receivables $ 133 $ -
6
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2001 and 2000
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not contain all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the financial position
at September 30, 2001 and the interim results of operations and cash flows for
the three and nine months ended September 30, 2001 have been included. The
balance sheet at December 31, 2000, presented herein, has been prepared from the
audited financial statements of the Company for the fiscal year then ended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. The December 31, 2000
and September 30, 2001 inventories are reported at market value. Inventories
have been valued on the basis that they would be used, converted and sold in the
normal course of business. The amounts estimated for the above, in addition to
other estimates not specifically addressed, could differ from actual results;
and the difference could have a significant impact on the financial statements.
Accounting policies followed by the Company are described in Note 1 to the
audited financial statements for the fiscal year ended December 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for purposes of the interim financial statements.
The financial statements should be read in conjunction with the audited
financial statements, including the notes thereto, for the year ended December
31, 2000, which are included in the Company's Form 10-K Annual Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 as filed with the
Securities and Exchange Commission.
The loss per common share is based on the weighted average of common shares
outstanding. Potential anti-dilution exists in earnings per share for the nine
months ended September 30, 2001 if common stock equivalents, consisting of
unexercised stock options and warrants, were included in the calculation. The
resulting anti-dilution in the net loss per share, when compared to the loss of
$0.01 currently reflected in the financial statements for the nine months ended
September 30, 2001, would be insignificant and, therefore, has not been
calculated.
The results of operations for the three and nine months ended September 30, 2001
presented herein are not necessarily indicative of the results to be expected
for the full year.
7
NOTE 2 - Inventories
Inventories are comprised of the following (in thousands):
September 30, 2001 December 31, 2000
------------------ -----------------
(unaudited)
-----------
Raw materials 636 406
Work in Process 302 -
Finished Goods 91 -
------ -----
$1,029 $ 406
====== =====
NOTE 3 - Other Assets - Value Participation Agreement
The Company entered into a strategic relationship in which Enova Systems grants
Ford Motor Company warrants to purchase up to 4.6% of the outstanding common
stock of Enova Systems over a five-year period commencing June 2001. The vesting
of these warrants is dependent upon Ford meeting specific milestones with
regards to new production programs between Ford and Enova.
A portion of these warrants vest immediately upon the signing of the agreement.
The Company determined, utilizing the Black Scholes method, the value of the
initial tranche of the vested warrants under this program to be valued at
$577,000. This value is being amortized over a 66 month period, using the
straight-line method, which corresponds to the life of the warrants. As
additional warrants become vested in the coming years, they will be valued under
the same methodology and booked as an asset and into stockholders equity.
NOTE 4 - Notes and Bonds Payable, Long-Term Debt and Other Financing
Notes and bonds payable and long-term debt are comprised of the following (in
thousands):
September 30, 2001 December 31, 2000
------------------ -----------------
Secured subordinated promissory note
- - CMAC as exclusive agent for
Non-Qualified Creditors; interest at
3% for the first 5 years, 6% for
years 6 and 7, and then at prime plus
3% through date of maturity; interest
payments are made upon payment of
principal, with principal and
interest due no later than April
2016; with an interest in a sinking
fund escrow with a zero balance as of
December 31, 2000 and September 30,
2001. The sinking fund escrow
requires the Company to fund the
account with 10% of future equity
financing, including convertible debt
converted to equity at the investor's
option. 3,332 3,332
Other 120 120
------ ------
3,452 3,452
Less current maturities 120 120
------ ------
$3,332 $3,332
====== ======
8
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item I of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual report on
Form 10-K for the year ended December 31, 2000. The matters addressed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, with the exception of the historical information presented contains
certain forward-looking statements involving risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks discussed herein
and in the report under the heading "Certain Factors That May Affect Future
Results" following this Management's Discussion and Analysis section, and
elsewhere in this report.
GENERAL
In July 2000, the Company changed its name to Enova Systems, Inc. The Company,
previously U.S. Electricar, Inc., a California Corporation (the "Company"), was
incorporated on July 30, 1976.
The Company's fiscal year ends December 31. All year references refer to fiscal
years.
Enova Systems believes it is a leader in the development and production of
commercial digital power management systems. The Company's business activities
focus on the development of electric and hybrid electric drive systems and
related components, fuel cell power management systems for both mobile and
stationary power applications, vehicle systems integration and the performance
of various engineering contracts for government and commercial enterprises.
