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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, 2001
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 common equity held by
non-affiliates of the registrant as of March 28, 2002 was $19,053,755. For
purposes of this calculation only, (i) shares of Series A and Series B Preferred
Stock have been included in the calculation, (ii) shares of Common Stock and
Series A Preferred Stock are deemed to have a market value of $0.17 per share,
and the Series B Preferred Stock is deemed to have a market value of $0.34 per
share, based on the average of the high bid and low ask prices of the Common
Stock on March 8, 2002, and (iii) 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, 2002 was
302,502,000.
ENOVA SYSTEMS, INC.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
ENOVA SYSTEMS, INC.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ........................................................... 3
Item 2. Properties ......................................................... 12
Item 3. Legal Proceedings .................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders ................ 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................... 15
Item 6. Selected Financial Data ............................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ......... 21
Item 8. Financial Statements and Supplementary Data ........................ 21
Item 9 Changes in Disagreements with Accountants on Accounting and
Financial Disclosure .............................................. 21
PART III
Item 10. Directors and Executive Officers of the Registrant ................. 22
Item 11. Executive Compensation ............................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 27
Item 13. Certain Relationships and Related Transactions ..................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 30
SIGNATURES .................................................................. 32
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. 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" in the Management's Discussion and
Analysis section and elsewhere in this report.
Item 1. Business
General
In July 2000, we changed our name to Enova Systems, Inc. Our 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 and power conversion systems. We are 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. Our 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.
Our fiscal year ends December 31. All year references refer to fiscal
years.
During 1999, we concentrated on creating new business in the mobile power
management and conversion markets as well as reducing operating costs and
outstanding debt. Our 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. Enova 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. We have enhanced our 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. We
completed development of an advanced charging unit and a parallel hybrid
production vehicle, and continue to produce the family of Panther(TM) drive
systems for their electric vehicles. Our Company has also developed a high power
charger for use with our drive systems. HMC has adapted a customized version of
the Panther(TM) 60 for their production electric vehicle, the Santa Fe sports
utility vehicle.
Beginning in 2000, we started working with Ecostar Electric Drive Systems,
now known as Ballard Power, to develop and manufacture low voltage electric
drive system components for use in Ford's Global Th!nk City. 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 our relationships with Hyundai, Ballard and other Original Equipment
Manufacturers or OEMs and Tier-One suppliers for sales of our automotive
products. We continue to offer our modular drive systems to OEMs and other
customers. These drive systems have been installed in various vehicles operating
in North America, Europe and Asia.
In 2001, Enova entered into several key additional supplier agreements and
commenced new development programs with automotive and transit OEMs both
domestically and internationally. Additionally, we completed various research
and development programs sponsored by the U.S. Government and private
corporations.
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Ford Motor Company Programs
In July 2001, we entered into a strategic relationship with Ford Motor
Company under which Enova was selected by Ford Motor Company's Th!nk brand to
develop and manufacture a high power, high voltage conversion module "HEC" for
their upcoming fuel cell vehicle. The HEC module will convert high voltage power
from the fuel cell into a lower voltage. Enova is currently in the second phase
of this program having successfully designed and tested the proof of concept
prototype.
This strategic relationship also grants Ford warrants to purchase up to
4.6% of our outstanding common stock over the life of this relationship. The
vesting of these warrants is dependent upon Ford meeting specific milestones
with regards to new production programs between Ford and Enova. The relationship
will last for five years during which Ford will evaluate Enova for future
programs.
Our development and production program with Ballard Power for low voltage
electric drive system components for use in Ford's Global Th!nk City has moved
into its production phase. Ford has announced that the all-electric vehicle is
scheduled to be introduced in 2002 for markets in North America and Europe.
Enova is designing and manufacturing the electronics for the drive system
including the power inverter, charger and controller. In conjunction with
Hyundai Autonet of Korea, our outsource manufacturer for these components, Enova
is finalizing production planning for initial production systems to be delivered
in mid 2002. Enova anticipates these systems to provide significant revenues in
the upcoming years.
Hyundai Motor Company Programs
We continue to develop hybrid and fuel cell based systems with Hyundai
Motor Company of Korea, "HMC", the world's seventh largest automobile
manufacturer. Enova, having successfully completed our hybrid drive system and
fuel cell EV program will work with HMC on advanced hybrid and fuel cell
applications in 2002. Furthermore, we have delivered four series hybrid drive
system for use in Hyundai's county bus at World Cup Soccer in Seoul, Korea in
June 2002.
HMC continues to contract with Enova for the development of advanced hybrid
and fuel cell powered drive systems. In regards to passenger vehicle programs,
we continue in our efforts to develop a commercially producible parallel hybrid
motor and controller for HMC's new hybrid vehicle to be introduced in 2004. The
first prototype for this program will be delivered in the first quarter of 2002
for evaluation. This program is a result of Enova's ongoing development efforts
with HMC since 1995.
We anticipate additional contracts for development and purchase of our
components during 2002 for HMC's alternative vehicle applications.
Light-Duty Drive Systems
In addition to the 30kW motor controller, charger and DC-DC converter which
we, in alliance with Hyundai Autonet, are manufacturing for Ballard, our company
is selling Panther 90kW drive systems. Our 90kW controller, motor and gear unit
provide outstanding performance for light duty vehicles such as midsize
automobiles and delivery vehicles. We have received a purchase order for over
200 Panther 90kW drive systems for 2002-2003 from an integrator of specialty
vehicles in the U.S. Additionally, we are discussing further sales of this
system configuration to other domestic and international customers.
Heavy-Duty Drive Systems
Sales of Panther 120kW drive systems continue to provide increased revenues
for our company. We have entered into supplier agreements with manufacturers in
Europe and Japan as well as domestically.
Eco Power Technology "EPT" in Italy purchased 15 Panther 120 electric drive
systems, which were delivered during the 2001, as well as three of our Fast
Chargers. Under the terms of our supplier agreement, EPT has given notice of
their production requirements for 2002, which range from 25 - 30 Panther 120
systems and additional Fast Chargers. EPT is one of the largest integrators of
medium size transit buses for the European electric and hybrid-electric shuttle
bus market with key customers in Italy. EPT's electric and hybrid-electric buses
are manufactured to European Economic Community standards and are therefore
available to all of continental Europe.
