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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports
Pursuant to Sections 13 or 15(d) of the
Securities and Exchange Act of 1934
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 (I.R.S. Employer Identification Number)
incorporation or organization)
19850 South Magellan Drive, Torrance, California 90502
(Address of principal executive offices, including zip code)
(310) 527-2800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark 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 the 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 voting and non-voting stock held by
non-affiliates of the registrant as of March 30, 2001 was $17,724,000. For
purposes of this calculation only, (i) shares of Common Stock and Series A
Preferred Stock are deemed to have a market value of $0.19 per share, and the
Series B Preferred Stock is deemed to have a market value of $0.51 per share,
based on the average of the high bid and low ask prices of the Common Stock on
March 30, 2001, and (ii) each of the executive officers, directors and persons
holding 5% or more of the outstanding Common Stock (including Series A and B
Preferred Stock on an as-converted basis) is deemed to be an affiliate.
The number of shares of Common Stock outstanding as of March 28, 2001 was
235,672,101.
1
ENOVA SYSTEMS, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business ..................................................................................3
Item 2. Properties.................................................................................9
Item 3. Legal Proceedings..........................................................................9
Item 4. Submission of Matters to a Vote of Security Holder.........................................9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter .....................10
Item 6. Selected Financial Data ..................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk ...............................15
Item 8. Financial Statements and Supplementary Data ..............................................15
Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure .........15
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................16
Item 11. Executive Compensation...................................................................18
Item 12. Security Ownership of Certain Beneficial Owners and Management...........................21
Item 13. Certain Relationships and Related Transactions...........................................23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................24
SIGNATURES.........................................................................................26
2
PART I
The matters addressed in this report on Form 10-K, with the exception
of the historical information presented, may contain certain forward-looking
statements involving risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under the heading
"Certain Factors That May Affect Future Results" in the Management's Discussion
and Analysis section and elsewhere in this report.
Item 1. Business
General
In July 2000, the Company changed its name to Enova Systems, Inc. The
Company, previously known as U.S. Electricar, Inc., a California Corporation
(the "Company"), was incorporated on July 30, 1976.
Enova Systems believes it is a leader in the development and production
of commercial digital power management systems. The Company is now producing,
under contract with global vehicle and technology companies, 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. The Company's business activities
continue to be focused 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.
The Company's fiscal year ends December 31. All year references refer
to fiscal years.
In 1998, the Company restructured its top management, realigned its
product base and concentrated on the reduction of overall company operating
costs. Facilities were closed, operations streamlined and new product lines were
developed. At December 31, 2000, the Company had increased its headcount from 33
in 1999 to 35 employees and four independent contractors.
During 1999, the Company continued to concentrate on the reduction of
operating costs and outstanding debt. The Company's business activities focused
on the development of electric and hybrid electric drive trains and related
components, fuel cell systems, vehicle systems integration and the performance
of various engineering contracts. The Company completed several key contracts
with the U.S. Government's Defense Advanced Research Project Agency or DARPA and
the Department of Transportation or DOT, including the analysis of a new plastic
lithium ion vehicle battery concept, testing of advanced vehicle batteries and
development of an airport electric passenger tram system. The Company has
enhanced its relationship with Hyundai Motor Company of Korea or HMC, the
world's seventh largest automobile manufacturer, with several engineering
contracts to design, develop and test electric and hybrid electric drive systems
and related products. The Company completed development of an advanced charging
unit and a parallel hybrid production vehicle, and continues to produce the
family of PantherTM drive systemS for their electric vehicles. The Company has
also developed a high power charger for use with its drive systems. HMC has
adapted a customized version of the PantherTM 60 for their production electric
vehicle, the Santa Fe sports utility vehicle.
Beginning in 2000, the Company started working with Ecostar Electric
Drive Systems, a joint venture of Ford, Daimler Chrysler and Ballard Power to
develop and manufacture low voltage electric drive system components for use in
Ford's Global Th!nk City. Ecostar has announced that an all-electric vehicle is
scheduled to be introduced in early 2002 for markets in North America. Enova is
designing and manufacturing the electronics for the drive system as well as
certain auxiliary components. The final prototype systems are currently
undergoing pre-production testing and validation in the Ford Th!nk vehicle.
Enova continues to develop its relationship with Hyundai, Ecostar and other
Original Equipment Manufacturers or OEMs and Tier-One suppliers for sales of its
automotive products. The Company offers its modular drive systems to OEMs and
other customers. These drive systems have been installed in various vehicles
operating in North America, Europe and Asia.
3
Enova's marketing strategy to penetrate global alternative markets for
its drive system and its power management and conversion systems continues to
add new customers. Through these efforts, the Company has successfully
demonstrated a drive system powered by a fuel cell with Hyundai Motor Company
and International Fuel Cells or IFC, a subsidiary of United Technologies at the
California Fuel Cell Partnership in Sacramento, California on November 1, 2000.
The Company is pursuing, with fuel cell manufacturers, the development of power
management systems for stationary power fuel cell applications. It is the
Company's belief that utilizing its power management systems for stationary
applications for fuel cells will open new markets for Enova. The Company has
begun to deliver its Fuel Cell Care Unit (FCU) which monitors and reports on the
fuel cell to IFC for stationary applications and ISE Research for mobile hybrid
fuel cell applications. Additionally, the Company is working with Avestor of
Canada, a subsidiary of HydroQuebec. Avestor develops Lithium Metal Polymer
battery technology for telecommunications and vehicle applications. Enova has
integrated Avestor's Lithium Metal Polymer batteries into a Ford Th!nk vehicle
at EVS-17, a major industry trade show held in October, 2000. Enova believes
that its battery management systems will be valuable in assisting the
commercialization of automotive uses for the Lithium Metal Polymer batteries.
For marketing Enova's larger drive systems, the Company has entered
into a marketing and development agreement with Gillig Bus, one of the leading
transit bus manufacturers in the U.S., to develop and manufacture a series
hybrid electric transit bus utilizing the Company's 240kW hybrid drive system.
The Company anticipates delivery of the first of these buses to Gillig in late
2001. Additionally, Enova has entered into a development, manufacturing and
marketing agreement with Wrights Environment, a division of Wrights Bus, one of
the largest low-floor bus manufacturers in the United Kingdom, to develop,
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. In January 2001, Enova received an order for a Panther 120kW
hybrid drive system from Wrights which utilizes the Capstone microturbine as its
primary power source.
Enova Systems continues to expand its markets by creating alliances
with other component suppliers. Capstone Turbine has recently teamed with Enova
Systems to jointly develop and market hybrid electric drive systems using
Capstone's microturbine in conjunction with Enova's power management and drive
systems. Enova currently utilizes Capstone's microturbine in its drive systems
for Eco Power Technology (EPT) in Italy, as well as for Wright's bus in the
United Kingdom.
The Company's engineering contracts with DARPA and the DOT, continue to
progress on schedule. These programs include the development of an airport
electric passenger tram system for the Honolulu Airport and an EV
commercialization program for the State of Hawaii. The Company's contract with
the U.S. Department of Transportation to design and test this tram system
utilizes the Panther 120kW drive system. The tram is being developed in
conjunction with APS, an electric bus manufacturer in Oxnard, California. This
tram, capable of carrying 100 passengers, is anticipated to be delivered in the
second quarter of 2001 to the Honolulu, Hawaii Airport for 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. Another Enova/DOT program, the Hawaii/Hyundai
commercialization program, which Enova established, has been enhanced to include
the testing of 15 Hyundai Santa Fe electric vehicles in Honolulu, Hawaii prior
to their entry into the U.S. markets. Enova has also begun work on a electric
trolley for the Hawaii market in conjunction with the DOT and Enoa, a
manufacturer and operator of stand-alone trolleys in Hawaii. Enova's Hawaii
operations in Honolulu are both a development and maintenance installation for
various DARPA/DOT programs. The facility also maintains the electric vehicle
fleets for different state and local government agencies as well as private
institutions.
The Company continues to further its relationship with Hyundai Motor
Company of Korea, or HMC, the world's seventh largest automobile manufacturer,
with engineering contracts to design, develop and test electric and hybrid
electric drive systems and related products. Enova has completed its development
work on Hyundai's parallel hybrid production vehicle and a series hybrid
electric drive system. These hybrid systems are slated to be integrated into
HMC's new Santa Fe sport utility vehicle. HMC has adapted a customized version
of the PantherTM 60 for their production electric vehicle and intends to utilize
Enova's hybrid drive system and battery management for their next generation
alternative fuel vehicles. The Company has also developed a high power fast
charger for use with its drive systems in conjunction with HMC.
4
The Company views stationary power applications of its power management
systems as an important new strategy for product development. In the stationary
power management field, Enova is developing applications for its products in the
telecommunications and distributed generation markets. Enova believes its
approach of providing the enabling technology in power management and conversion
to power generation companies is key to early access to these markets. The
Company's joint marketing and development efforts with Capstone Turbine, Avestor
and IFC have the potential to assist Enova in penetrating these markets. As
discussed earlier, Enova is now producing and selling an advanced version of its
BCU-II (Battery Care Unit) and FCU (Fuelcell Care Unit) for use with fuel cells
in both stationary and mobile systems, starting with IFC and ISE Research.
Enova continues to seek new investment capital to fund research and
development and create new market opportunities. The Company received capital
investments of $1,000,000 each from Perla Blanca Investments and Kafig Pty, Ltd
for the purchase of 3,333,333 shares of common stock each during the twelve
months ended December 31, 2000. In early 2001, the Company retained Merrill
Lynch as its investment advisor to pursue equity financing options and other
strategic alternatives. The Company intends to vigorously pursue obtaining
additional equity capital in order to fund new product development and enhance
its NASDAQ listing to the National NASDAQ Market.
Debt Restructuring
The Company's debt restructuring was substantially completed in 2000.
Overall, the Company has reduced outstanding indebtedness and liabilities by
approximately $9,600,000 since it began its restructuring program in 1999. In
March 1999, the Company's Chief Executive Office and President purchased all of
the Company's outstanding debt due to Itochu Corporation, which was $4,300,000
plus accrued interest. The remaining balance of $1,300,000 plus accrued interest
owed as of January 1, 2000 was forgiven during 2000. As of December 31, 2000,
Mr. Perry has forgiven $4,300,000 in principal and $1,510,506 in accrued
interest. The Company has also been reducing its outstanding past due accounts
payable. As of December 31, 2000, the Company has reduced its antecedent
accounts payable to $214,000, from $1,832,000 as of December 31, 1999.
Environmental Initiatives and Legislation
Federal legislation was enacted to promote the use of alternative fuel
vehicles, including electric vehicles. Several states have also adopted
legislation that sets deadlines for the introduction of zero emission vehicles
("ZEV"). The State of California delayed the mandated introduction of ZEVs from
1998 to 2003 and established a required percentage of ZEV and new
hybrid-electric vehicles for 2003 at 10% of total new vehicle sales in
California from the six major automobile manufacturers. The State of California
estimates that a combination of approximately 100,000 electric and hybrid
electric vehicles will be required to meet the State's 2003 mandate. The
California Air Resources Board recently confirmed their commitment to these
percentages, adding that hybrid-electric vehicles may offset a portion of the
required percentage. Enova Systems has taken an aggressive position in
diversifying its product base to include various hybrid-electric platforms in
its product mix. The U.S. Department of Energy also modified their rules
governing how state fleets and utility fleets must comply with the Energy Policy
Act of 1992 on alternative fuel transportation programs.
Products
The Company continues to develop new products and it enhanced and
expanded its product line during 2000. The Company's product base is being
expanded from focusing primarily on electric and hybrid-electric propulsion
systems to include other various stationary and mobile applications of its power
management and power conversion technologies.
The Company is moving to expand its product base into new markets
outside of the traditional electric and hybrid-electric automotive fields. Key
areas which Enova has begun to penetrate include energy management in the
telecommunications industry, distributed generation in the utility industry, and
stand-by/backup power generation in the commercial electronics industry. All
three of these markets can be served with our existing energy management and
power control products. Enova has entered into agreements or begun discussions
with various alternative power generation manufacturers such as Capstone Turbine
and International Fuel Cells, as well as others. Enova believes its enabling
technologies will prove beneficial to these types of companies in their
strategies to bring these new power systems to commercialization.