The Company is now building, under contract with global vehicle and technology
companies, efficient, robust, cost effective digital power processing and energy
management enabling technologies for electric, hybrid electric and fuel cell
powered vehicles. These power management technologies are now being applied to
commercialization of fuel cell power generation for stationary non-automotive
applications.
Ford Motor Company Programs
Enova has entered into a strategic relationship with Ford Motor Company under
which Enova has been selected by Ford Motor Company's Th!nk brand to develop and
manufacture a high power, high voltage conversion module (HEC) for their
upcoming fuel cell vehicle. The HEC module will convert high voltage power from
the fuel cell into a lower voltage. Enova is currently in the second phase of
this program having successfully designed and tested the proof of concept
prototype. The relationship will last for five years during which Ford will
evaluate Enova for future programs.
The strategic relationship also grants Ford warrants to purchase up to 4.6% of
the outstanding common stock of Enova Systems over the five-year period. The
vesting of these warrants is dependent upon Ford meeting specific milestones
with regards to new production programs between Ford and Enova.
9
The Company's development and production program with Ecostar Electric Drive
Systems, a unit of Ballard Power, for low voltage electric drive system
components for use in Ford's Global Th!nk City has moved into its production
phase. Ford has announced that the all-electric vehicle is scheduled to be
introduced in mid 2002 for markets in North America and Europe. Enova is
designing and manufacturing the electronics for the drive system including the
power inverter, charger and controller. In conjunction with Hyundai Autonet of
Korea, Enova is finalizing production planning for initial production systems to
be delivered in early 2002. Enova anticipates these systems to provide
significant revenues in the upcoming years.
Hyundai Motor Company Programs
The Company continues to develop hybrid and fuel cell based systems with Hyundai
Motor Company of Korea, or HMC, the world's seventh largest automobile
manufacturer. Enova, having successfully completed its hybrid drive system and
fuel cell EV program will be working with HMC on advanced hybrid and fuel cell
applications in the coming year. The Company's series hybrid drive system is
being produced for use in Hyundai's Chorus bus at World Cup Soccer in Seoul,
Korea in June 2002.
Additionally, with respect to passenger vehicle programs, Enova continues in its
efforts to develop a commercially producible parallel hybrid motor and
controller for Hyundai Motor Company's new hybrid vehicle to be introduced in
2004. This program is a result of Enova's ongoing development efforts with
Hyundai Motor Company since 1995.
Heavy-Duty Drive Systems
In the heavy-duty drive system markets; Enova continues to deliver 120 kW hybrid
drive systems to Eco Power Technology (EPT) in Italy. EPT has purchased 15
Panther 120 electric drive systems for delivery during the 3rd and 4th quarters
of 2001. Enova has delivered 7 systems to EPT in the third quarter. Eco Power
has also ordered 3 Fast Charger systems for delivery this year and next. EPT is
an integrator of medium size transit buses for the European shuttle bus market
with key contacts in Rome and Genoa.
Another new customer, with whom Enova's newest hybrid electric PantherTM 120kW
drive system (utilizing the Capstone Microturbine as its power source) is being
utilized, is Wrights Environment, a division of Wrights Bus, one of the largest
low-floor bus manufacturers in the United Kingdom. The initial delivery to
Wrights is part of the Company's agreement to manufacture and integrate pure
electric and hybrid electric drive systems into Wrights' low floor, mid-size
buses for sale in the United Kingdom and the European Continent. Enova has
additionally delivered a pure electric PantherTM 120kW drive system to Wrights
for integration into their Crusader II bus. The Company anticipates additional
orders for both electric and hybrid-electric P120 drive systems during 2002.
Teaming with Southern California Edison and Capstone Turbine, Enova is designing
a utility vehicle for Edison. The truck will utilize Enova's 120kW drive system
and Capstone's 30kW microturbine. Enova is developing additional power
management accessories for this vehicle so it can run power applications such as
drills and motors for use by the technicians. This line service truck is a
demonstration vehicle which will potentially lead to sales to utility companies
throughout the U.S.
In the high performance heavy-duty drive system area; Enova's 240kW drive system
is nearing its first prototype phase. In conjunction with Hyundai Heavy
Industries and Ricardo, Inc, of Michigan, a developer and manufacturer of
advanced transmissions, Enova is developing a robust, efficient and powerful
drive system for heavy-duty applications including transit buses, heavy-duty
trucks and other applications. It is currently anticipated that this system will
go into initial testing in January 2002 for introduction in mid 2002.