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Wrights Environment, a division of Wrights Bus, one of the largest
low-floor bus manufacturers in the United Kingdom, has integrated our hybrid
electric Panther(TM) 120kW drive system (utilizing the Capstone Microturbine as
the power source). Wrights will begin customer demonstrations in the second
quarter of 2002. Wrights has purchased additional pure electric drive systems
for their midsize buses for sale in the United Kingdom and the European
Continent. Furthermore, Wrights has begun discussions to purchase both our new
240kW drive system and our Fast Charger system. We anticipate additional orders
for both electric and hybrid-electric P120 drive systems during 2002.
Enova has entered the Japanese bus market with two new customers, Tomoe
Electro-Mechanical Engineering and Manufacturing, Inc. "Tomoe" and Moriah
Corporation. Both of these companies have entered into supplier agreements with
us. We delivered our first Panther 120 system to Tomoe and believe both
companies will purchase additional systems during the second or third quarter of
2002.
The development of the Southern California Edison utility vehicle utilizing
Enova's 120kW drive system and Capstone's 30kW microturbine continues on
schedule. Enova is developing additional power management accessories for this
vehicle so it can run power applications such as drills and motors for use by
the technicians. This line service truck is a demonstration vehicle, which will
potentially lead to sales to utility companies throughout the U.S.
In the high performance heavy-duty drive system area, we have completed the
first prototype of our Panther 204kW drive system. In conjunction with Hyundai
Heavy Industries and Ricardo, Inc, of the United Kingdom, a developer and
manufacturer of advanced transmissions, we have produced a robust, efficient and
powerful drive system for heavy-duty applications including transit buses,
heavy-duty trucks and other applications. We have been in discussions with
Wrights of the United Kingdom, Hyundai Motor Company and a major alternative
transit bus manufacturer in the U.S. regarding the purchase of these drive
systems in 2002.
Research and Development Programs
Our development and integration contracts with the U. S. Government's
Department of Transportation, or DOT, and the State of Hawaii continue to create
new opportunities for our drive systems.
During 2001, Enova, HMC and the State of Hawaii introduced 15 Hyundai Santa
Fe electric vehicles in Honolulu, Hawaii for test and evaluation prior to their
entry into the U.S. markets. The program will utilize Hawaii's rapid charging
stations, manufactured by AeroVironment. The contract has two elements, one for
integration of our Battery Care Unit (BCU II) to allow the vehicles to accept
fast charging and a second contract for maintenance of the vehicles over the
two-year program. The participants in the test program include state and local
offices as well as Hickam Air Force base. The vehicles are performing well and
initial reactions to their performance and handling is positive.
Our contract with the U.S. DOT to design and test a three-car tram
utilizing the Panther 120kW drive system has been completed and has been
delivered to the High Technology Development Corporation's (HTDC) facility in
Honolulu Hawaii. This tram, capable of carrying 100 passengers, will now be
delivered to the Honolulu International Airport for further test and evaluation.
We intend to market this tram system to international markets for application to
other airports, national and recreational parks and other high capacity transit
applications.
We completed the integration of our drive systems into several State of
Hawaii and DOT vehicles. Enova upgraded eight Chevrolet S-10 trucks owned by the
City of Honolulu to our Panther(TM) 60kW drive system, including our BCU-II for
fast-charge capability for Hawaii. Also, we are converting an Eldorado 30-foot
bus utilizing our Panther(TM) 120kW drive system for the Hickam Air Force base
in Honolulu. All of these programs are funded in conjunction with the Hawaii
Electric Vehicle Development Project, the DOT and State of Hawaii.
We will continue to establish new development programs with the Hawaii HTDC
as well as other state and federal government agencies as funding becomes
available in our areas of research.
5
Stationary Power Applications
Enova's stationary power programs continue to attract new potential
partners and customers from both fuel cell manufacturers and petroleum
companies. It is our belief that utilizing our power management systems for
stationary applications for fuel cells will open new markets for Enova. Enova is
developing applications for its products in the telecommunications and
distributed generation markets as well.
Enova's Fuel Cell Care Unit "FCU" is being delivered to UTC Fuel Cell, a
division of United Technologies, for use in their stationary fuel cell systems.
To date, we have delivered approximately 20 FCUs to UTC Fuel Cell and Hamilton
Sundstrand. The Hyundai companies have expressed interest in working with Enova
on the development of advanced fuel cell management technologies as well as
other domestic energy companies. Enova believes this market will play a key role
in our future and continues to pursue alliances with leading manufacturers in
this space.
Enova views stationary power applications of our power management systems
as an important new strategy for product development. In the stationary power
management field, Enova is developing applications for our products in the
telecommunications and distributed generation markets. Enova believes our
approach of providing the enabling technology in power management and conversion
to power generation companies is key to early access to these markets. Our joint
marketing and development efforts with Capstone Turbine, Avestor of Canada and
UTC Fuel Cell have the potential to assist Enova in penetrating these markets.
As discussed earlier, Enova is now producing and selling an advanced version of
our BCU and FCU for use with fuel cells in both stationary and mobile systems,
starting with IFC and ISE Research.
Debt Restructuring
We completed our balance sheet restructuring during 2001. Overall, we have
reduced outstanding indebtedness and liabilities by approximately $10,000,000
since we began our restructuring program in 1999. We have also been reducing our
outstanding past due accounts payable and other accrued liabilities. At December
31, 2001, we had eliminated all of our antecedent accounts payable and
non-current accrued liabilities.
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 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. Additionally, the federal government continues to offer
incentives for the purchase of alternative fuel vehicles as do many states.
International legislation regarding alternative fuel vehicles has also increased
over the last few years. For instance, beginning in 1998 Italy has required that
a minimum of 10% of all diesel buses now in operation be replaced by alternative
fuel buses. Other countries also have begun to mandate minimum levels of
alternative fuel transit vehicles and offer subsidies or incentives for
purchasers of electric and hybrid-electric vehicles. We have taken an aggressive
position in diversifying our product base to include various hybrid-electric
platforms in our 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.
Strategic Alliances, Partnering And Technology Developments
Our strategy is to adapt ourselves to the ever-changing environment of
alternative power markets for both stationary and mobile applications.
Originally focusing on pure electric drive systems, we are 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.
Enova 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 Enova are partnering in the development of advanced
drive-train technology and related systems. Additionally, Enova has begun to
partner with Ford and Ballard on
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other automotive programs and is looking to further develop these relationships.
We continue our strategy as a "systems integrator" by establishing relationships
to utilize other independently developed technologies such as those provided by
UTC Fuel Cells and Capstone Turbine. We have implemented our plans to outsource
manufacturing of our components to companies such as Hyundai Heavy Industries,
Ricardo, Hyundai Autonet and other Asian manufacturers. We believe that our
competitive advantage is our ability to identify, attract and integrate the
latest technology available to produce state of the art products at competitive
prices.