5
Enova has embraced fuel cell technology and has begun to develop
various power management and control systems to enable fuel cell manufacturers
and their ancillary industries to achieve greater efficiencies from their
systems. These systems will also provide added reliability and safety by
monitoring, adjusting and reporting on operation of the unit.
Strategic Alliances, Partnering And Technology Developments
The Company continues to adapt itself to the ever-changing environment
of alternative power markets for both stationary and mobile applications.
Originally focusing on pure electric drive systems, the Company is now
positioned as a global supplier of drive systems for electric, hybrid and fuel
cell applications. Enova is now entering stationary power markets with its power
management systems and intends to develop other systems to monitor and control
the complex fuel cell and ancillary device systems being developed for
distributed generation and mobile applications.
The Company continues to seek and establish alliances with major
players in the automotive, stationary power and telecommunication fields. For
instance, the Hyundai Group of Korea and the Company are partnering in the
development of advanced drive-train technology and related systems.
Additionally, Enova has begun to partner with Ecostar on other automotive
programs and is looking to further develop this relationship. The Company has
continued its efforts to implement a strategy to be a "systems integrator" by
seeking to establish relationships to utilize other independently developed
technology such as Avestor and International Fuel Cells. The Company believes
that its competitive advantage may be its ability to identify, attract and
integrate the latest technology available to produce state of the art products
at competitive prices.
Electric Drive System
Enova's electric drive system, designated by the Company as PantherTM
systems, is designed to provide all the functionality one would find under the
hood of an internal combustion engine powered vehicle. The Panther system
consists of an enhanced electric motor and the electronic controls that regulate
the flow of electricity to and from the batteries at various voltages and power
to propel the vehicle. In addition to the motor and controller, the system
includes a gear reduction/differential unit. The system is designed to be
installed in a "drop in," fully integrated turnkey fashion, or on a modular,
"as-needed" basis.
Enova's Panther family of electric drive systems includes 30kW, 60kW,
90kW and 120kW propulsion systems which are applicable to small, medium and
large size cars, trucks and buses. This year, the Company will introduce the
240kW system which can power large transit buses and heavy-duty specialty
trucks.
The Panther drive system exclusively utilizes induction AC motors for
their high performance, power density, robustness and low cost. The AC drive
system is scaleable and can be customized for different applications. Due to the
large operating range that the propulsion systems offer, all parameters can be
optimized; the user will not have to choose between acceleration, torque or
vehicle speed.
Hybrid Vehicles
The Enova Panther hybrid drive family currently includes the 120/60kW
series hybrid system, and a 10kW parallel hybrid system. A 240/120kW series
hybrid system and a 240/120kW parallel hybrid system will be introduced this
year.
Each of these systems is based on the component building blocks of the
electric drive family, including the motor, controller and optional components.
As an example, the 120/60 kW series hybrid system uses the 120kW electric drive
components to propel the vehicle, and uses the 60kW electric drive components
coupled to an internal combustion engine to generate power while the vehicle is
in operation. This synergy of design reduces the development cost of the
Company's hybrid systems by taking advantage of existing designs. Accessories
for these drives include battery management, chargers and 12-volt power
supplies, as for the electric drive family.
6
The Company's hybrid systems are designed to work with a variety of
hybrid power generation technologies. In the Company's 120/60kW hybrid system,
the power generation is performed by an internal combustion engine connected to
a motor and motor controller. Other power options include micro turbines, such
as the Capstone system, and fuel cells, such as the IFC system. In each of these
examples, Enova's battery management system provides the power management to
allow for proper power control.
Power Management and Charging System
The Company places a great amount of focus on its power management
systems. Enova's Battery Care Unit (BCU) monitors, manages, protects, and
reports. It controls and manages battery performance, temperature, voltage and
current to avoid harm to the batteries, to the entire system, and to the driver,
operator and passengers. It also allows for monitoring for service to the
battery and drive system. This battery management system is capable of providing
communication to both inductive and conductive chargers simultaneously and
managing the on-board and off-board charging systems with multiple technologies.
The versatility of this system allows Enova to adapt the hardware and software
for a variety of power sources such as batteries, turbines and fuel cells.
Enova has added a Fuel Cell Control Unit (FCU) to broaden its market in
the power management field. The FCU is designed to manage fuel cell powered
systems whether stationary or mobile such as automobiles. The FCU can be adapted
to regulate the input and output to and from the fuel cell as well as regulate
temperature and communications. Enova continues to develop its current systems
for new products and markets.
Components
The Company is offering the modular drive system and components to OEMs
and other customers. The PantherTM 60, PantherTM 90 and PantherTM 120 drive
systems have been installed in various vehicles and are under evaluation by
customers and potential customers. HMC has adapted a customized version of the
PantherTM 60 for its production electric vehicle and has utilized Enova
components in a variety of its systems. The Company offers an air
conditioning/heat pump, an electro-hydraulic power steering unit and a safety
disconnect unit for utilization by OEMs.
Distributed Power Generation for Industrial / Commercial / Residential
Applications
Enova's distributed generation products are virtually identical in
system configuration to that of a series hybrid vehicle, including a controller
and battery management. For this market segment, Enova will provide DC-DC and
DC-AC power conversion components to convert power supplied by batteries, fuel
cells, generators and turbines to AC power that will be used by the end
customer. Additionally, the Company's Battery Care Unit will provide power
management functions to control the entire system. The main difference is that
the 3-phase AC power typically supplied to the motor for propulsion power is, in
this case, sent to the customer to supply power for their household or business.
Back-Up Power for Telecommunications
As in the distributed generation market, telecommunications products
are virtually identical in system configuration to a series hybrid vehicle,
including a controller and battery management unit. For this market segment
Enova will provide DC-DC and DC-AC power conversion components to convert power
supplied by batteries, fuel cells, generators, and turbines to AC power that
will be used by the communications link. The Battery Care Unit will provide
power management functions to control the entire system. When the grid goes
down, the AC power typically supplied to the motor for propulsion power is, in
this case, sent to the communications link (or router) to supply power as a
backup.
7
Competitive Conditions
The competition to develop and market electric, hybrid and fuel cell
powered vehicles has increased during the last year and the Company expects this
trend to continue. The competition consists of development stage companies as
well as major U.S. and international companies. The Company's future prospects
will be highly dependent upon the successful development and introduction of new
products that are responsive to market needs and can be manufactured and sold at
a profit. There can be no assurance that the Company will be able to
successfully develop or market any such products.
The development of hybrid-electric and alternative fuel vehicles, such
as compressed natural gas, fuel cells and hybrid cars poses a competitive threat
to the Company in markets for low emission vehicles or LEVs but not in markets
where government mandates call for zero emission vehicles or ZEVs. The Company
is involved in the development of hybrid vehicles and fuel cell systems in order
to meet future requirements and applications.
Various providers of electric vehicles have proposed products or offer
products for sale in this emerging market. These products encompass a wide
variety of technologies aimed at both consumer and commercial markets. The
critical role of technology in this market is demonstrated through several
product offerings. As the industry matures, key technologies and capabilities
are expected to play critical competitive roles. The Company's goal is to
position itself as a long term competitor in this industry by focusing on
electric, hybrid and fuel cell powered drive systems and related sub systems,
component integration, technology application and strategic alliances. The
addition of new strategies to penetrate stationary power markets with current
technologies will assist in creating a more diversified product mix. The Company
believes that this strategy will enhance the Company's position as a power
management and conversion components supplier to both the mobile and stationary
power markets.
Research and Development
The Company believes that timely development and introduction of new
technology and products is essential to maintaining a competitive advantage. The
Company is currently focusing its development efforts primarily in the following
areas:
*Power Control and Drive Systems and related technologies for vehicle
applications;
*Stationary Power Management and Conversion and related technologies;
*Heavy Duty Drive System development for Shuttle and Transit Buses;
*Systems Integration of these technologies;
*Technical and product development under DARPA/DOT and Hyundai Group
Contracts; and
*OEM Technical and Product development.
For the year ended December 31, 2000 and the five months ended December
31, 1999, the Company spent $626,000 and $262,000, respectively, on internal
research and development activities. For the fiscal years ended July 31, 1999,
1998 and 1997, the Company spent $499,000, $445,000 and $1,218,000,
respectively, on internal research and development activities. The Company is
continually evaluating and updating the technology and equipment used in
developing each of its products. The power management and conversion industry
utilizes rapidly changing technology and the Company will endeavor to modernize
its current products as well as continue to develop new leading edge
technologies to maintain its competitive edge in the market.
Intellectual Property
The Company currently holds one patent, which was originally issued in
1997, and has submitted applications for three additional patents and several
trademarks or service marks in the United States. Currently, the Company is
reviewing and appending its protection of proprietary technology. The status of
patents involves complex legal and factual questions, and the breadth of claims
allowed is uncertain. Accordingly, there can be no assurance that patent
applications filed by the Company will result in patents being issued. Moreover,
there can be no assurance that third parties will not assert claims against the
Company with respect to existing and future products. Although the Company
intends to vigorously protect its rights, there can be no assurance that these
measures will be successful. In the event of litigation to determine the
validity of any third party claims such litigation could result in significant
expense to the Company. Additionally, the laws of certain countries in which the
Company's products are or may be developed,
8
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
Employees
As of December 31, 2000, the Company had 35 employees, of whom 32 are
full-time and 3 are part-time. Four individuals are independent contractors,
employed on an hourly basis, one domiciled in South Korea. The departmental
breakdown of these individuals include 3 in administration, 1 in sales, 27 in
engineering and research and development, and 8 in production.
Item 2. Properties
The Company's corporate offices are located in Torrance, California, in
leased office space of approximately 20,000 square feet. This facility houses
the Company's various departments, including engineering, operations, executive,
finance, planning, purchasing, investor relations and human resources. This
lease terminates in February, 2003. The monthly lease expense is $13,500.
Item 3. Legal Proceedings
In June 2000, a lawsuit, Fontal International, Ltd. versus Enova
Systems, Inc., a California Corporation, was filed in the United States District
Court, Central District of California. The suit alleges breach of contract with
respect to certain warrants to purchase 10,833,332 shares of Enova System's
common stock. (1) The suit seeks to have Enova Systems issue 10,000,000 shares
of common stock for release of said warrants or to have Enova Systems declare
that the exercise period for said warrants is extended for five years from the
date of delivery. The suit also seeks unspecified monetary damages. The Company
maintains that these warrants have expired and therefore the plaintiff has no
claim to them.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2000.
(1) In May, 1996, the Company issued warrants to Fontal in exchange
for services performed. The warrants were exercisable at $0.30 per
share in cash, or could be exercised without the payment of cash
if the average market value of the Company's common stock for the
20 consecutive trading days preceding the exercise date was equal
to or greater than $0.60 per share, and the average trading volume
was in excess of 100,000 share per day for the same preceding 20
trading day period. The warrants expired, by their original terms,
on May 1, 1997. The holders of these warrants claim the Company
had agreed to extend the term of these warrants for as much as an
additional five years. The Company believes these claims are
without merit and that the warrants have expired.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is presently traded in the over-the-counter
market and quoted on the National Association of Securities Dealers (NASD)
"Bulletin Board" under the symbol "ENVA." The following table sets forth the
high and low prices of the Common Stock as reported on the NASD Bulletin Board
by the National Quote Bureau for the fiscal quarters indicated. The following
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not necessarily represent actual
transactions.