10
Research and Development Programs
The Company continues to attract new development and integration contracts with
the U. S. Government's Department of Transportation, or DOT. Enova, Hyundai
Motor Company and the State of Hawaii introduced 15 Hyundai Santa Fe electric
vehicles in Honolulu, Hawaii for test and evaluation prior to their entry into
the U.S. markets. The program will utilize Hawaii's rapid charging stations,
manufactured by AeroVironment. The vehicles are performing well and initial
reactions to their performance and handling is positive.
The Company's contract with the U.S. Department of Transportation to design and
test a three-car tram utilizing the Panther 120kW drive system has been
completed and is entering testing at the Torrance facility. This tram, capable
of carrying 100 passengers, is anticipated to be delivered in late 2001 to the
Honolulu, Hawaii Airport for further test and evaluation. The Company intends to
market this tram system to international markets for application to other
airports, national and recreational parks and other high capacity transit
applications.
Enova's integration of its drive systems into several State of Hawaii and DOT
vehicles is also continuing. Enova is upgrading eight Chevrolet S-10 trucks
owned by the City of Honolulu to its Panther(TM) 60kW drive system, including
its Battery Care Unit (BCU-II) to incorporate fast-charge capability for Hawaii.
Also, the Company is converting an Eldorado 30-foot bus utilizing its PantherTM
120kW drive system for the Hickam Air Force base in Honolulu, Hawaii. All of
these programs are funded in conjunction with the Hawaii Electric Vehicle
Development Project, the U.S. Department of Transportation and State of Hawaii.
Stationary Power Applications
The Company's stationary power programs continue to attract new potential
partners and customers from both fuel cell manufacturers and petroleum
companies. It is the Company's belief that utilizing its power management
systems for stationary applications for fuel cells will open new markets for
Enova. Enova is developing applications for its products in the
telecommunications and distributed generation markets.
Enova's Fuel Cell Care Unit (FCU) is being delivered to International Fuel
Cells, a division of United Technologies, for use in their stationary fuel cell
systems. The Hyundai companies have expressed interest in working with Enova on
the development of advanced fuel cell management technologies as well as other
domestic energy companies. Enova believes this market will play a key role in
the future of the Company and continues to pursue alliances with leading
manufacturers in this space.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced cash flow shortages due to operating losses
primarily attributable to research, development, marketing and other costs
associated with the Company's strategic plan to become an international
manufacturer and supplier of electric propulsion and power management systems
and components. Cash flows from operations have not been sufficient to meet the
Company's obligations as they came due. The Company has therefore had to raise
funds through numerous financial transactions. At least until the Company
reaches breakeven volume in sales and develops and/or acquires the capability
and technology necessary to manufacture and sell its products profitably, it
will need to continue to rely on cash from external financing. The Company
anticipates that it will require additional outside financing for at least the
next twelve months.
During the nine months ended September 30, 2001, the Company spent $2,407,000 in
cash on operating activities to fund the net loss of $1,833,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable increased by $155,000 over the balance as of December 31,
2000, as the Company continued to deliver on contracts with Ford, Ecostar and
the Department of Transportation. Inventory increased by $623,000 from December
31, 2000 for deliveries of power electronics components to Ecostar, EPT and Ford
in the fourth quarter of 2001 and production slated for 2002.
11
Fixed assets increased by $172,000, from December 31, 2000, before depreciation
as the Company continues to purchase computers, production equipment and tooling
as the current and new production programs require.
Prepaid expenses and Other assets increased by $668,000 during 2001 primarily
due to the booking of an asset in relation to the Ford Value Participation
Agreement. The Company determined, utilizing the Black Scholes method, the value
of the initial tranche of the vested warrants under this program to be valued at
$577,000. As additional warrants become vested in the coming years, they will be
valued under the same methodology and book as an asset and into stockholders
equity. Additionally, increase were due to intellectual property expenses being
applied as they relate to several new patents on Enova technology.
Accrued expenses and accounts payable increased by $156,000 over 2000 year end
balances due to increased purchases under contract. The operations of the
Company during the first three quarters of fiscal 2001 were financed primarily
by the funds received on the sales of drive system components as well as cash
reserves provided by prior equity financings. During July 2001, Anthony
Rawlinson invested $500,000 for the exercise of warrants to purchase 8,333,334
shares of common stock.
It is management's intention to continue its debt restructuring, support current
operations through sales of products and technology consulting, as well as seek
additional financing through private placements and other means to increase
research and development. As of November 9, 2001, the Company has no firm
commitments for additional financing.