Our products are "production-engineered," meaning they are designed so they
can be commercially produced: all formats and files are designed with
manufacturability in mind, from the start. For the automotive market, Enova
designs its products to QS9000 manufacturing and quality standards. We believe
that our redundancy of systems, robustness of design, and rigorous quality
standards result in high performance and reduced risk. For every component and
piece of hardware, there are detailed performance specifications. Each piece is
tested and evaluated against these specifications, which enhances the value of
the systems to OEM customers.
Enova performs low-volume production in-house and assembly and out-sources
manufacturing for mass production. Outsourcing enables us to keep our capital
investment to a minimum, reducing expenditures for hardware, installation and
training, to avoid the problems of manufacturing equipment obsolescence.
Outsourcing also enables Enova to search out and work with a number of the best
QS 9000-certified manufacturers worldwide. We believe our strategy ensures that
our OEM customers have confidence in our products, and receive quality products.
Products
Enova's focus is digital power management, power conversion, and system
integration. Our software, firmware and hardware manage and control the power
that drives a vehicle or device. They convert the power into the appropriate
forms required by the vehicle or device, whether DC to AC, AC to DC or DC to DC,
and they manage the flow of this energy to protect the battery, the vehicle or
device, and the driver or operator. Enova's systems work "from drive train to
drive wheel" for both vehicle and stationary applications.
The latest state-of-the-art technologies such as hybrid vehicles, fuel cell
and micro turbine based systems, and stationary power generation all require
some type of power management and conversion mechanism. Utilizing our enabling
technologies, we supply these essential components. Our drive train systems work
with any kind of fuel/power source, from electric to hybrid to fuel cell to
turbine, and they are essential components for any vehicle, system or device
that uses power.
Enova 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. We believe our enabling
technologies will prove beneficial to these types of companies in their
strategies to bring these new power systems to commercialization.
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 are also designed to provide added reliability and safety by monitoring,
adjusting and reporting on operation of the unit.
Panther(TM) Electric and Hybrid-Electric Drive Systems
Enova's Panther electric drive system provides 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 for OEMs.
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Enova's family of light-duty drive systems includes 30kW, 60kW, 90kW
all-electric drives, 90kW fuel cell powered series-hybrid drive, and a 10kW
parallel-hybrid drive unit. Our family of heavy-duty electric drive systems
includes a 120kW all-electric drive, a 120kW turbine or diesel genset powered
series-hybrid drive, and a new 240kW turbine powered series-hybrid drive system.
Electric Drive Motors
The electric drive unit is essentially an electric motor with additional
features and functionality. The motor is liquid-cooled, environmentally sealed,
designed to handle automotive shock and vibration, and includes parking pawl,
which stops the vehicle when the driver parks the car. It also permits
regenerative braking to provide power recovery, in which the mechanical energy
of momentum is converted into electrical energy as the motor slows during
braking or deceleration. The optional gear reduction unit takes the electric
motor's high rpm and gears it down to the lower rpm required by the vehicle's
conventional drive shaft. As the rpm goes down, the torque of the electric motor
increases.
The Panther drive systems exclusively utilize 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.
Electric Motor Controllers
The controller houses all the components necessary to control the powering
of a vehicle, in one easy-to-install package. Our main component is an inverter,
which converts DC electricity to AC electricity. Enova also offers optional
controllers for the air conditioning, power steering and heat pump, 12VDC/24VDC
DC-to-DC converter for vehicle auxiliary loads such as cell phones, radio,
lights, and a 6.6kW AC-to-DC on-board conductive charger which allows for direct
110 VAC or 220 VAC battery charging. These are located in the same housing as
the controller, thus extra interconnects are not required. This approach
simplifies the vehicle wiring harness and increases system reliability.
Using our proprietary Windows(TM) based software package, vehicle
interfaces and control parameters can be programmed in-vehicle. Real-time
vehicle performance parameters can be monitored and collected.
Hybrid Drive Systems
The Enova Panther hybrid-electric drive systems are based on the component
building blocks of the electric drive family, including the motor, controller
and optional components. As an example, the 120/30 kW series hybrid system uses
the 120kW electric drive components to propel the vehicle, and uses a 30kW
Capstone micro-turbine to generate power while the vehicle is in operation. This
synergy of design reduces the development cost of Enova's hybrid systems by
taking advantage of existing designs. Accessories for these drives include
battery management, chargers and 12-volt power supplies for the electric drive
family.
Enova's hybrid systems are designed to work with a variety of hybrid power
generation technologies. In our 120/60kW hybrid system, an internal combustion
engine connected to a motor and motor controller performs the power generation.
Other power options include liquid fueled turbines, such as the Capstone system,
fuel cells, such as the IFC system, or many others. In all of these examples,
Enova's battery management system provides the power management to allow for
proper power control.
We are pursuing a two-part market penetration strategy in the distributed
generation (DG) market. Initial development is focusing on power management and
power conditioning components to be marketed directly to key DG System
suppliers. By moving aggressively, we hope to capture early market share as a
key component supplier for these companies.
The second part of the strategy will be the development of complete DG
systems for first the residential market, and then the commercial/industrial
market in alliance with a major energy or consumer/manufacturing partner. We
anticipate marketing these systems through well-known and well-established
retail home improvement centers and stores. These companies have the existing
infrastructure necessary to support the sale, installation, and field servicing
of the units.
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Battery Care Unit
We place a great amount of focus on our 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 us to adapt the hardware and software for a variety of power
sources such as batteries, turbines and fuel cells.
The BCU monitors the battery pack voltage and 28 additional individual
voltages with a range of 0 to 18vDC. Optional expansion modules allow 28
additional inputs per module, with up to 16 modules permitted. The BCU has eight
user-programmable outputs and four user-programmable inputs to allow full
integration into the vehicle. These can be used to customize input and output
parameters, and to provide for other custom monitoring and battery pack control.
The BCU directly interfaces with the Panther family of drive systems as
well as others, and controls the Safety Disconnect Unit. It is capable of
supporting any battery technology, and provides each type with optimized
charging and protection algorithms. An internal real-time clock allows the BCU
to wake up at user-specified times to initiate battery charging or pack
monitoring. A precision shunt allows it to offer a wide dynamic range for
monitoring charging and motoring current, without errors commonly associated
with other types of sensors.