Common Stock Average Daily
High Price Low Price Volume
------------------------ ----------
Fiscal 1999
First Quarter .................. $ 0.048 $ 0.020 72,223
Second Quarter ................. $ 0.031 $ 0.029 134,535
Third Quarter .................. $ 0.031 $ 0.029 58,224
Fourth Quarter ................. $ 0.190 $ 0.031 427,624
Common Stock Average Daily
High Price Low Price Volume
------------------------ ----------
Calendar 1999
First Quarter .................. $ 0.031 $ 0.029 62,842
Second Quarter ................. $ 0.130 $ 0.029 338,623
Third Quarter .................. $ 0.125 $ 0.075 263,886
Fourth Quarter ................. $ 0.812 $ 0.120 814,770
Common Stock Average Daily
High Price Low Price Volume
------------------------ ----------
Calendar 2000
First Quarter .................. $ 0.766 $ 0.313 1,337,885
Second Quarter ................. $ 0.469 $ 0.234 476,538
Third Quarter .................. $ 0.438 $ 0.203 476,523
Fourth Quarter ................. $ 0.422 $ 0.156 332,731
On March 28, 2001, the last reported high bid price of the Common Stock
was $0.20 and the last reported low asking price was $0.18. As of March 28,
2001, there were approximately 9,291 holders of record of our Common Stock. As
of March 28, 2001, the Company's Series A Preferred Stock was held by
approximately 117 shareholders, many of who are also Common Stock shareholders.
The Company's Series B Preferred Stock was held by approximately 33 shareholders
as of March 28, 2001. The number of holders of record excludes beneficial
holders whose shares are held in the name of nominees or trustees.
Dividend Policy
To date, the Company has neither declared nor paid any cash dividends
on shares of its Common Stock or Series A or B Preferred Stock. The Company
presently intends to retain all future earnings for its business and does not
anticipate paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. The Company is required to pay dividends on its
Series A and B Preferred Stock before dividends may be paid on any shares of
Common Stock. At December 31, 2000, the Company had an accumulated deficit of
approximately $86,865,000 and, until this deficit is eliminated, will be
prohibited from paying dividends on any class of stock except out of net
profits, unless it meets certain asset and other tests under Section 500 et.
seq. of the California Corporations Code.
10
Item 6. Selected Financial Data
The following tables set forth selected consolidated financial
data for the year ended December 31, 2000, the five month period ended December
31, 1999 and each of the four years ended July 31, 1999. The five-month period
is related to a change in the fiscal year end which was effective December 31,
1999. The statement of income data and balance sheet data for and as of the end
of the year ended December 31, 2000, the five month period ended December 31,
1999 and the four years ended July 31, 1999 are derived from the audited
Financial Statements of the Company. The following selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements,
including the notes thereto, appearing elsewhere in this 10K.
As of and for the year ended December 31, Five Months Fiscal Years ending
(in thousands, except per share data) ended Dec 31 July 31,
2000 1999 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
NET SALES $ 2,883 $ 629 $ 2,774 $ 1,938 $ 4,484 $ 4,209
COST OF SALES 2,013 377 1,460 2,765 2,042 5,370
--------- --------- --------- --------- --------- ---------
GROSS MARGIN 870 252 1,314 (827) 2,442 (1,161)
--------- --------- --------- --------- --------- ---------
OTHER COSTS AND EXPENSES
Research and Development 626 262 499 445 1,218 1,401
Selling, general and administrative 1,999 796 1,141 1,697 3,116 5,608
Interest and financing fees 174 244 724 665 792 1,890
Other expense (income) 81 125 (41) (67) 274 740
Acquisition of research and 1,630
development
Gain on Warranty Reevaluations (474)
Consolidation of Operations
701
--------- --------- --------- --------- --------- ---------
Total other costs and expenses 2,880 1,427 1,849 2,740 7,030 10,340
--------- --------- --------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS (2,010) (1,175) (535) (3,567) (4,588) (11,501)
GAIN ON DEBT RESTRUCTURING 1,551 214 140 42 53 2,147
--------- --------- --------- --------- --------- ---------
NET LOSS $ (459) $ (961) $ (395) $ (3,525) $ (4,535) $ (9,354)
========= ========= ========= ========= ========= =========
PER COMMON SHARE:
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03) $ (0.17)
Gain on debt restructuring $ 0.03
--------- --------- --------- --------- --------- ---------
Net loss per common share $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03) $ (0.14)
========= ========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 235,199 251,994 152,077 151,265 133,806 67,906
========= ========= ========= ========= ========= =========
Total Assets $ 3,094 $ 2,697 $ 3,940 $ 1,658 $ 4,513 $ 4,363
========= ========= ========= ========= ========= =========
Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,639 $ 3,987
========= ========= ========= ========= ========= =========
Shareholders' equity (deficit) $ (1,648) $ (5,015) $ (7,316) $ (12,615) $ (9,095) $ (12,736)
========= ========= ========= ========= ========= =========
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read this Management's Discussion and Analysis of Financial
Condition and Results of Operations in conjunction with our 2000 Financial
Statements and Notes thereto. 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 those set forth under the
heading "Certain Factors That May Affect Future Results" and elsewhere in this
report.
OVERVIEW
Enova Systems develops and produces advanced software, firmware and
hardware for applications in the growing alternative power industry. The
Company's focus is digital power conversion, power management, and system
integration, for two broad market applications - vehicle power generation and
stationary power generation.
Specifically, the Company develops, designs and produces drive systems
and related components for electric, hybrid-electric, fuel cell and
microturbine-powered vehicles. The Company also develops, designs and produces
power management and power conversion components for stationary power generation
- - both on-site distributed power and on-site telecommunications back-up power
applications. These stationary applications also employ fuel cells,
microturbines and advanced batteries for power storage and generation.
Additionally, Enova performs significant research and development to augment and
support the Company's and others' related product development efforts.
Enova's products and systems are the enabling technologies for power
systems. Without them, power cannot be converted into the appropriate form
required by the vehicle or device; and without them, power is not properly
managed to protect the battery, vehicle or device, and user.
The Company's product development strategy is to design and introduce
to market successively advanced products, each based on Enova's core technical
competencies. In each of the Company's product / market segments, Enova provides
products and services to leverage its core competencies in digital power
management, power conversion and system integration. The Company believes that
the underlying technical requirements shared among the market segments will
allow the Company to more quickly transition from one emerging market to the
next, with the goal of capturing early market share.
The financial statements present the financial condition of Enova
Systems, Inc. (the "Company") as of December 31, 2000 and 1999, the results of
operations and cash flows of the Company for the year ended December 31, 2000,
the five month period ended December 31, 1999 and the three preceding fiscal
years ended July 31, 1999, 1998 and 1997. All references to the 1999 fiscal year
denote the twelve months ended July 31, 1999.
During 2000, the Company continued to concentrate on the reduction of
outstanding liabilities and developing market share and product development for
commercial sale. The Company's business activities are now focused primarily on
the development of electric and hybrid electric drive trains and related
components, vehicle systems integration, stationary power management and control
systems and the performance of various engineering contracts.
The operations of the Company during the year ended December 31, 2000
were financed primarily by the funds received on engineering contracts and sales
of drive system components, as well as an additional equity infusion of
$1,000,000 each from Perla Blanca Investments and Kafig Pty, Ltd for the
purchase of 3,333,333 shares of common stock each, as previously reported.
The Company has restructured a significant portion of its prior
liabilities and debt and intends to further reduce these accounts. 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 March 26, 2001, the Company has no firm
commitments for additional financing.
12
As of December 31, 2000, the Company has reduced its antecedent
accounts payable to $214,000 from $1,832,000 as of December 31, 1999. The
Company has recaptured a majority of those trade payables which have had no
activity for over four years and have now become uncollectible pursuant to state
statute of limitations which limits the recovery period of unsecured creditors
to a time not to exceed four years. The Company shall continue to pursue a
strategy of negotiating settlements for the remaining outstanding payables.
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 several financial transactions. At least until the Company reaches
breakeven volume in sales and develops and/or acquires the capability 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 two years.
During the year ended December 31, 2000, the Company's operations
required $2,358,000 more in cash then were generated. The Company continues to
increase research and development costs, as well as increased sales and
marketing and administrative expenses necessary for expansion. Accounts
receivable increased by $432,000 from $572,000 as the Company continued to
expand its product and customer base and increased sales. Customer Deposits
decreased by $102,000 from $102,000 as the Company applied an advance payment
from one of its customers for engineering services performed. Inventory
increased by $151,000 from $256,000. The increase was due to the Company
purchasing raw materials for current development and production contract.
THE FUTURE UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD
FORCE THE COMPANY TO DELAY, MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS
PLANNED OPERATIONS, AND/OR SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL
BANKRUPTCY AND INSOLVENCY LAWS.
RESULTS OF OPERATIONS
The Company changed its fiscal year end from July 31 to December 31
effective December 31, 1999. Because the Company does not experience seasonal
fluctuations in its revenues and expenses, all comparisons of year-to-year
financial data are for the twelve months ended December 31, 2000 and the twelve
months ended July 31, 1999. Net sales of $2,883,000 for the twelve months ended
December 31, 2000 increased $109,000 or 4% from $2,774,000 during the same
period in 1999. Of the Company's total sales for the year ended December 31,
2000, $2,662,900, or 92% were revenues realized on engineering contracts with
Ecostar, the DOT, the Hyundai Group of Korea and other customers.
Cost of sales of $2,013,000 for the year ended December 31, 2000
reflect an increase of $553,000, or 37%, from $1,460,000 during the same period
ending July 31, 1999. During the fiscal year ended July 31, 1999, the Company
sold a technology license to Hyundai Heavy Industries which did not have
associated costs of sales which accounted for the lesser amount in 1999.
Cost of sales as a percentage of sales increased to 70% in fiscal 2000
from 53% in fiscal 1999. As stated, sales revenue for fiscal 1999 included a
sale of a technology license of $600,000. Excluding the sale of the technology
license, cost of sales for fiscal 1999 was 67% of sales.
Research and development expense increased in the year ended December
31, 2000 to $626,000 from $499,000 in the year ended July 31, 1999. Product
development costs incurred in the performance of engineering development
contracts are charged to cost of sales for this contract revenue. Non-funded
development costs are reported as research and development expense. Research and
development expense increased in 2000 to $626,000 from $499,000 in fiscal 1999,
an increase of $127,000, or 25%. The Company continues to expend funds for
research and development of new technologies to enhance existing products as
well as develop new products in the areas of mobile and stationary power
management and conversion.
13
Selling, general and administrative expense increased in the year ended
December 31, 2000 to $1,999,000 from $1,141,000 for the similar period in 1999.
The increase was due to increased sales, marketing, legal and travel expenses in
relation to acquiring new business and creating alliances with several key
manufacturers during 2000, including Gillig Bus, Capstone Turbine, Wright Bus of
Ireland and EPT of Italy. The Company intends to continue to increase its
presence in the automotive and stationary power markets. Selling, general and
administrative expense was $1,141,000 in fiscal 1999, which declined by
$1,697,000, or 33%, from fiscal 1998, as the Company reduced spending and
consolidated operations. During 1999 and 2000, the Company began to increase its
operations as it began to move from a pure research and development company to a
more diversified development and production business.
For the year ended December 31, 2000, interest and financing fees
decreased by $550,000 to $174,000, a decrease of 76%. The reduction was due to
continued restructuring of the Company long-term debt by forgiveness or
conversion into equity. In fiscal 1999, interest and financing fees increased to
$724,000 from $665,000 in 1998, an increase of 9%, due mainly to default
interest rates becoming effective on certain notes payable. The forgiveness of
$4,300,000 of debt, formerly the Itochu debt, and the conversion of $1,000,000
of Fontal debt, reduced interest expense significantly during 2000.
During the year ended December 31, 2000, several unsecured creditors
agreed to settle their trade debt claims for amounts less than the original debt
owed to them. Additionally, other trade debt, which has had no activity for over
four years and has now become uncollectible pursuant to state statute of
limitations, was recaptured. The reductions from the original amounts owed and
the settlement amounts resulted in a gain on debt restructuring of $1,551,000
during the year ended December 31, 2000. Additional settlements resulted in a
gain on debt restructuring of $140,000 in fiscal 1999 and $42,000 in 1998.
