U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 000-29069
Enova Holdings, Inc.
(Exact name of small business issuer as specified in its character)
Nevada 33-0803552
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1196 E. Willow Street, Long Beach California 90806
(Address of principal executive offices)
(562) 426-1321
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes X No __.
As of June 30, 2000, Enova Holdings, Inc. had 5,149,712 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes __ No X
1
TABLE OF CONTENTS
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
Report on Form 10-QSB
For the Three Months and Six Months ended
June 30, 2000
Page
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statement of Operations - Three Months And
Six Months Ended June 30, 2000 and 1999 (Unaudited) 4
Consolidated Statement of Cash Flows - Six Months Ended
June 30, 2000 and 1999 (Unaudited) 5
Notes to the Consolidated Financial Statements
(Unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Charges in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to Vote of Security holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2000 1999
(Unaudited)
------------------- -------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 52,841 $ 60,373
Accounts receivable, net 1,200,900 1,177,544
Inventory 707,672 830,783
Other current assets 3,509 16,494
------------------- -------------------
Total Current Assets 1,964,922 2,085,194
------------------- -------------------
PROPERTY AND EQUIPMENT, NET 1,308,390 1,343,883
OTHER ASSETS
Investments 818,750 1,506,250
Intangibles, net 715,713 734,930
Receivable from affiliate 70,256 65,780
------------------- -------------------
Total Other Assets 1,604,719 2,306,960
------------------- -------------------
TOTAL ASSETS $ 4,878,031 $ 5,736,037
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 935,438 $ 1,061,720
Lines of credit 262,000 250,000
Accrued expenses 424,692 520,248
Notes payable, current portion 1,025,534 877,156
Capital lease obligations, current portions 13,819 13,112
------------------- -------------------
Total Current Liabilities 2,661,483 2,722,236
NOTES PAYABLE, NET OF CURRENT PORTION 1,440,732 1,468,828
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 65,559 71,530
------------------- -------------------
TOTAL LIABILITIES 4,167,774 4,262,594
------------------- -------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 25,000,000 shares
authorized, 250 shares issued and outstanding - -
Common stock, $.001 par value, 75,000,000 shares
authorized, 5,149,712 shares issued and outstanding 5,150 5,150
Additional paid-in capital 2,332,862 2,332,862
Accumulated other comprehensive income (256,250) 431,250
Accumulated deficit (1,371,505) (1,295,819)
------------------- -------------------
Total Shareholders' Equity 710,257 1,473,443
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,878,031 5,736,03
=================== ===================
3
See accompanying notes to financial statements
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------- --------------- ----------------- ---------------
NET SALES $ 1,536,552 $2,018,309 $ 3,242,668 $3,907,073
COST OF SALES 933,943 1,343,546 2,038,737 2,421,491
----------------- --------------- ----------------- ---------------
GROSS PROFIT 602,609 674,763 1,203,931 1,485,582
----------------- --------------- ----------------- ---------------
OPERATING EXPENSES
Sales and marketing 51,426 143,327 384,020 343,970
General and administrative 429,829 454,720 717,863 879,222
----------------- --------------- ----------------- ---------------
Total Operating Expenses 481,255 598,047 1,101,883 1,223,192
----------------- --------------- ----------------- ---------------
INCOME (LOSS) FROM OPERATIONS 121,354 76,716 102,048 262,390
OTHER (INCOME) EXPENSES
Other income
(7,335) (39) (7,336) (546)
Interest expense 99,998 27,305 182,670 54,671
----------------- --------------- ----------------- ---------------
Total Other (Income) Expenses 92,663 27,266 175,334 54,125
----------------- --------------- ----------------- ---------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 28,691 49,450 (73,286) 208,265
Income taxes (800) 51,237 2,400 51,237
----------------- --------------- ----------------- ---------------
NET INCOME (LOSS) 29,491 (1,787) (75,686) 157,028
OTHER COMPREHENSIVE INCOME
Unrealized loss on investments (381,250) (687,500)
----------------- --------------- ----------------- ---------------
COMPREHENSIVE INCOME (LOSS) $ (351,759) $ (1,787) $ (763,186) $ 157,028
================= =============== ================= ===============
Net income (loss) per common share -
basic and diluted $ 0.01 $ (0.00) $ (0.01) $ 0.03
================= =============== ================= ===============
Weighted average shares outstanding -
basic and diluted 5,149,712 5,142,936 5,149,712 5,142,936
================= =============== ================= ===============
See accompanying notes to financial statements
4
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (75,686) $ 157,028
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation & amortization 54,709 58,764
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (23,356) (230,800)
(Increase) decrease in inventory 123,111 118,436
(Increase) decrease in other assets 12,987 (9,508)
Increase in accounts payable (126,285) (308,636)
Increase (decrease) in accrued expenses (16,177) 27,366
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (50,697) (187,350)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (11,130)
Advances to affiliate (4,476) (8,166)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,476) (19,296)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from lines of credit 12,000 200,000
Proceeds from notes payable 46,207 --
Payments on notes payable (5,302) (248,123)
Payments on capital lease (5,264) (2,293)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 47,641 (50,416)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,532) (257,062)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 60,373 345,114
--------- ---------
CASH AND CASH EQUIVALENTS, JUNE 30 $ 52,841 $ 88,052
========= =========
See accompanying notes to financial statements
5
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Note 1. Organization
Enova Holdings, Inc.("Enova" or the "Company") is engaged in the
distribution, service, and manufacturing of custom process equipment
packages for the air and gas handling equipment industry. The Company
operates through two operating subsidiaries: Pego Systems, Inc.("Pego")
and Pacific Pneumatics, Inc. ("PPI").