The on-board memory allows the BCU to update, store and report key battery
pack parameters such as amp hours, kilowatt-hours and state of change. Using
Enova's proprietary Windows(TM)-based diagnostic software, the BCU control
parameters can be programmed in-vehicle. Additionally, battery performance can
be monitored in real-time. Reports can be output to a laptop computer.
Hybrid Control Unit
We have reconfigured our BCU to perform the critical role of hybrid
controller. The Hybrid Control Unit "HCU" continuously monitors the condition of
the battery pack through communications with the BCU, monitors the driver
commands through communications with the motor controller, and the state of the
hybrid generator. Based upon the data received, the HCU provides continuous
updates to the hybrid generator with instructions on mode of operation and power
level. The purpose of this innovative control loop is to ensure that the entire
system is optimized to provide quick response to driver commands while providing
the best possible system efficiency.
Safety Disconnect Unit
The Safety Disconnect Unit "SDU" is under the control of the BCU, and
allows vehicle systems to seamlessly connect and disconnect from the battery
pack when necessary to prevent damage or harm. It also disconnects the battery
pack during charging, protects it from surges, and constantly verifies that the
battery pack is isolated from the vehicle chassis. In the event a ground
isolation fault is detected, the BCU commands the SDU to break the battery
connection. The SDU is available in two configurations to match the requirements
of the drive systems.
Fast Charger
We have also developed a 40kW rapid charger for electric vehicles, which
reduces charging time from six to eight hours to 20 to 30 minutes. The charger
was originally developed in conjunction with HMC for Hyundai electric vehicles.
The Fast Charger is also ideal for small or shuttle buses, trams and trucks. We
are currently selling rapid chargers to EPT of Italy.
Fuel Cell Power Conditioning Unit
Enova has developed and is now producing a 30kW bi-directional Fuel Cell
Power Conditioning System. This system has been designed to meet the demands of
an automotive Fuel Cell propulsion system. This unique unit, not much larger
than a conventional briefcase, provides a transparent interface between the Fuel
Cell or Turbine, the battery pack, accessory loads, and the output load. Fast
response time allows the output load to be serviced without interruption while
the Fuel Cell or Turbine ramps up.
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This unit is designed to interface directly with the master controller of
the vehicle over a CAN bus. Other communications protocols supported are SAE
J-1850, RS-232, and RS-485. This proprietary package allows all key parameters
of the Power Conditioner to be monitored and control boundaries to be adjusted.
50kW ICE Generator Unit
Enova provides a complete 50kW Internal Combustion Engine Generator Set.
This unit is powered by a 4-cylinder direct injection diesel engine and is
controlled over the common CAN bus shared with the rest of the Panther product
line. The same HCU that controls the Capstone micro-turbine in other Enova
series hybrid configurations provides power command, start command, and stop
commands.
Fuel Cell Management Unit
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. We continue to develop our current systems for
new products and markets.
Enova has reconfigured its Battery Management Unit to perform the functions
required to monitor, manage, and report on the status of a Fuel Cell Stack. This
new unit, the FCU, is currently being used by UTC Fuel Cells as a Fuel Stack
Management System.
An internal real-time clock allows the FCU to wake up at user-specified
times to initiate battery charging or pack monitoring. A precision shunt allows
it to offer a wide dynamic range for monitoring charging and motoring current,
without errors commonly associated with other types of sensors. The built-in
memory allows the FCU to update, store and report key battery pack parameters
such as amp hours, kilowatt-hours and state of change. Using Enova's proprietary
Windows(TM)-based diagnostic software, the FCU control parameters can be
programmed in-system. Additionally, fuel cell performance can be monitored in
real-time. Reports can be output to a laptop computer.
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, we 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, our BCU 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 BCU 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 backup power.
Competitive Conditions
The competition to develop and market electric, hybrid and fuel cell
powered vehicles has increased during the last year and we expect this trend to
continue. The competition consists of development stage companies as well as
major U.S. and international companies. Our future prospects are 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 we 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
our markets for low emission vehicles or LEVs but not in markets where
10
government mandates call for zero emission vehicles or ZEVs. Enova 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. Our goal is to position
ourselves 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. We believe that this strategy
will enhance our position as a power management and conversion components
supplier to both the mobile and stationary power markets.
Research and Development
Enova believes that timely development and introduction of new technology
and products are essential to maintaining a competitive advantage. We are
currently focusing our 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
* OEM Technical and Product development.
For the year ended December 31, 2001 and 2000, we spent $879,000 and
$626,000, respectively, on internal research and development activities. For the
five months ending December 31, 1999 and the fiscal year ended July 31, 1999, we
spent $262,000 and $499,000, respectively, on internal research and development
activities. Enova 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 we will endeavor to
modernize our current products as well as continue to develop new leading edge
technologies to maintain our competitive edge in the market.
Intellectual Property
Enova currently holds one patent for crash management safety, which was
originally issued in 1997, and has submitted applications for four additional
patents and several trademarks or service marks in the United States. We
continually review and append our 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 us will result in patents being issued. Moreover,
there can be no assurance that third parties will not assert claims against us
with respect to existing and future products. Although we intend to vigorously
protect our 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 Enova.
Additionally, the laws of certain countries in which our products are or may be
developed, manufactured or sold may not protect our products and intellectual
property rights to the same extent as the laws of the United States.
11
Employees
As of December 31, 2001, we had 39 employees, of whom 38 are full-time and
1 part-time. Additionally, we employ six individuals as independent contractors,
engaged on an hourly basis, two of whom are domiciled in South Korea. The
departmental breakdown of these individuals includes 3 in administration, 1 in
sales, 30 in engineering and research and development, and 11 in production.
Item 2. Properties
Enova's corporate offices are located in Torrance, California, in leased
office space of approximately 20,000 square feet. This facility houses our
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. Enova also
has a leased office in Hawaii which is rented on a month to month basis at
$1,500 per month.
12
Item 3. Legal Proceedings
We may from time to time become a party to various legal proceedings
arising in the ordinary course of business. However, we are not currently a
party to any material legal proceedings.
We have settled a lawsuit brought against us by Fontal International in
June 2000, which was filed in the United States District Court, Central District
of California as previously disclosed in our March 31, 2000 Form 10Q. The suit
alleged breach of contract with respect to certain warrants to purchase
10,833,332 shares of Enova System's common stock. The settlement agreement
requires us to issue 6,000,000 shares of common stock which are to be registered
and freely tradable on, or before, March 31, 2002.
Item 4. Submission of Matters to a Vote of Security Holders.