As a result of the foregoing changes in net sales, cost of sales, other
costs and expenses and gain on debt restructuring, the net loss of $459,000
increased 16% from the $395,000 loss during the similar period in 1999. As noted
previously, the increase in net loss is attributed primarily to the Company's
efforts to establish itself as a key player in the mobile power conversion and
management markets and to develop new systems for the stationary markets. The
Company shall continue to increase engineering, production, and support
personnel as it deems necessary to meet its current and prospective customer
needs. The net loss for fiscal 1999 of $395,000 decreased $3,130,000 or 89% from
the $3,525,000 loss in 1998. These results reflect the Company's successful
shift from an electric vehicle conversion business to a mobile and stationary
power electronics components developer and producer.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137
and 138, establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments, as well as other hedging
activities. The Company is required to implement SFAS No. 133 as of the
beginning of fiscal year 2001. SFAS No. 133 will not have a material impact on
the Company's financial position, results of operations or cash flows.
The SEC issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company's implementation of SAB 101 in 2000 had no impact on its financial
position, results of operations or cash flows for the year ending December 31,
2000.
FASB Interpretation No. 44 (FIN 44), "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion No.
25," was issued in March, 2000. FIN 44 clarifies the application of Accounting
Principles Board Opinion (APB) No. 25 for certain stock-based compensation
issues. FIN 44 clarifies the definition of employee for purposes of applying APB
No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequences of various modifications to
the terms of a previously fixed option or award, and the accounting for an
exchange of share compensation awards in a business combination, among others.
FIN 44 was effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occurred after either December 15,
1998 or January 12, 2000. The implementation of FIN 44 did not have a
significant impact on the Company's financial position or results of operations.
14
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-K 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 $86,865,000 at December 31, 2000.
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 year ended December 31, 2000 and July 31, 1999, the
Company had substantial net losses of $459,000 and $395,000 respectively on
sales of $2,883,000 and $2,774,000, respectively.
Nature of Industry. The electric vehicle ("EV") and Hybrid EV ("HEV") industry
continues to be subject to rapid technological change. There are many large and
small companies, both domestic and foreign, now in or entering 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 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.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, as well as legislation enacted or pending 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. In January 2001, the California Air Resources Board (CARB) 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 7A. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
15
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
Directors and executive officers of the Company:
=========================== ====== ===========================================
Name Age Position
- --------------------------- ------ -------------------------------------------
Anthony N. Rawlinson 46 Chairman of the Board
- --------------------------- ------ -------------------------------------------
Carl D. Perry 68 Chief Executive Officer, President, CFO,
Secretary and Director
- --------------------------- ------ -------------------------------------------
Edwin O. Riddell (1) 59 Director
- --------------------------- ------ -------------------------------------------
Dr. Malcolm Currie (1) 71 Director
- --------------------------- ------ -------------------------------------------
John J. Micek, III (2) 48 Director
- --------------------------- ------ -------------------------------------------
Donald H. Dreyer (2) 64 Director
- --------------------------- ------ -------------------------------------------
James M. Strock 45 Director
=========================== ====== ===========================================
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Anthony N. Rawlinson, Chairman of the Board
Mr. Rawlinson was appointed Chairman of the Board in July, 1999. He is Managing
Director of The Global Value Investment Portfolio Management Pte. Ltd., a
Singapore-based international fund management company managing discretionary
equity portfolios for institutions, pension funds and clients globally. Mr.
Rawlinson is also Chairman of Matrix Oil NL., an Australian listed public
company with Indonesian oil and gas interests, and a director of Cardsoft Inc.,
a supplier of software that is an open platform operating environment for small
computing devices.
Carl D. Perry, Director, Chief Executive Officer, President
Mr. Perry was elected Chairman, Chief Executive Officer, Acting Chief Financial
Officer and Secretary of the Company in November, 1997. Mr. Perry served as a
Director and as an Executive Vice President of the Company from 1993 until 1997.
In 1997, Mr. Perry was elected as Chairman of the Board and Chief Executive
Officer of the Company, and was elected President in June, 1999. In July, 1999,
Mr. Perry resigned his position as Chairman of the Board to allow Mr. Anthony
Rawlinson to become Chairman. Previously, he was Executive Vice President of
Canadair Ltd., Canada's largest aerospace corporation responsible for all
worldwide joint ventures, strategic planning and global operations. He was also
Executive Vice President of Howard Hughes Helicopter Company, now known as
Boeing Helicopter Company, where he was responsible for all general management
and worldwide operations. Mr. Perry has a B.S. in Political Science from the
University of California at Los Angeles.
Malcolm R. Currie, Ph.D., Director
Dr. Currie was re-elected to the Board of Directors in 1999. Dr. Currie had
served as a Director of the Company from 1995 through 1997. Since 1994, he has
served as Chairman of Currie Technologies., a developer of electric
transportation . From 1986 until 1992, Dr. Currie served as Chairman and Chief
Executive Officer of Hughes Aircraft Co., and from 1985 until 1988, he was the
Chief Executive Officer of Delco Electronics. His career in electronics and
management has included research with many patents and papers in microwave and
millimeter wave electronics, laser, space systems, and related fields. He has
led major programs in radar, commercial satellites, communication systems, and
defense electronics. He served as Undersecretary of Defense for Research and
Engineering, the Defense Science Board, and currently serves on the Boards of
Directors of Inamed Corporation , Investment Company of America, and LSI Logic.
He is President of the American Institute of Aeronautics and Astronautics, and
is a Member (former Chairman) of the Board of Trustees of the University of
Southern California.
16
John J. Micek III, Director
Mr. Micek was elected a Director of the Company in 1999. Mr. Micek served as the
Company's Vice President, General Counsel, and Secretary from 1994 to 1997. From
1997 to 1999, Mr. Micek served as Chief Operations Officer of Protozoa, Inc.,
and from 1997 to the present, he has been President of Universal Assurors, Inc.,
and Managing Director of Silicon Prairie Partners, a Venture Fund. From 1987 to
1994, Mr. Micek held several positions with Armanino Foods of Distinction, Inc.,
including General Counsel and Chief Financial Officer, from 1987 to 1988, Vice
President from 1989 to 1994, and Director from 1988 to 1989. Mr. Micek also
served as the President and Director of Catalina Capitol, Inc. until its merger
into Burst.com, Inc. in 1992. Mr. Micek continues to serve as a Director of
Burst. Mr. Micek is also a member of the State Bar of California.
Edwin O. Riddell, Director
Mr. Riddell has been a Director of the Company since 1995. Since 1999, Mr.
Riddell has been President of CR Transportation Services, a consultant to the
electric vehicle industry. From 1992 to 1999, Mr. Riddell was Product Line
Manager of the Transportation Business Unit at the Electric Power Research
Institute, and from 1985 until 1992, he served with the Transportation Group,
Inc. as Vice President, Engineering, working on electric public transportation
systems. From 1979 to 1985, he was Vice President, General Manager and COO of
Lift-U, Inc., the leading manufacturer of handicapped wheelchair lifts for the
transit industry. Mr. Riddell has also worked with Ford, Chrysler, and General
Motors in the area of auto design, and has worked as a member of senior
management for a number of public transit vehicle manufacturers. Mr. Riddell has
been a member of the American Public Transportation Association's (APTA) Member
Board of Governors for over 15 years, and has served on APTA's Board of
Directors. Mr. Riddell was also Managing Partner of the U.S. Advanced Battery
Consortium.
Donald H. Dreyer, Director
Mr. Dreyer was elected a Director of the Company in 1997. Mr. Dreyer is
President and CEO of Dreyer & Company, Inc., a consultancy in credit, accounts
receivable and insolvency services which was established in 1990. Mr. Dreyer has
served as Chairman of the Board of Credit Managers Association of California
during 1994 and 1995, and continues to serve as a member of the Advisory
Committee of that organization. Mr. Dreyer is currently the co-Chair of the
Creditors Committees' Subcommittee of the American Bankruptcy Institute and is a
member of the Western Advisory Committee of Dun & Bradstreet, Inc. He is also a
member of the Board of the National Association of Credit Management.
James M. Strock, Director
Mr. Strock was elected a Director of the Company in June, 2000. From 1991-1997,
Mr. Strock served in Governor Pete Wilson's cabinet as California's first
Secretary for Environmental Protection. He led an organization with an annual
budget of more than $800 million with 4,000 employees. The Agency includes many
of the world's leading environmental improvement programs relating to air and
water quality, toxics and pesticide regulation, and solid waste. From 1989 until
1991, Mr. Strock served in President Bush's subcabinet as Assistant
Administrator for Enforcement (chief law enforcement officer) of the U.S.
Environmental Protection Agency. Currently, he is principal of James Strock and
Co., a San Francisco firm providing consulting, communications and mediation
services. Mr. Strock is a graduate of Harvard College and Harvard Law School,
and is a member of the Council on Foreign Relations. He is the author of Reagan
on Leadership: Executive Lessons from the Great Communicator, and the
forthcoming Theodore Roosevelt on Leadership: Executive Lessons from an American
Icon.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or
executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission ("SEC"). Copies of these reports are also required to be
delivered to the Company.
The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during fiscal 2000, all Reporting Persons complied with all applicable filing
requirements.
17
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation earned by the Company's
Chief Executive Officer and each of the other most highly compensated executive
officers of the Company whose annual salary and bonus exceeded $100,000 for the
years ended December 31, 2000, 1999 and 1998 (collectively, the "Named Executive
Officers"). Mr. Carl D. Perry is the sole executive officer of the Company whose
salary currently exceeds $100,000.
Summary Compensation Table
Name and Principal Position Annual Compensation
- ---------------------------- ------------------------------------------------------------------------
Long-Term Compensation Awards
-----------------------------
Securities
Underlying
Salary Bonus Options/SARs
Year ($) ($) (#)
---- ------ ---- ---
Carl D. Perry (1) 2000 128,170 -- --
Chief Executive Officer, Chief Financial 1999 75,000 -- --
Officer, President and Secretary 1998 55,770 -- --
(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr.
Perry's current salary is $150,000 per year, approved by the Board of Directors
in June, 2000.
Option/SAR Grants
No grants of stock options or stock appreciation rights ("SARs") were
made during fiscal 2000 to the Named Executive Officers.
Option Exercises and Option Values
The following table sets forth information concerning option exercises
during 2000, and the aggregate value of unexercised options as of December 31,
2000, held by each of the Named Executive Officers:
Aggregated Option/SAR Exercises in 2000
and Option Values at December 31, 2000
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option Options at In-the-Money Options at
Exercises in 2000 December 31, 2000 December 31, 2000 (1)
----------------- ---------------------- ------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --- ----------- ------------- ----------- -------------
Carl D. Perry -- -- 1,200,000 -- $206,280(1) $ --
(1) Calculated on the basis of the average of the high bid and low ask prices
of the Common Stock on December 31, 2000 of $0.1719 per share, minus the
exercise price.
18
Compensation of Directors
In September 1999, the Company's Board of Directors unanimously
approved a compensation package for outside directors consisting of the
following: for each meeting attended in person, each outside director shall
receive $1,000 in cash and $2,000 of stock valued on the date of the meeting at
the average of the closing ask and bid prices; for each telephonic Board
meeting, each outside director shall receive $250 in cash and $250 of stock
valued on the date of the meeting at the average of the closing ask and bid
prices; for each meeting of a Board committee attended in person, the committee
chairman shall receive $500 in cash and $500 of stock valued on the date of the
meeting at the average of the closing ask and bid prices. All Directors are
reimbursed for expenses incurred in connection with attending Board and
committee meetings.