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission
for interim financial information. Accordingly, they do not include all
the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
For further information, refer to the consolidated financial statements
and footnotes of Enova Holdings, Inc. and Subsidiaries included in the
Company's Form 10 - SB/A for the year ended December 31, 1999.
Note 3. Legal Matters
On January 14, 2000, the bank with whom the Company had its line of
credit and a term loan, demanded payment in full of these obligations
in the amount of $924,636, and filed a complaint against the Company
for alleged no-payment of the promissory note and breach of the
security agreement. This amount is recorded as a liability on the
Company's financial statements at June 30, 2000. Management and counsel
have reviewed the complaint and have interposed numerous defenses. The
Company continues to believe that there is no legal basis for the
prosecution of this action.
Note 4. Going Concern
The Company continues to be in violation of certain debt covenants in
connection with certain notes payable to a bank. In addition, the
Company has continuing losses from operations. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional capital or obtain debt financing and
generate income from operations. The financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
6
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Note 4. Going Concern (continued)
Management plans to sell its investment in Hartcourt common stock upon
effectiveness of a registration statement filed by Hartcourt, however,
it is not currently known when this might occur. Management continues
to believe, however, that actions presently being taken to generate
cash and thus pay the bank loans provide the opportunity for the
Company to continue as a going concern.
7
PART 1 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
The accompanying financial statements of Enova for the three months and six
months ended June 30, 2000 include operations of Enova, Pego and PPI. The
accompanying financial statements for the three months and six months ended June
30, 1999 include operations of Pego and PPI.
Comparison of the Three Months and Six Months Ended June 30, 2000 to Three
Months and Six Months Ended June 30, 1999:
Sales: Sales decreased by approximately $481,800 and $644,400 during the three
months and six months ended June 30, 2000 when compared to the same periods in
1999. The decrease in sales resulted primarily due to Enova not able to complete
shipments of major engineering packages due to back-ordered parts.
Cost of Sales. Cost of sales decreased by approximately $409,600 and $382,750
during the three months and six months ended June 30, 2000 when compared to the
same periods in 1999. Cost of Sales as a percentage of sales decreased to
approximately 61% and increased to 62% of sales during the three months and six
months ended June 30, 2000 as compared to approximately 67% and 62% of sales for
the same periods in 1999. The decrease in cost of sales was primarily due to
sale of product mix with higher gross margin during the three months ended June
30, 2000 compared to the sale of product mix during the same periods in 1999.
Sales and marketing: Sales and marketing expenses decreased by approximately
$91,900 and increased by $40,050 during the three months and six months ended
June 30, 2000 when compared to the same periods in 1999. Sales and marketing
expenses as a percentage of sales decreased to approximately 3% of sales and
increased to 12% of sales during the three months and six months ended June 30,
2000 as compared to approximately 7% and 9% of sales for the same periods in
1999. Such decrease was primarily due to Enova reducing advertising and
marketing activities during the three months ended June 30, 2000 as compared to
the same period in 1999. However, sales and marketing expense increased due to
Enova expanding direct sales and increased advertising and marketing expense in
the six months ended June 30, 2000 as compared to the same period in 1999.
General and administrative expenses. General and administrative expenses
decreased by approximately $24,890 and $161,360 during the three months and six
months ended June 30, 2000 when compared to the same periods in 1999. General
and administrative expenses as a percentage of sales increased to approximately
28% and 22% of sales during the six months ended June 30, 2000 when compared to
approximately 23% and 22% of sales for the same periods in 1999. Such decrease
was primarily due to the increased administrative, legal and accounting costs,
and payroll expenses incurred in connection with the organization of Enova
during the three months and six months ended June 30, 1999 compared to the same
periods in 2000.
8
Interest Expense: Interest expense increased by approximately $72,690 and
$128,000 during the three months and six months ended June 30, 2000 when
compared to the same periods in 1999. The increase in interest expense was
primarily due to higher rate of interest charged to Enova on loans outstanding
to the bank and third party during the three and six months ended June 30, 2000
as compared to the same periods in 1999. Liquidity and Capital Resources
At June 30, 2000, Enova had cash and cash equivalents of approximately $52,840
and working capital deficiency of approximately $696,560. The company believes
that its existing working capital deficit together with funds generated from
operations will not be sufficient to provide for its planned operations for the
foreseeable future. Enova regularly examines opportunities for strategic
acquisitions of other companies or lines of businesses and anticipates that it
may from time to time issue additional debt and/or equity securities either as
direct consideration for such acquisitions or raise additional funds to be used,
in whole or part, in payment of acquired securities or assets. The issuance of
such securities could be expected to have a dilutive impact on Enova's
shareholders, and there can be no assurances as to whether or when any acquired
business would contribute positive operating results commensurate with the
associated investment.
9
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have been no changes since the Company's last report in Item 3,
"Legal Proceedings" of Form 10-SB/A for the year ended December 31,
1999.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - None during the quarter.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENOVA HOLDINGS, INC.
Date: August 17, 2000 By: /s/ Dr. Alan V. Phan
-------------------------------
Dr. Alan V. Phan
Chairman of the Board
and President
11