We held our annual meeting of stockholders on November 13, 2001, at which the
following matters were voted upon:
1. Our stockholders voted upon and approved a proposal to approve an amendment
to our Certificate of Incorporation to effect a reverse stock split of our
Common Stock in a ratio of one-for-twenty, at any time until the next
Annual Meeting of Shareholders. The results of the voting were as follows:
Number of Shares voted FOR: 185,534,693
Number of Shares voted AGAINST: 3,007,569
Number of Shares ABSTAINING: 159,877
Number of Broker NON-VOTES: 8,800
2. Our stockholders voted upon and approved a proposal to approve an amendment
to our Certificate of Incorporation to effect a reverse stock split of our
Common Stock in a ratio of one-for-fifteen, at any time until the next
Annual Meeting of Shareholders. The results of the voting were as follows:
Number of Shares voted FOR: 186,525,681
Number of Shares voted AGAINST: 1,996,821
Number of Shares ABSTAINING: 167,841
Number of Broker NON-VOTES: 34,500
3. Our stockholders voted upon and approved a proposal to approve an amendment
to our Certificate of Incorporation to effect a reverse stock split of our
Common Stock in a ratio of one-for-ten, at any time until the next Annual
Meeting of Shareholders. The results of the voting were as follows:
Number of Shares voted FOR: 186,765,090
Number of Shares voted AGAINST: 1,774,383
Number of Shares ABSTAINING: 162,666
Number of Broker NON-VOTES: 8,800
4. Our stockholders voted upon and approved a proposal to approve an amendment
to our Certificate of Incorporation to effect a reverse stock split of our
Common Stock in a ratio of one-for-five, at any time until the next Annual
Meeting of Shareholders. The results of the voting were as follows:
Number of Shares voted FOR: 186,912,531
Number of Shares voted AGAINST: 1,614,567
Number of Shares ABSTAINING: 172,541
Number of Broker NON-VOTES: 11,300
13
5. Our stockholders voted upon and elected seven (7) individuals to the Board
of Directors. The following Directors will serve until the next Annual
Meeting of Shareholders or until their respective successors are elected
and qualified:
Re-elected Directors: FOR WITHHELD
--------------------- --- --------
Anthony Rawlinson 162,855,773 25,215,931(a)
Carl D. Perry 187,858,332 207,131
Edwin Riddell 187,858,332 212,231
Dr. Malcolm Currie 187,858,332 202,031
James Strock 187,845,905 214,191
John J. Micek, III (Preferred B) 639,135 0
Donald Dreyer (Preferred B) 639,135 0
6. Our stockholders voted upon and approved a proposal to ratify the action of
the Board of Directors appointing Moss Adams LLP as the independent
auditors for Enova for the year ended December 31, 2001. The results of the
voting were as follows:
Number of Shares voted FOR: 188,261,507
Number of Shares voted AGAINST: 210,584
Number of Shares ABSTAINING: 232,548
Number of Broker NON-VOTES: 6,300
(a) - 25,208,873 shares held by Anthony Rawlinson and ineligible for voting.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Our 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 bid
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
---------- --------- ------
Calendar 1999
First Quarter .................... $0.03 $0.03 62,842
Second Quarter ................... $0.13 $0.03 338,623
Third Quarter .................... $0.13 $0.08 263,886
Fourth Quarter ................... $0.81 $0.12 814,770
Calendar 2000
First Quarter .................... $0.77 $0.31 1,337,885
Second Quarter ................... $0.47 $0.23 476,538
Third Quarter .................... $0.44 $0.20 476,523
Fourth Quarter ................... $0.42 $0.16 332,731
Calendar 2001
First Quarter .................... $0.31 $0.17 237,760
Second Quarter ................... $0.31 $0.15 245,504
Third Quarter .................... $0.26 $0.13 116,110
Fourth Quarter ................... $0.31 $0.13 197,554
On March 8, 2002, the last reported high bid price of the Common Stock was
$0.17 and the last reported low asking price was $0.15. As of March 8, 2002,
there were approximately 9,842 holders of record of our Common Stock. As of
March 8, 2002, approximately 113 shareholders, many of who are also Common Stock
shareholders, held our Series A Preferred Stock. Approximately 34 shareholders
as of March 8, 2002 held our Series B Preferred Stock. The number of holders of
record excludes beneficial holders whose shares are held in the name of nominees
or trustees.
Dividend Policy
To date, we have neither declared nor paid any cash dividends on shares of
our Common Stock or Series A or B Preferred Stock. We presently intend to retain
all future earnings for our business and does not anticipate paying cash
dividends on our Common Stock or Series A or B Preferred Stock in the
foreseeable future. We are required to pay dividends on our Series A and B
Preferred Stock before dividends may be paid on any shares of Common Stock. At
December 31, 2001, Enova had an accumulated deficit of approximately $90,293,000
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.
15
Item 6. Selected Financial Data
The following selected financial data tables set forth selected financial
data for the year ended December 31, 2001 and 2000, the five month period ended
December 31, 1999 and the fiscal years ended July 31, 1999, 1998 and 1997. 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, 2001 and 2000, the five
month period ended December 31, 1999 and the three years ended July 31, 1999 are
derived from the audited Financial Statements of Enova. 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, (in thousands, Five Months Fiscal Years ending
except per share data) ended Dec 31 July 31,
2001 2000 1999 1999 1998 1997
---- ---- ---- ---- ---- ----
NET SALES $ 3,780 $ 2,883 $ 629 $ 2,774 $ 1,938 $ 4,484
COST OF SALES 2,783 2,013 377 1,460 2,765 2,042
--------------------------------------------------------------------------
GROSS MARGIN 997 870 252 1,314 (827) 2,442
--------------------------------------------------------------------------
OTHER COSTS AND EXPENSES
Research and Development 879 626 262 499 445 1,218
Selling, general and administrative 2,894 1,999 796 1,141 1,697 3,116
Interest and financing fees 113 174 724 724 665 792
Other expense (income) (7) 6 (41) (67) 274
Acquisition of research and
development 1,630
Gain on Warranty Reevaluations (474)
Legal Settlements 900 755 125
--------------------------------------------------------------------------
Total other costs and expenses 4,779 2,880 1,427 1,849 2,740 7,030
--------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (3,782) (2,010) (1,175) (535) (3,567) (4,588)
GAIN ON DEBT RESTRUCTURING 354 1,551 214 140 42 53
--------------------------------------------------------------------------
NET LOSS $ (3,428) $ (459) $ (961) $ (395) $ (3,525) $ (4,535)
==========================================================================
PER COMMON SHARE:
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Gain on debt restructuring 0.01
--------------------------------------------------------------------------
Net loss per common share $ (0.01) $ 0.00 $ (0.01) $ (0.01) $ (0.02) $ (0.03)
==========================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 275,189 235,199 251,994 152,077 151,265 133,806
==========================================================================
Total Assets $ 4,340 $ 3,094 $ 2,697 $ 3,940 $ 1,658 $ 4,513
==========================================================================
Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,639
==========================================================================
Shareholders' equity (deficit) $ (232) $ (1,648) $ (5,015) $ 7,316) $ (12,615) $ (9,095)
==========================================================================
16
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 2001 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. Our focus
is digital power conversion, power management, and system integration, for two
broad market applications - vehicle power generation and stationary power
generation.