As of March 26, 2001, 1,193,091 shares had been issued under this
Director's compensation plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Mr. Edwin Riddell, as
Chairman, and Dr. Malcolm Currie. Mr. Riddell was elected Chairman in August
1998. Dr. Currie was elected to the Compensation Committee in July 1999. Mr.
Ishag served as a member of the Compensation Committee during all of Fiscal
1999. Dr. Malcolm Currie also served on the Compensation Committee during his
prior term as a Director until his resignation in 1998.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
19
Stock Performance Graph
The graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Standard & Poor's
Small Capitalization 600 Index and an index of peer companies selected by the
Company. A group of six other electric vehicle companies comprise the peer group
index.(1)
The period shown commences on December 31, 1995, and ends on December
31, 2000, the end of the Company's last fiscal year. The graph assumes an
investment of $100 on December 31, 1995 and the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are not
indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG ENOVA SYSTEMS, INC., THE S & P SMALLCAP 600 INDEX
AND A PEER GROUP OF SHAREHOLDERS
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
ENOVA SYSTEMS INC
Cumulative Total Return
----------------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
ENOVA SYSTEMS, INC. 100.00 50.00 13.82 9.12 95.59 50.56
S & P SMALLCAP 600 100.00 121.32 152.36 156.52 175.93 196.69
PEER GROUP 100.00 80.24 72.89 59.60 108.85 93.62
DECEMBER 31, 1995 TO DECEMBER 31, 2000
1) Companies included in the peer group index are Amerigon, Inc. (ARGN),
Electric Fuel Corp. (EFCX), Electrosource, Inc. (ELSI), Energy Conversion
Devices, Inc. (ENER), Unique Mobility (UQM), and Valence Technology, Inc.
(VLNC).
20
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's stock as of March 26, 2001, (i) by each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of any class of the Company's voting securities, (ii) by each of
the Company's Directors, (iii) by each of the Company's Named Executive Officers
listed in the Summary Compensation Table below, and (v) by the Company's
Directors and executive officers as a group. Except as indicated in the
footnotes to this table and subject to applicable community property laws, the
persons named in the table, based on information provided by such persons, have
sole voting and investment power with respect to all shares of stock
beneficially owned by them.
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
5% Shareholders, Directors, Officers and Shares Percentage of Shares Voting
Directors and Officers as a Group Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Jagen, Pty., Ltd. 125,000,000 (4)(9) 39.08% 34.95%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Carl D. Perry 11,200,500 (5)(9) 3.50% 4.19%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Citibank N.A. 36,105,754 11.29% 15.14%
111 Wall Street, 8th Floor
New York, NY 10043
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Anthony N. Rawlinson 25,154,883 (6)(9) 7.86% 7.05%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Hyundai Group 12,000,000 3.76% 5.03%
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
John J. Micek, III 763,394 (7) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Edwin O. Riddell 386,404 * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Dr. Malcolm Currie 284,987 * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Donald H. Dreyer 155,027 * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
James M. Strock 13,067 * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
All Directors and executive officers as 37,958,262 (8) 11.75% 11.70%
a group (7 persons)
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
* Indicates less than 1%
21
(1) Number of Common Stock shares includes Series A Preferred Stock, Series
B Preferred Stock and Common Stock shares issuable pursuant to stock
options, warrants and other securities convertible into Common Stock
beneficially held by the person or class in question which may be
exercised or converted within 60 days after February 29, 2001.
(2) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the Series A Preferred Stock owned by such
shareholder; (iii) the Series B Preferred Stock owned by such
shareholder; and (iv) Common Stock issuable pursuant to warrants,
options and other convertible securities exercisable or convertible by
such shareholder within sixty (60) days after February 29, 2001.
(3) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the total Series A Preferred Stock outstanding; (iii)
the total Series B Preferred Stock outstanding; and (iv) Common Stock
issuable pursuant to warrants, options and other convertible securities
exercisable or convertible by such shareholder within sixty (60) days
after February 29, 2001. This percentage calculation has been included
to show more accurately the actual voting power of each of the
shareholders, since the calculation takes into account the fact that
the outstanding Series A Preferred Stock and Series B Preferred Stock
are entitled to vote together with the Common Stock as a single class
on certain matters to be voted upon by the shareholders.
(4) Includes 41,666,667 shares issuable pursuant to warrants redeemable at
$0.06 per share. Said warrants expire in July 2001.
(5) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options issued under an employee stock option plan exercisable at a
price of $0.10 per share. The option exercise price, for Mr. Perry's
and other employees under the 1996 Stock Option Plan, was reset to
$0.10 per share from $0.30 per share on August 19, 1998 at the
direction of the Board of Directors.
(6) Includes 8,333,333 shares issuable pursuant to warrants redeemable at
$0.06 per share. Said warrants expire in July 2001.
(7) Includes 565,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.10 per share. The option exercise
price was reset to $0.10 per share from $0.30 per share on June 10,
1999 at the direction of the Board of Directors.
(8) Includes 1,765,000 shares of Common Stock issuable pursuant to stock
options exercisable at prices ranging from $0.10 to $0.60 per share,
and 8,333,333 shares issuable pursuant to warrants redeemable at $0.06
per share. Said warrants expire in July 2001.
(9) Pursuant to a Shareholders' Agreement dated as of June 1, 1999, by and
among Jagen Pty, Ltd. and Anthony Rawlinson (together "Purchasers"),
and Carl D. Perry and the Company, the parties agree to vote their
shares subject to a voting agreement in which, among other things, they
shall: (a) vote to elect Anthony Rawlinson as the Chairman of the Board
of the Company, (b) vote in favor of the election of or removal of any
director designated by the Board of Directors, and (c) refrain from
voting against any (i) sale, transfer or other assignment or
hypothecation of this Company's assets or merger, reorganization or
similar sale of this Company or (ii) amendment, modification, change or
termination to any provision of this Company's Charter Documents unless
such action is recommended or approved by a majority of the Board of
Directors then in office or pursuant to a unanimous written consent of
the Board of Directors.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
22
Item 13. Certain Relationships and Related Transactions
The following are certain transactions entered into between the Company
and its officers, directors and principal shareholders and their affiliates
since January 1, 2000.
Transactions with Management and Others:
Carl D. Perry/Itochu Corporation
In March 1999, Itochu Corporation, a former principal shareholder of
the Company, sold $5,694,000 of notes and accrued interest to Mr. Carl Perry,
the Company's Chief Executive Officer and President, in a transaction outside
the Company. The debt was secured by all of the assets of the Company. Itochu
also sold its interest in the Company, reflected as shares of outstanding stock,
to Mr. Perry. The Company was in default in the notes to Itochu, and remained in
default when Mr. Perry became the holder of the debt. Subsequent to the change
in creditor, Mr. Perry began a program of forgiving the debt through a
contribution to additional paid-in capital. During the year ended December 31,
2000, the remaining $1,453,000 of debt and accrued interest was forgiven.
In September 1999, the Company entered into a call option agreement to
re-purchase 23,970,000 shares of common stock for $100,000. The terms of this
agreement required the Company to exercise this call option between March 25,
2000 and March 30, 2000. In addition, Mr. Perry was also granted the right to
sell these shares to the Company for $50,000. On March 26, 2000, the Company
exercised its call option and purchased these shares from Mr. Perry for
$100,000.
The Company believes that the transactions described above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The above referenced transactions were approved by a
majority of the disinterested members of the Board of Directors. All future
transactions between the Company and its officers directors, principal
shareholders and affiliates will be approved by a majority of the Board of
Directors, including, where appropriate, a majority of the disinterested,
non-employee directors on the Board of Directors, and, where appropriate, will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K
(a)1. Financial Statements
The financial statements filed as a part of this report are
identified in the Index to Financial Statements on page F-1.
(a)2. Financial Statement Schedule
No financial statement schedules are filed as a part of this report.
(a)3. Exhibits
See Item 14 (C) for Index of Exhibits.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K. The Form 8-K, dated January
21, 2000 and filed January 21, 2000, reported that the Company had
changed its fiscal year end from July 31st to December 31st.
(c) Exhibits
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Articles of Incorporation of the Registrant, filed
July 10, 2000
3.2 Bylaws of Registrant (Filed as Exhibit 3.12 to the Registration
Statement on Form 10 filed on November 29, 1994, and incorporated
herein by reference).
4.1 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd. (Filed as Exhibit 4.1) to the Registrant's Annual
Report on Form 10-K for the year ended July 31, 1996, as filed on
November 12, 1996, and incorporated herein by reference).
10.1** Form of Stock Option Agreement under 1993 Employee and Consultant Stock
Plan (Filed as Exhibit 10.15 to the Registration Statement on Form 10
filed on November 29, 1994, and incorporated herein by reference).
10.2** Form of Solar Electric Engineering, Inc. 1993 Employee and Consultant
Stock Plan (Filed as Exhibit 10.16 to the Registration Statement on
Form 10 filed on November 29, 1994, and incorporated herein by
reference).
10.3 Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc., dated
January 2, 1996, delivered by the Company to certain of its unsecured
trade creditors, including exhibits (Filed as Exhibit 10.91 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996, as filed on March 18, 1996, and incorporated herein
by reference).
10.4 Form of Stock Purchase, Note and Debt Exchange Agreement dated January
2, 1996 between the Company and certain unsecured trade creditors
(Filed as Exhibit 10.92 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1996, as filed on March 18,
1996, and incorporated herein by reference).
10.5 Form of Indemnification Agreement (Filed as Exhibit 10.63 to the
Registration Statement on Form 10 filed on November 29, 1994, and
incorporated herein by reference).
10.6 Form of Security Agreement made as of May 31, 1995, between the Company
and Credit Managers Association of California, Trustee (Filed as
Exhibit 10.85 to the Registrant's Quarterly Report on Form
24
10-Q for the quarter ended April 30, 1996, as filed on June 14, 1996,
and incorporated herein by reference).
10.7 Amended 1996 Employee and Consultant Stock Option Plan(Filed as Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for fiscal year
ended July 31, 1999, as filed on October 29, 1999, and incorporated
herein by reference).
10.8 Stock Purchase Agreement and Technology License Agreement dated
February 27, 1997, by and between the Company and Hyundai Motor Company
and Hyundai Electronics Industries Co., Ltd. (Filed as Exhibit 10.98 to
the Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended
January 31, 1997, as filed on March 14, 1997, and incorporated herein
by reference).
10.9 Loan Agreement for $400,000 convertible promissory note with Fontal
International, Ltd., dated April 30, 1997(Filed as Exhibit 10.99 to the
Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended
April 30, 10997, as filed on June 13, 1997, and incorporated herein by
reference).
10.10 Agreement of Debt Forgiveness by and between Carl D. Perry and the
Registrant dated July 30, 1999 (Filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for fiscal year ended July 31,
1999, as filed on October 29, 1999, and incorporated herein by
reference).
10.11 Agreement of Terms by and between the Registrant and Carl D. Perry
(Filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.12 Securities Purchase Agreement dated as of June 1, 1999, by and between
the Company and Jagen Pty, Ltd. and Anthony N. Rawlinson (Filed as
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for fiscal
year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.13 Shareholders' Agreement dated as of June 1, 1999, by and among Jagen
Pty, Ltd. and Anthony N. Rawlinson, Carl D. Perry and the Registrant
(Filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K
for fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.14 Loan and Security Agreement dated as of June 1, 1999, by and among the
Registrant, Jagen Pty, Ltd. and Anthony N. Rawlinson (Filed as Exhibit
10.14 to the Registrant's Annual Report on Form 10-K for fiscal year
ended July 31, 1999, as filed on October 29, 1999, and incorporated
herein by reference).
10.15 Convertible Secured Promissory Note dated June 1, 1999 by the
Registrant in favor of Jagen Pty, Ltd. in the principal amount of
$400,000 (Filed as Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for fiscal year ended July 31, 1999, as filed on October 29,
1999, and incorporated herein by reference).
10.16 Letter of Intent between Registrant and a domestic supplier, dated
December 9, 1999, to design, develop and manufacture low voltage
electric drive system components.
10.17 Put/Call Option to sell Itochu shares between Registrant and Carl D.
Perry dated September 1, 1999.
23.1* Consent of Moss Adams, LLC, Independent Auditor's
24* Power of Attorney (included on signature page)
27* Financial Data Schedule.
- ----------------------
* Filed herewith.
** Indicates management contract or compensatory plan or arrangement.
25
SIGNATURES
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 of the undersigned, thereunto duly authorized, on March 29, 2001.
ENOVA SYSTEMS, INC.