RESULTS OF OPERATIONS
Net sales for the three months ending September 30, 2001 decreased $261,000 from
the corresponding quarter in 2000, and net sales for the nine months ended
September 30, 2001 increased $666,000 in the first nine months as compared to
the corresponding period of 2000. The decrease from third quarter of 2000 was
due to the book to bill timing differences on drive systems. The increase in
2001 over 2000 is due to additional heavy duty drive system sales, the Ford
contract and completion of the design phase of the Ecostar/Th!nk program.
Development contracts with Ford Motor Company, Ecostar Electric Drive Systems
and the U.S. Government account for almost all of the Company's sales for 2001.
Cost of sales in the quarter ended September 30, 2001 decreased to $638,000
compared to cost of sales of $683,000 for the same three-month period in 2000.
The decrease corresponds to decreased sales over the similar period in 2000. The
gross profit margin decreased due to the nature of the sales in the third
quarter of 2001 which were primarily product sales for Ecostar and heavy-duty
drive systems.
Research and development expense increased in the third quarter of 2001 to
$204,000 as compared with $186,000 in the third quarter of 2000. Enova continued
to develop its 240kW drive system, the Fuel Cell Care Unit and other mobile and
stationary power management applications.
Selling, general and administrative expense increased $45,000 for the three
months ended September 30, 2001 from the previous year's comparable period. The
increase is due to new regulatory requirements and legal fees as well as
increased salaries and new hires during the year.
The Company incurred a net loss from continuing operations of $809,000 in the
third quarter of 2001 compared to a net loss of $501,000 in the third quarter of
2000. In addition to a reduction in higher gross margin sales, the Company
incurred increased professional fees, salaries and R&D expenses which attributed
to this increased net loss.
12
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains forward looking statements concerning our existing and
future products, markets, expenses, revenues, liquidity, performance and cash
needs as well as our plans and strategies. These forward-looking statements
involve risks and uncertainties and are based on current management's
expectations and we are not obligated to update this information. Many factors
could cause actual results and events to differ significantly from the results
anticipated by us and described in these forward looking statements including,
but not limited to, the following risk factors.
Net Operating Losses. The Company has experienced recurring losses from
operations and had an accumulated deficit of $88,698,000 at September 30, 2001.
There is no assurance, however, that any net operating losses will be available
to the Company in the future as an offset against future profits for income tax
purposes.
Continued Losses. For the nine months ended September 30, 2001 and 2000, the
Company had net losses of $1,833,000 and $907,000, respectively, on sales of
$2,577,000 and $1,911,000, respectively.
Nature of Industry. The mobile and stationary power markets including electric
vehicle ("EV") and Hybrid EVs ("HEV") continues to be subject to rapid
technological change. There are many large and small companies, both domestic
and foreign, now in this industry. Most of the major domestic and foreign
automobile manufacturers: (1) have produced electric and hybrid vehicles, and/or
(2) have developed improved electric storage, propulsion and control systems,
and/or (3) are now entering or have entered into production. Various
non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
electric, hybrid-electric and fuel cell powered vehicles depends upon: (a)
future regulation and legislation requiring more use of non-polluting or
low-emission vehicles, (b) the environmental consciousness of customers, and (c)
the ability of electric and hybrid-electric vehicles to successfully compete
with vehicles powered with internal combustion engines on price and performance.
Furthermore, the stationary power market is still in its infancy. A number of
established energy companies are developing new technologies to capture early
market share in this promising field. Cost-effective methods to reduce price per
kilowatt must be established before this market becomes viable.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero or low
emission vehicles is necessary to create a significant market for electric
vehicles. The California Air Resources Board (CARB) has recently confirmed its
mandatory limits for zero emission and low emission vehicles. There can be no
assurance, however, that further legislation will be enacted or that current
legislation or state mandates will not be repealed or amended, or that a
different form of zero emission or low emission vehicle will not be invented,
developed and produced, and achieve greater market acceptance than electric
vehicles. Extensions, modifications or reductions of current federal and state
legislation, mandates and potential tax incentives could adversely affect the
Company's business prospects if implemented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In July 2001, Anthony Rawlinson exercised warrants to purchase 8,333,334 shares
of common stock at $0.06 per share for a total of $500,000. Mr. Rawlinson
represented that he was an accredited investor under the definition set forth by
the Securities and Exchange Commission. The Company relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the
exemption from registration of the sale of such shares.
Item 3. Defaults Upon Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K:
The Company filed no current reports on Form 8-K during the quarter
ended September 30, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2001
ENOVA SYSTEMS, INC.
(Registrant)
/s/ Carl D. Perry
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By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer and Principal
Accounting Officer)
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