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.
Specifically, we develop, design and produce drive systems and related
components for electric, hybrid-electric, fuel cell and microturbine-powered
vehicles. We also develop, design and produce 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 others' and our
internal related product development efforts.
Our product development strategy is to design and introduce to market
successively advanced products, each based on Enova's core technical
competencies. In each of our product / market segments, Enova provides products
and services to leverage our core competencies in digital power management,
power conversion and system integration. We believe that the underlying
technical requirements shared among the market segments will allow us 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. as of December 31, 2001 and 2000, the results of operations and cash flows
for the year ended December 31, 2001 and 2000 and the five month period ended
December 31, 1999 as well as 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 2001, we expanded our sales and development efforts to capture
additional global market share for our product line and our technical expertise.
Enova expanded into European and Asian markets with our heavy duty drive systems
and continued to progress on our development programs with Ford, Ballard,
Hyundai and the U.S. Department of Transportation. Our balance sheet
strengthened, we are now focusing on building our product line, increasing our
market share and developing the next generation of advanced power management and
conversion systems.
Our operations during the year ended December 31, 2001 were financed by
development contracts and product sales, as well as an additional equity
infusion of an aggregate of $3,000,000 from Jagen Pty, Ltd and Anthony Rawlinson
for the purchase of 50,000,000 shares of common stock, as previously reported.
We have completed the restructuring of our prior liabilities and debt. It
is our intention to continue to seek additional financing through private
placements and other means to increase research and development spending,
procure inventory and seek additional alliances to market our products. As of
March 22, 2002, we had no firm commitments for additional financing.
17
LIQUIDITY AND CAPITAL RESOURCES
Enova has experienced cash flow shortages due to operating losses primarily
attributable to research, development, marketing and other costs associated with
our strategic plan to become an international manufacturer and supplier of
electric propulsion and power management systems and components. Due to
increased research and development spending, cash flows from operations have not
been sufficient. We therefore have to raise funds through private financial
transactions. At least until we reach breakeven volume in sales and develop
and/or acquire the capability to manufacture and sell our products profitably,
we will need to continue to rely on cash from external financing. We anticipate
that we will require additional outside financing for at least the next twelve
months.
Enova is seeking new investment capital to fund research and development
and create new market opportunities. In order to fuel our growth in the
stationary power market, we will need additional capital to further these
development programs and augment our intellectual properties. In May 2001, Jagen
Pty, Ltd exercised warrants to purchase 41,666,666 shares of common stock at
$0.06 per share for a total of $2,500,000. In July 2001, Anthony Rawlinson, our
chairman, exercised warrants to purchase 8,333,334 shares of common stock at
$0.06 per share for a total of $500,000. Jagen and Mr. Rawlinson represented
that they were accredited investors. We relied on Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933, as amended, for the exemption from
registration of the sale of such shares.
In June 2001, we issued warrants to purchase 15,000,000 shares of common
stock of Enova Systems to Ford Motor Company with respect to a participation
program. We relied on Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended, for the exemption from registration of the
sale of such shares.
In early 2001, we retained Merrill Lynch as our investment advisor to
pursue equity financing options and other strategic alternatives. Enova intends
to vigorously pursue obtaining additional equity capital in order to fund new
product development and enhance our NASDAQ listing to the National NASDAQ
Market, although there is no assurance that such equity capital will be obtained
or that such listing will occur.
During the year ended December 31, 2001, our operations required $3,023,000
more in cash then were generated. Enova continues to increase research and
development spending, as well as increased sales, marketing and administrative
expenses necessary for expansion to meet customer demand. Accounts receivable
increased by $233,000 from $1,004,000, or 23% from the balance at December 31,
2000, as we continued to expand our customer base and increased sales. Inventory
increased by $520,000 from $406,000 or 128% from December 31, 2000 balances. As
we continue to enter into additional production contracts with companies such as
EPT, Ford, Ballard and other, we will continue to require additional raw
materials and finished goods to meet demand.
Fixed assets increased by $219,000 or 28% before depreciation for the year
ended December 31, 2001 from the prior year balance of $784,220 as we increased
both the number of engineers and the complexity of our programs. Increases in
test equipment, production machinery and both technical hardware and software
attributed to the increase.
Other assets increased by $668,000 during 2001 from $68,000 in 2000
primarily due to the booking of an asset in relation to the Ford Value
Participation Agreement. We determined, utilizing the Black Scholes method, the
value of the initial tranche of the vested warrants under this program is
$577,000. As additional warrants become vested in the coming years, they will be
valued under the same methodology and booked as an expense and into stockholders
equity. Additionally, increase were due to intellectual property expenses being
applied as they relate to several new patents on Enova technology.
As of December 31, 2001, we eliminated our antecedent accounts payable
which has a balance of $210,000 as of December 31, 2000.
The future unavailability or inadequacy of financing to meet future needs
could force us to delay, modify, suspend or cease some or all aspects of our
planned operations.
RESULTS OF OPERATIONS
Net sales of $3,780,000 for the twelve months ended December 31, 2001
increased $897,000 or 31% from $2,883,000 during the same period in 2000. Our
further expansion into production programs of our Panther 120kw systems as well
as new contracts with Ford and the DOT accounted for the increase in sales. We
changed our fiscal year end from July 31 to December 31 effective December 31,
1999. All comparisons of year-to-year financial data for 2000 to 1999 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.
18
Cost of sales of $2,783,000 for the year ended December 31, 2001 reflect an
increase of $770,000, or 38%, from $2,013,000 for the year ended December 31,
2000. Cost of sales as a percentage of sales remained at approximately 70% in
2001 which is consistent with 2000. As our sales mix changes from primarily
development contract revenues to more product sales, we believe this gross
margin will remain the same or improve on a year-to-year basis. Cost of sales of
$2,013,000 for the year ended December 31, 2000 increased $553,000, or 37%, from
$1,460,000 during the same period ending July 31, 1999. During the fiscal year
ended July 31, 1999, we sold a technology license to Hyundai Heavy Industries
which did not have associated costs of sales which accounted for the lesser
amount in 1999.