By: /s/ Carl D. Perry
--------------------------------
Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
Dated: March 30, 2001
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carl D. Perry, with full power to act
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to the annual report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated. Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the date
indicated.
Signature Title Date
- --------- ----- ----
/s/ Carl D. Perry Chief Executive March 30, 2001
- ----------------------------- Officer and Director
Carl D. Perry (Principal Executive Officer)
/s/ Anthony N. Rawlinson Chairman March 30, 2001
- -----------------------------
Anthony N. Rawlinson
/s/ s Malcolm Currie Director March 30, 2001
- -----------------------------
Malcolm Currie
/s/ Edwin O. Riddell Director March 30, 2001
- -----------------------------
Edwin O. Riddell
/s/ John J. Micek, III Director March 30, 2001
- -----------------------------
John J. Micek, III
/s/ Donald H. Dreyer Director March 30, 2001
- -----------------------------
Donald H. Dreyer
/s/ James M. Strock Director March 30, 2001
- -----------------------------
James M. Strock
26
- --------------------------------------------------------------------------------
ENOVA SYSTEMS, INC.
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ENOVA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT................................................F-1
BALANCE SHEETS AT DECEMBER 31, 2000 AND 1999................................F-2
STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2000 AND THE
FIVE MONTHS ENDED DECEMBER 31, 1999....................................F-3
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE
YEAR ENDED DECEMBER 31, 2000, AND THE
FIVE MONTHS ENDED DECEMBER 31, 1999....................................F-4
STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 2000, AND THE
FIVE MONTHS ENDED DECEMBER 31, 1999....................................F-5
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2000 AND 1999..................F-6
STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JULY 31, 1999 AND 1998....................................F-13
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE
YEARS ENDED JULY 31, 1999 AND 1998....................................F-14
STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED JULY 31, 1999 AND 1998....................................F-15
NOTES TO FINANCIAL STATEMENTS - JULY 31, 1999 AND 1998.....................F-16
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Enova Systems, Inc.
We have audited the accompanying balance sheets of Enova Systems, Inc., formerly
U. S. Electricar, Inc., as of December 31, 2000 and 1999, and the statements of
operations, stockholders' deficit, and cash flows for the year ended December
31, 2000, the five months ended December 31, 1999, and for the years ended July
31, 1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 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 Enova Systems, Inc., as of
December 31, 2000 and 1999, and the results of its operations and cash flows for
the year ended December 31, 2000, the five months ended December 31, 1999, and
for the years ended July 31, 1999 and 1998, in conformity with generally
accepted accounting principles.
/s/ MOSS ADAMS LLP
Santa Rosa, California
February 15, 2001
Page F-1
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
BALANCE SHEETS
December 31, 2000 and 1999
(In thousands, except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
2000 1999
--------------------- ---------------------
CURRENT ASSETS
Cash $ 1,310 $ 1,465
Accounts receivable 1,004 566
Inventories and supplies 406 256
Related party receivable, current maturities 25 38
Prepaids and other current assets 68 71
--------------------- ---------------------
Total current assets 2,813 2,396
PROPERTY AND EQUIPMENT 214 226
RELATED PARTY RECEIVABLE, less current maturities 57 75
OTHER ASSETS 10 -
--------------------- ---------------------
Total assets $ 3,094 $ 2,697
===================== =====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 106 $ 202
Accrued payroll and related expenses 301 229
Other accrued expenses 119 156
Current maturities of long-term debt 120 1,420
Current maturities of capital lease obligations 9 -
Customer deposits - 102
--------------------- ---------------------
Total current liabilities 655 2,109
ACCRUED INTEREST PAYABLE 514 439
LONG-TERM PAYABLES 210 1,832
CAPITAL LEASE OBLIGATIONS, less current maturities 31 -
LONG-TERM DEBT, less current maturities 3,332 3,332
--------------------- ---------------------
Total liabilities 4,742 7,712
--------------------- ---------------------
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock - no par value; 30,000,000 shares
authorized; 2,844,000 and 3,239,000 shares issued and outstanding;
liquidating preference at $0.60 per share aggregating $1,120 1,867 2,166
Series B convertible preferred stock - no par value; 5,000,000 shares
authorized; 1,217,000 and 1,242,000 shares issued and outstanding;
liquidating preference at $2.00 per share aggregating $4,868 2,434 2,486
Stock notes receivable (1,149) (1,149)
Common stock - no par value; 500,000,000 shares authorized;
244,249,000 and 252,012,000 shares issued and outstanding 75,680 71,526
Common stock subscribed 13 1,445
Additional paid-in capital 6,372 4,917
Accumulated deficit (86,865) (86,406)
--------------------- ---------------------
Total stockholders' deficit (1,648) (5,015)
--------------------- ---------------------
Total liabilities and stockholders' deficit $ 3,094 $ 2,697
===================== =====================
See accompanying notes.
- ----------------------------------------------------------------------------------------------------------------------------------
Page F-2
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF OPERATIONS
Year Ended December 31, 2000, and the Five Months Ended December 31, 1999
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
2000 1999
------------- -------------
NET REVENUES $ 2,883 $ 629
COST OF REVENUES 2,013 377
------------- -------------
GROSS PROFIT 870 252
------------- -------------
OTHER COSTS AND EXPENSES
Research and development 626 262
Selling, general and administrative 1,999 796
Interest and financing fees 174 244
Gain on disposition of fixed assets 6 --
Legal settlements 75 125
------------- -------------
Total other costs and expenses 2,880 1427
------------- -------------
LOSS FROM CONTINUING OPERATIONS (2,010) (1,175)
EXTRAORDINARY ITEM - GAIN ON DEBT
RESTRUCTURING 1,551 214
------------- -------------
NET LOSS $ (459) $ (961)
============= =============
PER COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.01)
Gain on debt restructuring 0.01 --
------------- -------------
$ -- $ (0.01)
============= =============
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING $ 235,199,406 $ 251,993,533
============= =============
See accompanying notes.
- --------------------------------------------------------------------------------
Page F-3
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Year Ended December 31, 2000, and the Five Months Ended December 31, 1999
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------------
Preferred Stock
-------------------------------------------- Common Stock
Series A Series B Common Stock Subscribed
--------------------- --------------------- ----------------------- ----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ----------- ------------ ---------- ---------- -----------
Balance, July 31, 1999 3,259 $ 2,191 1,242 $ 2,486 251,992 $ 71,501 - $ -
Common Stock Transactions
Conversion of Series A
preferred stock (20) (25) - - 20 25 - -
Stock issued for services - - - - - - 1,317 148
Conversion of debt - - - - - - 4,246 1,297
Debt forgivness by stockholder - - - - - - - -
Net loss - - - - - - - -
--------- ---------- --------- ----------- ------------ ---------- ---------- -----------
Balance, December 31, 1999 3,239 2,166 1,242 2,486 252,012 71,526 5,563 1,445
Common Stock Transactions
Conversion of Series A
preferred stock (395) (299) - - 395 299 - -
Conversion of Series B
preferred stock - - (25) (52) 71 52 - -
Stock options exercised - - - - 3,315 392 - -
Sale of stock - - - - 6,667 2,000 - -
Stock issued for services - - - - 5,722 1,497 (5,518) (1,432)
Conversion of debt - - - - 37 14 - -
Repurchase of stock
from stockholder - - - - (23,970) (100) - -
Debt forgiveness by stockholder - - - - - - - -
Net loss - - - - - - - -
--------- ---------- --------- ----------- ------------ ---------- ---------- -----------
Balance, December 31, 2000 2,844 $ 1,867 1,217 $ 2,434 244,249 $ 75,680 45 $ 13
========= ========== ========= =========== ============ ========== ========== ===========
Additional
Paid-In Stock Notes Accumulated
Capital Receivable Deficit Total
------------- -------------- -------------- ----------
Balance, July 31, 1999 $ 3,100 $ (1,149) $ (85,445) $ (7,316)
Common Stock Transactions
Conversion of Series A
preferred stock - - - -
Stock issued for services - - - 148
Conversion of debt - - - 1,297
Debt forgivness by stockholder 1,817 - - 1,817
Net loss - - (961) (961)
-------------- -------------- -------------- ----------
Balance, December 31, 1999 4,917 (1,149) (86,406) (5,015)
Common Stock Transactions
Conversion of Series A
preferred stock - - - -
Conversion of Series B
preferred stock - - - -
Stock options exercised - - - 392
Sale of stock - - - 2,000
Stock issued for services - - - 65
Conversion of debt - - - 14
Repurchase of stock
from stockholder - - - (100)
Debt forgiveness by stockholder 1,455 - - 1,455
Net loss - - (459) (459)
------------- -------------- -------------- ----------
Balance, December 31, 2000 $ 6,372 $ (1,149) $ (86,865) $ (1,648)
============= ============== ============== ==========
See accompanying notes.
- --------------------------------------------------------------------------------------------------------------------------------
Page F-4
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended December 31, 2000, and the Five Months Ended December 31, 1999
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------
2000 1999
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (459) $ (961)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 136 60
Loss on disposition of fixed assets 6 -
Gain on debt restructuring and extinguishment (1,551) (214)
Stock issued for services 66 148
Accrued interest forgiven 156 219
Change in operating assets and liabilities:
Accounts receivable (432) 185
Inventories (151) (33)
Related party receivable 25 12
Prepaids and other current assets (7) 21
Accounts payable and accrued expenses (45) (231)
Customer deposits (102) 102
--------------------- ---------------------
Net cash from operating activities (2,358) (692)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment acquisitions (88) (3)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 2,392 -
Purchase of common stock (100) -
Payments on notes payable and capital lease obligations (1) (307)
--------------------- ---------------------
Net cash from financing activities 2,291 (307)
--------------------- ---------------------
NET DECREASE IN CASH (155) (1,002)
CASH, beginning of the period 1,465 2,467
--------------------- ---------------------
CASH, end of the period $ 1,310 $ 1,465
===================== =====================
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ 40 $ 9
Non-cash investing and financing activities:
Conversion of preferred stock to common stock $ 351 $ 25
Conversion of debt and accrued interest to equity $ 1,470 $ 2,894
Equipment acquired under capital lease $ 41 $ -
See accompanying notes.
- ---------------------------------------------------------------------------------------------------------------------------
Page F-5
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Enova Systems, Inc., formerly U. S. Electricar, Inc., is a
California corporation that develops electric drive trains and related
components for electric vehicles and hybrid systems. The Company retains
development and manufacturing rights to many of the technologies created,
whether such research and development is internally or externally funded. The
change in the Company's name to Enova Systems became effective January 1, 2000.
Change in fiscal year - Effective December 31, 1999, the Company changed its
fiscal year-end from July 31 to December 31.
Cash equivalents - Highly liquid investments with an original maturity debt of
three months or less are considered cash equivalents. There were no cash
equivalents at December 31, 2000 or 1999.
Inventory - Inventory is comprised of materials used in the design and
development of electric drive systems under ongoing development contracts, and
is stated at the lower of cost (first-in, first-out) or market.
Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets, which range from three to seven years. Long-lived assets
are reviewed for impairment whenever events or changes in circumstances
indicates the sum of expected cash flows from use of the asset is less than its
carrying value. Long-lived assets that management has committed to sell or
abandon are reported at the lower of carrying amount or fair value less cost to
sell.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Revenue recognition - The Company is obligated to perform research and
development activities under development and licensing agreements. The
agreements require the Company to design, develop, and test drive systems and
deliver working prototypes. The Company retains all rights to the products
developed and will license their use to the counter-party. Revenue on
engineering and research and development contracts is recognized at the
completion of specified engineering or billing milestones, as set forth in each
agreement.
Loss per common share - Loss per common share is computed using the weighted
average number of common shares outstanding. Since a loss from operations
exists, a diluted earnings per share number is not presented because the
inclusion of common stock equivalents in the computation would be antidilutive.
Common stock equivalents associated with Series A and B preferred stock, stock
options, and warrants, which are exercisable into 37,230,000 shares of common
stock, could potentially dilute earnings per share in future years.
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and trade receivables. Demand deposits are placed with known creditable
financial institutions. The Company's largest customer, Hyundai, is also a
stockholder that holds less than 5% of the outstanding common stock. Hyundai
accounted for approximately 56% and 54% of total revenues for the year ended
December 31, 2000, and 1999.
Significant estimates - 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 amounts estimated could differ from actual results, and the difference could
have a significant impact on the financial statements.
- --------------------------------------------------------------------------------
Page F-6
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The fair value of the Company's short-term and long-term debt
may be substantially less than the carrying value since there is no readily
ascertainable market for the debt, given the financial position of the Company.
Stock-based compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS No. 123 requires a fair
value method to be used when determining compensation expense for stock options
and similar equity instruments. SFAS No. 123 permits a company to continue to
use the provisions of APB No. 25 when accounting for stock-based compensation to
employees, but proforma disclosures of net income and earnings or loss per share
must be made as if SFAS No. 123 had been adopted in its entirety. Stock options
issued to non-employees are valued under the provisions of SFAS No. 123.
Recent accounting pronouncements - The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS Nos. 137 and 138, establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. The Company is required to
implement SFAS No. 133 as of the beginning of fiscal year 2001. SFAS No. 133
will not have a material impact on the Company's financial position, results of
operations or cash flows.
The SEC issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition
in Financial Statements." SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. The Company's
implementation of SAB 101 in 2000 had no impact on its financial position,
results of operations or cash flows for the year ending December 31, 2000.
FASB Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions
Involving Stock Compensation-An Interpretation of APB Opinion No. 25," was
issued in March, 2000. FIN 44 clarifies the application of Accounting Principles
Board Opinion (APB) No. 25 for certain stock-based compensation issues. FIN 44
clarifies the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequences of various modifications to the terms of a
previously fixed option or award, and the accounting for an exchange of share
compensation awards in a business combination, among others. FIN 44 was
effective July 1, 2000, but certain conclusions in this interpretation cover
specific events that occurred after either December 15, 1998 or January 12,
2000. The implementation of FIN 44 did not have a significant impact on the
Company's financial position or results of operations.
NOTE 2 - PROPERTY AND EQUIPMENT (in thousands)
2000 1999
--------------------- ---------------------
Computers $ 124 $ 849
Machinery and equipment 286 267
Furniture and office equipment 126 196
Automobiles and demonstration vehicles 142 142
Leasehold improvements 66 54
Equipment under capital lease 41 -
--------------------- ---------------------
784 1,509
Less accumulated depreciation and amortization 570 1,283
--------------------- ---------------------
$ 214 $ 226
===================== =====================
- --------------------------------------------------------------------------------
Page F-7
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - RELATED PARTY RECEIVABLE
Hyundai, a stockholder, acquired certain technology licensing rights from the
Company in 1997. Part of the consideration for these rights included periodic
installment payments of $25,000 per year for six years, with the final payment
expected in February 2003.
NOTE 4 - LONG-TERM DEBT (in thousands)
2000 1999
--------------------- ---------------------
Secured promissory note to Credit Managers Association of California, with
interest at 3% for the first five years, 6% for years six and seven, and then at
prime plus 3% through maturity; interest payments are made upon payment of
principal, which is due no later than April 2016; a sinking fund escrow is
required to be funded with 10% of future equity financing, as defined in the
agreement. $ 3,332 $ 3,332
Convertible secured notes with ITOCHU Corporation, were acquired by the
Company's President in 1999; the notes, with interest at 12%, were in default;
the debt was forgiven in stages during 1999 and 2000. - 1,300
Other 120 120
--------------------- ---------------------
3,452 4,752
Less current maturities 120 1,420
--------------------- ---------------------
$ 3,332 $ 3,332
===================== =====================
In March 1999, ITOCHU Corporation sold $5,694,000 of notes and accrued interest
to the Company's President in a transaction outside the Company. ITOCHU also
sold its interest in the Company, reflected as shares of outstanding stock, to
the President (see Note 7). The Company was in default in the notes to ITOCHU,
and remained in default when the holder of the debt became the Company's
President. Subsequent to the change in creditors, the Company's President began
a program of forgiving the debt through a contribution to additional paid in
capital. During the year ended December 31, 2000, the remaining $1,453,000 of
debt and accrued interest was forgiven.
NOTE 5 - CAPITAL LEASE OBLIGATIONS
The Company leases manufacturing and office equipment under various capital
lease agreements that expire beginning in 1993. Future minimum lease payments
under these capital lease agreements are as follows:
Year Ending December 31,
------------------------
2001 $ 16,384
2002 16,384
2003 13,749
2004 5,844
2005 5,844
------------
58,205
Less amounts representing interest 17,953
------------
Present value of minimum lease payments 40,252
Less current maturities 9,155
------------
$ 31,097
============
- --------------------------------------------------------------------------------
Page F-8
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 6 - OPERATING LEASES
The Company's lease on its Torrance, California, facility expires in February
2003. Rent expense was $123,000 for the year ended December 31, 2000. Future
minimum lease payments are as follows:
Year Ending December 31,
------------------------
2001 $ 161,010
2002 163,456
2003 27,311
---------------------
$ 351,777
=====================
NOTE 7 - STOCKHOLDERS' DEFICIT
Series A preferred stock - Series A preferred stock is currently unregistered
and convertible into common stock on a one-to-one basis at the election of the
holder or automatically upon the occurrence of certain events, including: sale
of stock in an underwritten public offering; registration of the underlying
conversion stock; or the merger, consolidation or sale of more than 50% of the
Company. Holders of Series A preferred stock have the same voting rights as
common stockholders. The stock has a liquidation preference of $0.60 per share
plus any accrued and unpaid dividends in the event of voluntary or involuntary
liquidation of the Company. Dividends are non-cumulative and payable at the
annual rate of $0.036 per share if, when, and as declared by, the Board of
Directors. No dividends have been declared on the Series A preferred stock.
The stock notes receivable stem from a Board of Directors plan for the sale of
shares of Series A preferred stock to certain officers and directors
(Participants) at $0.60 per share in July, 1993. In general, the Participants
could purchase the preferred stock for a combination of cash, promissory notes
payable to the Company, and conversion of debt and deferred compensation due to
the Participants. All shares issued under this plan were pledged to the Company
as security for the notes. The notes provided for interest at 8% per annum
payable annually, with the full principal amount and any unpaid interest due on
January 31, 1997. The notes remain outstanding. The likelihood of collecting the
interest on these notes is remote; therefore, accrued interest has not been
recorded since the fiscal year ended July 31, 1997.
Series B preferred stock - Series B preferred stock is currently unregistered
and each share is convertible into shares of common stock at the election of the
holder. The Series B preferred stock has certain liquidation and dividend rights
prior and in preference to the rights of the common stock and Series A preferred
stock. The stock has a liquidation preference of $2.00 per share together with
an amount equal to, generally, $0.14 per share compounded annually at 7% per
year from the filing date, less any dividends paid. Dividends on the Series B
preferred stock are non-cumulative and payable at the annual rate of $0.14 per
share if, when, and as declared by, the Board of Directors. No dividends have
been declared on the Series B preferred stock.
Other significant stock activity - In conjunction with the acquisition of
ITOCHU's debt (see Note 4), the Company's President purchased all of the
outstanding common stock of ITOCHU Corporation, which totaled approximately
37,400,000 shares, for a purchase price of $1.
- --------------------------------------------------------------------------------
Page F-9
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTIONS AND WARRANTS
The 1993 Employee and Consultant Stock Plan expires in 2003. Under the Plan, the
Company has reserved 30,000,000 shares of common stock for incentive and
nonstatutory stock options. Options under the Plan expire over periods not to
exceed ten years from date of grant. Options that expire or are canceled may
become available for future grants under the Plan. In addition, the Company
grants other nonstatutory stock options.
Under the Director Stock Option Plan, the Company reserved 150,000 shares of
common stock for nonstatutory stock options for nonemployee directors. Options
under this Plan are fully vested upon the granting of the options and expire ten
years from the date of grant unless terminated sooner upon termination of the
optionee's status as a director. Options that expire or are canceled may become
available for future grants under the Director Option Plan. No options are
outstanding under this Plan.
The 1996 Stock Option Plan reserves 45,000,000 shares for incentive and
nonstatutory stock options during the period of the Plan, which expires in 2006.
Options under the 1996 Plan expire over a period not to exceed ten years.
The following summarizes common stock option activity (shares in thousands):
1996 Plan 1993 Plan Other
------------------------------- ----------------------------- -----------------------------
Shares Price Shares Price Shares Price
----------- ----------------- ---------- ----------------- --------- -----------------
Balance, July 31, 1999 8,390 $ 0.10 - 0.30 11,111 $ 0.10-0.60 1,495 $ 0.60-2.80
Granted 12,339 $ 0.11 - - - -
Forfeited (234) $ 0.11 - 0.30 - - - -
----------- ---------- ---------
Balance, December 31, 1999 20,495 $ 0.10 - 0.30 11,111 $ 0.10-0.60 1,495 $ 0.60-2.80
Granted 3,600 $ 0.17 - 0.30 - - - -
Exercised (3,286) $ 0.10 - 0.30 - $ 0.10 - -
Forfeited (344) $ 0.10 - 0.30 (1,457) $ 0.10-0.60 - -
----------- ---------- ---------
Balance, December 31, 2000 20,465 $ 0.10 - 0.30 9,654 $ 0.10-0.60 1,495 $ 0.60-2.80
=========== ========== =========
The Company measures its employee stock-based compensation arrangements under
the provisions of APB No. 25. Had compensation costs for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net loss would have increased by approximately $88,000
for the year ended December 31, 2000. The fair value of options granted were
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (1) dividend yield of 0%, (2) expected volatility of
124%, (3) risk-free interest rate of 5.25%, and (4) an expected life of the
options of five years.
In July 1999, the Company issued 50,000,000 warrants in conjunction with the
sale of common stock. The warrants are exercisable at $0.06 per share for an
equal number of shares of common stock, and expire in July 2001.
- --------------------------------------------------------------------------------
Page F-10
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (in thousands)
Federal and state income tax regulations impose restrictions on the utilization
of net operating losses in the event of an ownership change, as defined by
Section 382 of the Internal Revenue Code of 1986. Ownership changes have
occurred, with the changes limiting the future availability of net operating
loss carryforwards. The extent of the limitation has not been determined.
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance and the possible limitation on the future
availability of net operating losses, as discussed above, a full valuation
allowance is recorded against these deferred tax assets.
2000 1999
--------------------- ---------------------
Deferred tax assets
Federal tax loss carryforward $ 24,666 $ 24,147
State tax loss carryforward 920 2,378
Basis difference 1,610 1,610
Other, net 218 214
--------------------- ---------------------
27,414 28,349
Less valuation allowance 27,414 28,349
--------------------- ---------------------
Net deferred tax asset $ - $ -
===================== =====================
Net operating losses expire as follows:
Net Operating Loss
----------------------------------------------
Date of Expiration Federal California
- ------------------ --------------------- ---------------------
2001 $ 44 $ 4,541
2002 11 2,778
2003 64 1,541
2004 322 709
2005 443 655
2006 680 -
2007 2,552 -
2008 24,221 -
2009 33,460 -
2010 9,083 177
2011 5,557 -
2012 2,998 -
2013 1,418 -
2014 1,965
2015 322 -
--------------------- ---------------------
$ 83,140 $ 10,401
===================== =====================
NOTE 10 - EXTRAORDINARY ITEM
The Company has continued a program of negotiating a repayment of outstanding
trade payables for less than the amounts originally recorded. The gain from
these negotiated payments of $277,000 and $214,000 at December 31, 2000 and
1999, is reflected as an extraordinary item.
In consultation with legal counsel, the Company extinguished $1,274,000 of
long-term payables under a provision of the California Code of Civil Procedures.