Product development costs incurred in the performance of engineering
development contracts for the U.S. Government and private companies 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 2001 to $879,000 from $626,000 for the same period in 2000, an
increase of $253,000, or 40%. Research and development expense increased in 2000
to $626,000 from $499,000 in fiscal 1999, an increase of $127,000 or 25%. As
part of our long-term strategic plan, we will continue to expend funds for
research and development for new technologies to enhance existing products as
well as develop new products in the areas of mobile and stationary power
management and conversion. Examples of these internally funded development
programs include the 240kW drive system and our advanced power management
systems for fuel cells and turbines.
Selling, general and administrative expense increased in the year ended
December 31, 2001 to $2,894,000 from $1,999,000 for the similar period in 2000.
Increased legal and accounting fees for the Fontal matter of approximately
$400,000, as well as increased regulatory requirements, account for the majority
of the rise in expense. We do not anticipate this level of professional fees to
continue. Additionally, we continue to increase sales, marketing and travel
expenses in relation to acquiring new business, creating alliances and servicing
current customers, which has resulted in additional sales for 2001 and will
facilitate in increasing sales for 2002. During 2001 and 2000, we continued to
add employees to accommodate our increased sales and customer services.
For the year ended December 31, 2001, interest and financing fees decreased
by $61,000 to $113,000, a decrease of 35%. The reduction was due to
restructuring of our long-term debt by forgiveness or conversion into equity.
For the year ended December 31, 2000, interest and financing fees decreased by
$550,000 to $174,000, a decrease of 76%. In 2000, interest and financing fees
decreased to $174,000 from $724,000 in 1999, a decrease of 76%, due to the
forgiveness of $4,300,000 of debt, formerly the Itochu debt, and the conversion
of $1,000,000 of Fontal debt.
In 2001, we completed our restructuring of the remainder of our antecedent
payables, reducing those accounts to zero from $210,000 in 2000, which resulted
in contributing to an extraordinary gain of $354,000 for the year. Our
liabilities and long-term debt are now current. 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.
As noted in Item 3 above, we settled a lawsuit brought against Enova by
Fontal International. The settlement requires us to issue 6,000,000 share of
common stock at a cost of $900,000, non-cash, exclusive of our legal fees. This
expense is recorded as legal settlements for 2001. Legal settlements for 2000
and 1999 were $75,000 and $125,000 respectively and related to matters involving
claims made in 1996 and 1998 respectively.
During 2001, we incurred several non-recurring professional expenses of
$400,000 and the legal settlement of $900,000 with respect to the Fontal
International lawsuit for an increase in operating expense of approximately
$1,300,000. Without these charges, our net loss from operations would be
$2,382,000, an increase of $372,000 or 18% from our $2,010,000 loss from
operations for the same period in 2000. We do not believe these types of
expenses will occur in 2002. The increase in net loss is attributable to a
number of factors as discussed previously in this Form 10K including the
increased legal and accounting fees, the legal settlement with respect to the
Fontal matter, increased research and development expenses and increased
marketing and administrative expenses relating to further establishing ourselves
as a key player in the mobile power conversion and management markets and to
develop new systems for the stationary markets. We shall continue to increase
engineering, production, and support personnel as we deem necessary to meet our
current and prospective customer needs. The loss from operations for 2000 of
$2,010,000 increased
19
$1,001,000 or 99% from the $1,009,000 loss in fiscal 1999, which excludes the
recapture of approximately $474,000 of prior warranty reserves.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued the following
Financial Accounting Standards (FAS):
FAS No. 140, " Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This Statement replaces FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001.
FAS No. 141, "Business Combinations", addresses financial accounting and
reporting for business combinations and supersedes Accounting Principles Board
Opinion No. 16. This Statement requires that all business combinations are to be
accounted for using the purchase method of accounting. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001.
FAS No. 142, "Goodwill and Other Intangible Assets", addresses financial
accounting and reporting for acquired goodwill and other intangible assets. It
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. This Statement
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements.
FAS No. 143, " Accounting for Asset Retirement Obligations", addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002.
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001.
Implementation of the above financial accounting pronouncements is not expected
to have a material effect on our financial position or results of operations.
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. We have experienced recurring losses from operations and
had an accumulated deficit of $90,293,000 at December 31, 2001. There is no
assurance, however, that any net operating losses will be available to us in the
future as an offset against future profits for income tax purposes.
Continued Losses. For the year ended December 31, 2001 and 2000, we had net
losses of $3,428,000 and $459,000 respectively on sales of $3,780,000 and
$2,883,000, respectively.
Nature of Industry. The mobile and stationary power markets including electric
vehicle ("EV") and Hybrid EVs ("HEV") continues to be subject to rapid
technological change. There are many large and small companies, both domestic
and foreign, now in this industry. Most of the major domestic and foreign
automobile manufacturers: (1) have produced electric and hybrid vehicles, and/or
(2) have developed improved electric storage, propulsion and control systems,
and/or (3) are now entering or have entered into production. Various
non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
20
electric, hybrid-electric and fuel cell powered vehicles depends upon: (a)
future regulation and legislation requiring more use of non-polluting or
low-emission vehicles, (b) the environmental consciousness of customers, and (c)
the ability of electric and hybrid-electric vehicles to successfully compete
with vehicles powered with internal combustion engines on price and performance.
Furthermore, the stationary power market is still in its infancy. A number of
established energy companies are developing new technologies to capture early
market share in this promising field. Cost-effective methods to reduce price per
kilowatt must be established before this market becomes viable.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero or low
emission vehicles is necessary to create a significant market for electric
vehicles. The California Air Resources Board (CARB) has recently confirmed its
mandatory limits for zero emission and low emission vehicles. There can be no
assurance, however, that further legislation will be enacted or that current
legislation or state mandates will not be repealed or amended, or that a
different form of zero emission or low emission vehicle will not be invented,
developed and produced, and achieve greater market acceptance than electric
vehicles. Extensions, modifications or reductions of current federal and state
legislation, mandates and potential tax incentives could adversely affect our
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.