The Code's statute of limitations precludes the ability of a creditor to
commence an action to recover stale account balances. Upon reviewing the Code's
provisions, the Company decided that conditions surrounding the application of
the statute of limitations had been met. Accordingly, the December 31, 2000
extraordinary item reflects the gain from the extinguishments.
- --------------------------------------------------------------------------------
Page F-11
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 11 - CONTINGENCIES
In connection with the Company's default on its debt obligations to unsecured
creditors, 19 of these creditors have obtained judgments against the Company in
the aggregate amount of approximately $650,000. The Company is aggressively
taking steps to eliminate these judgments.
The Company is also subject to other legal proceedings and claims that have
arisen during the period of restructuring both its debt and operations. The
ultimate resolution of these proceedings is not known, but the final outcomes
are not expected to significantly influence the Company's current financial
position.
The Company is a defendant in a lawsuit to extend the life of certain warrants.
In May 1996, the Company issued approximately 13,333,000 warrants in exchange
for services performed. The warrants were exercisable at $0.30 per share in
cash, or could be exercised without the payment of cash if the average market
value of the Company's common stock for the 20 consecutive trading days
preceding the exercise date was equal to or greater that $0.60 per share, and
the average trading volume was in excess of 100,000 shares per day for the same
preceding 20 trading day period. The warrants expired, by their original terms,
on May 1, 1997. The holders of these warrants claim the Company had agreed to
extend the term of these warrants for as much as an additional five years. The
Company believes these claims are without merit and that the warrants have
expired.
NOTE 12 - UNAUDITED SUMMARIZED FINANCIAL STATEMENTS
The unaudited statement of operations for the five months ended December 31,
1998, is as follows (in thousands):
STATEMENT OF OPERATIONS 1998
---------------------
Net revenues $ 867
Cost of revenues 389
---------------------
Gross profit 478
---------------------
Other costs and expenses
Research and development 73
Selling, general and administrative 691
Interest and financing fees 264
Other (income) (35)
---------------------
Total other costs and expenses 993
---------------------
Net loss from continuing operations $ (515)
=====================
Gain on debt restructuring -
---------------------
Net loss $ (515)
=====================
Loss per common share $ (0.01)
=====================
- --------------------------------------------------------------------------------
Page F-12
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF OPERATIONS
Years Ended July 31, 1999 and 1998
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
1999 1998
--------------------- ---------------------
NET REVENUES $ 2,774 $ 1,938
COST OF REVENUES 1,460 2,765
--------------------- ---------------------
GROSS PROFIT (LOSS) 1,314 (827)
--------------------- ---------------------
OTHER COSTS AND EXPENSES
Research and development 499 445
Selling, general and administrative 1,141 1,697
Interest and financing fees 724 665
Gain on warranty accrual reevaluation (474) -
Other (income)/expense (41) (67)
Acquisition of research and development --------------------- ---------------------
Total other costs and expenses 1,849 2,740
--------------------- ---------------------
LOSS FROM CONTINUING OPERATIONS (535) (3,567)
EXTRAORDINARY ITEM - GAIN ON DEBT
RESTRUCTURING 140 42
--------------------- ---------------------
NET LOSS $ (395) $ (3,525)
===================== =====================
PER COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.02)
Gain on debt restructuring - -
--------------------- ---------------------
$ (0.01) $ (0.02)
===================== =====================
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING $ 152,076,615 $ 151,265,026
===================== =====================
See accompanying notes.
- --------------------------------------------------------------------------------
Page F-13
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended July 31, 1999 and 1998
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
-----------------------------------------------
SERIES A SERIES B COMMON STOCK
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ---------- ----------- ----------
Balance, July 31, 1997 3,621 $ 2,630 1,340 $ 2,682 151,068 $ 68,267
Common Stock Transactions
Conversion of Series A preferred stock (300) (372) - - 300 372
Conversion of Series B preferred stock - - (49) (98) 324 98
Stock for services - - - - 75 5
Net Loss - - - - - -
---------- ----------- ----------- ---------- ----------- ----------
Balance, July 31, 1998 3,321 2,258 1,291 2,584 151,767 68,742
Common Stock Transactions
Conversion of Series A preferred stock (62) (67) - - 62 67
Conversion of Series B preferred stock - - (49) (98) 163 98
Sale of stock - - - - 83,333 2,375
Conversion of debt - - - - 16,667 219
Issuance of common stock warrants - - - - - -
Debt forgiveness by stockholder - - - - - -
Net Loss - - - - - -
---------- ----------- ----------- ---------- ----------- ----------
Balance, July 31, 1999 3,259 $ 2,191 1,242 $ 2,486 251,992 $ 71,501
========== =========== =========== ========== =========== ==========
ADDITIONAL
PAID-IN STOCK NOTES ACCUMULATED
CAPITAL RECEIVABLE DEFICIT TOTAL
--------------- ---------------- ----------------- ------------
Balance, July 31, 1997 - $ (1,149) $ (81,525) $ (9,095)
Common Stock Transactions
Conversion of Series A preferred stock - - - -
Conversion of Series B preferred stock - - - -
Stock for services - - - 5
Net Loss - - (3,525) (3,525)
--------------- ---------------- ----------------- ------------
Balance, July 31, 1998 - (1,149) (85,050) (12,615)
Common Stock Transactions
Conversion of Series A preferred stock - - - -
Conversion of Series B preferred stock - - - -
Sale of stock - - - 2,375
Conversion of debt - - - 219
Issuance of common stock warrants 406 - - 406
Debt forgiveness by stockholder 2,694 - - 2,694
Net Loss - - (395) (395)
--------------- ---------------- ----------------- ------------
Balance, July 31, 1999 $ 3,100 $ (1,149) $ (85,445) $ (7,316)
=============== ================ ================= ============
See accompanying notes.
- -------------------------------------------------------------------------------------------------------------
Page F-14
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
STATEMENTS OF CASH FLOWS
Years Ended July 31, 1999 and 1998
(In thousands)
- ------------------------------------------------------------------------------------------------------------
1999 1998
----------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (395) $ (3,525)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 179 212
Change in allowance for doubtful accounts (108) (7)
Provision to reduce inventory values (36) 949
Gain on debt restructuring (140) (42)
Changes in valuation allowances and reserves (640) (368)
Stock issued in settlement of legal claim - 5
Loss of disposal of equipment - 353
Change in operating assets and liabilities:
Accounts receivable (560) 753
Inventories 329 371
Note receivable 250 -
Prepaids and other current assets 32 191
Accounts payable and accrued expenses 678 491
Customer deposits (387) 343
----------------- ---------------------
Net cash from operating activities (798) (274)
----------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (1) (8)
Proceeds from sale of equipment - 35
----------------- ---------------------
Net cash from investing activities (1) 27
----------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital leases - (20)
Borrowings on notes payable 400 200
Proceeds from issuance of common stock 2,600 -
----------------- ---------------------
Net cash from financing activities 3,000 180
----------------- ---------------------
NET INCREASE (DECREASE) IN CASH 2,201 (67)
CASH
Beginning of year 266 333
----------------- ---------------------
End of year $2,467 $ 266
================= =====================
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ - $ 3
NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of Series A preferred stock to common stock $ 68 $ 372
Conversion of Series B preferred stock to common stock $ 98 $ 98
Issuance of warrants $ 406 $ -
Decrease in capital lease payable due to cancellation $ - $ 190
Conversion of investment to note receivable $ - $ 250
Conversion of debt to common stock $ 400 $ -
See accompanying notes.
- ------------------------------------------------------------------------------------------------------------
Page F-15
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
July 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Enova Systems, Inc. was incorporated in 1976 in California as
Solar Electric Engineering, Inc., and in 1994 changed its name to U. S.
Electricar, Inc. Prior to fiscal year 1998, the Company produced and sold
electric vehicles. In 1998, the Company began to focus its efforts on the
development of electric drive trains and related components for electric
vehicles and hybrid systems, vehicle systems integration and the performance of
various engineering contracts.
Warranties - Electric vehicle warranties were provided by the Company and
generally extended for one year from the time of sale. Warranties for
substantially all vehicles sold by the Company had elapsed, resulting in a
$474,000 gain in 1999 concurrent with the reevaluation of the warranty accrual.
Revenue recognition - Revenue from the sale of electric vehicles was recognized
when the vehicle was delivered to the customer. Revenue on engineering and
research and development contracts was recognized at the completion of specified
engineering or billing milestones.
Loss per common share - Loss per common share is computed using the weighted
average number of common shares outstanding. Since a loss from operations
exists, a diluted earnings per share number is not presented because the
inclusion of common stock equivalents in the computation would be antidilutive.
Common stock equivalents associated with Series A and B preferred stock, stock
options, warrants and convertible notes and bonds, which are exercisable into
shares of common stock, could have potentially diluted earnings per share in
future years.
Concentrations of risk - The Company's largest customer, Hyundai, was also a
stockholder holding less than 5% of the outstanding common stock. Hyundai
accounted for approximately 90% of total revenues for the year ended July 31,
1999.
Significant estimates - The preparation of financial statements in conformity
with generally accepted accounting principles required the Company to make
estimates and assumptions affecting the reported amounts of revenues and
expenses. The amounts estimated could differ from actual results, and the
difference could have had significant impact on the financial statements.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities. At
July 31, 1999 the Company had, in addition to temporary differences, net
operating loss carryforwards of $80,904,000 and $26,299,000 for federal and
state purposes. The net operating loss carryforwards began expiring in 2000. A
valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance and the possible limitation on the future
availability of net operating losses, as discussed above, a full valuation
allowance is recorded against these deferred tax assets.
Federal and state income tax regulations impose restrictions on the utilization
of net operating losses in the event of an ownership change, as defined by
Section 382 of the Internal Revenue Code of 1986. Ownership changes have
occurred, with the changes limiting the future availability of net operating
loss carryforwards. The extent of the limitation has not been determined.
Stock-based compensation - The Company accounted for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS No. 123 requires a fair
value method to be used when determining compensation expense for stock options
and similar equity instruments. SFAS No. 123 permits a company to continue to
use APB No. 25 to account for stock-based compensation to employees, but
proforma disclosures of net income and earnings or loss per share must be made
as if SFAS No. 123 had been adopted in its entirety. Stock options issued to
non-employees are valued under the provisions of SFAS No. 123.
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Page F-16
ENOVA SYSTEMS, INC. (Formerly, U. S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999 and 1998
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NOTE 2 - CAPITAL LEASE
The Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of Systronix Corporation (Systronix) in October
1996. Systronix was a developer of technologically advanced electric propulsion
systems for electric-powered vehicles. The purchase was reported using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based upon the fair values at the
date of acquisition. Included in the acquisition was the assumption of a
purchase contract for a high performance dynamometer. This acquisition was
financed through a capital lease. The lease required monthly payments of $22,000
and was scheduled to mature in May 1998. The Company was unable to continue
making the monthly lease payments and the dynamometer was returned to the
manufacturer, who was the holder of the lease. The excess of the undepreciated
capital asset's cost over the remaining liability, which totaled $249,000, was
charged to expense in 1998.
NOTE 3 - STOCK OPTIONS AND WARRANTS
The Company measures its employee stock-based compensation arrangements under
the provisions of APB No. 25. Had compensation costs for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net loss would have been increased by approximately
$640,700 and $549,900 for the years ended July 31, 1999 and 1998. The fair value
of options granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: (1) dividend yield of 0%,
(2) expected volatility of 164%, (3) risk-free interest rate of 5.88% to 6.59%,
and (4) an expected life of the options of five years.
In July 1999, the Company issued 50,000,000 warrants in conjunction with the
sale of common stock. The warrants were exercisable at $0.06 per share for an
equal number of shares of common stock, and expire in June 2004. The Company
determined the fair value of the warrant to be $406,000. Factors used in
determining the fair value included: (1) the effect on the stock price if the
warrants were exercised, (2) the thinly traded nature of the stock, (3) the
market for the warrants, and (4) the rate of return expected by the warrant
holders.
Revenue received under the development agreements recognized for the period
ended July 31, 1999, was approximately $1,954,000. Related expenses are recorded
in cost of revenues.
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