21
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 Enova as of December 31, 2001:
================================================================================
Name Age Position
- --------------------------------------------------------------------------------
Anthony N. Rawlinson 47 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) 72 Director
- --------------------------------------------------------------------------------
John J. Micek, III (2) 49 Director
- --------------------------------------------------------------------------------
Donald H. Dreyer (2) 64 Director
- --------------------------------------------------------------------------------
James M. Strock 46 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,
Carl D. Perry, Director, Chief Executive Officer, President
Mr. Perry was elected Chairman, Chief Executive Officer, Chief Financial Officer
and Secretary of Enova in November 1997. Mr. Perry served as a Director and as
an Executive Vice President of Enova from 1993 until 1997. In 1997, Mr. Perry
was elected as Chairman of the Board and Chief Executive Officer of Enova, 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. (now
Bombadier), 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 Enova 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.
John J. Micek III, Director
Mr. Micek was elected a Director of Enova in 1999. Mr. Micek served as Enova'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
22
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 Enova 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 Enova 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 Enova 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 jamesstrock.com, inc., 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 Theodore Roosevelt: Executive
Lessons from the Bully Pulpit.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or executive
officers of Enova.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our Directors, executive
officers and persons who own more than 10% of our Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
our Common Stock to the Securities and Exchange Commission ("SEC"). Copies of
these reports are also required to be delivered to Enova.
We believe, based solely on our review of the copies of such reports
received or written representations from certain Reporting Persons, that during
2001, all Reporting Persons complied with all applicable filing requirements.
23
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation earned by our Chief
Executive Officer and each of the other most highly compensated executive
officers of Enova whose annual salary and bonus exceeded $100,000 for the years
ended December 31, 2001, 2000 and 1999 (collectively, the "Named Executive
Officers"). Mr. Carl D. Perry is the sole executive officer of Enova whose
salary currently exceeds $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------
Salary Bonus
Name and Principal Position Year ($) ($)
- --------------------------- ---- ----- -----
Carl D. Perry (1) 2001 136,118 $30,000
Chief Executive Officer, Chief 2000 128,170 --
Financial 1999 75,000 --
Officer, President and Secretary
(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr.
Perry's current salary is $150,000 per year, approved by the Board of Directors
in June, 2000.
Option/SAR Grants
No grants of stock options or stock appreciation rights ("SARs") were made
during 2001 to the Named Executive Officers.
Option Exercises and Option Values
The following table sets forth information concerning option exercises
during 2001, and the aggregate value of unexercised options as of December 31,
2001, held by each of the Named Executive Officers:
Aggregated Option/SAR Exercises in 2001
and Option Values at December 31, 2001
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option Options at In-the-Money Options at
Exercises in 2001 December 31, 2001 (#) December 31, 2001 ($) (1)
----------------- --------------------------- ---------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------- -------- ----------- ------------- ----------- -------------
Carl D. Perry -- -- 1,200,000 -- $72,000(1) N/A
(1) Calculated on the basis of $0.16 (representing the average of the high bid
and low ask prices of the Common Stock on December 31, 2001 of $0.16 per
share), minus the exercise price.
24
Compensation of Directors
In September 1999, our Board of Directors unanimously approved a
compensation package for outside directors consisting of the following: for each
meeting attended in person, each outside director is to 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 is to 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 is to 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 8, 2002, 1,514,281 shares had been issued under the above
compensation plan for Directors.
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)
25
Stock Performance Graph
The graph below compares the cumulative total shareholder return on our
Common Stock with the cumulative total return on the Standard & Poor's Small
Capitalization 600 Index and an index of peer companies selected by us. A group
of five other electric vehicle companies comprise the peer group index.(1)
The period shown commences on December 31, 1996, and ends on December 31,
2001, the end of our last fiscal year. The graph assumes an investment of $100
on December 31, 1996 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 our Common Stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ENOVA SYSTEMS, INC., THE S & P SMALLCAP 600 INDEX
AND A PEER GROUP
[The following table was depicted as a line chart in the printed material.]
Cumulative Total Return
-----------------------
12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- -----
ENOVA SYATEMS, INC 27.65 18.24 191.18 100.00 88.24
S & P SMALLCAP 600 125.58 129.01 145.01 162.13 195.17
PEER GROUP 93.80 77.86 139.78 122.96 77.90
* $100 invested on 12/31/96 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
Copyright(C)2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved.
DECEMBER 31, 1996 TO DECEMBER 31, 2001
1) Companies included in the peer group index are Amerigon, Inc. (ARGN),
Electric Fuel Corp. (EFCX), Energy Conversion Devices, Inc. (ENER), Unique
Mobility (UQM), and Valence Technology, Inc. (VLNC).
26
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of our stock as of March 8, 2002, (i) by each person (or group of
affiliated persons) who is known by Enova to own beneficially more than 5% of
any class of our voting securities, (ii) by each of our Directors, (iii) by each
of our Named Executive Officers listed in the Summary Compensation Table below,
and (v) by our 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.
- -------------------------------------------------------------------------------------------------------------------------
Name Shares Percentage of Shares Voting
Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
- -------------------------------------------------------------------------------------------------------------------------
Jagen, Pty., Ltd. 125,000,000 35.31% 40.52%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
- -------------------------------------------------------------------------------------------------------------------------
Carl D. Perry 11,200,500 (4) 3.16% 3.24%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- -------------------------------------------------------------------------------------------------------------------------
Citibank N.A. 31,655,754 8.94% 10.26%
111 Wall Street, 8th Floor
New York, NY 10043
- -------------------------------------------------------------------------------------------------------------------------
Anthony N. Rawlinson 25,208,873 7.12% 8.17%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- -------------------------------------------------------------------------------------------------------------------------
John J. Micek, III 817,383(5) * *
- -------------------------------------------------------------------------------------------------------------------------
Edwin O. Riddell 447,445 * *
- -------------------------------------------------------------------------------------------------------------------------
Dr. Malcolm Currie 325,878 * *
- -------------------------------------------------------------------------------------------------------------------------
Donald H. Dreyer 212,646 * *
- -------------------------------------------------------------------------------------------------------------------------
James M. Strock 67,056 * *
- -------------------------------------------------------------------------------------------------------------------------
Delphi Delco Electronics (6) 1,278,720 * *
- -------------------------------------------------------------------------------------------------------------------------
Jean Schulz (7) 1,329,111 * 1.12%
- -------------------------------------------------------------------------------------------------------------------------
All Directors and executive officers 38,279,781 (8) 10.81% 12.04%
as a group (7 persons)
- -------------------------------------------------------------------------------------------------------------------------
* Indicates less than 1%
(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 28, 2002.
(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
28, 2002.
27
(3) The percentages are based on the number of shares of Common Stock, Series A
Preferred Stock and/or 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 and (iii) the total Series B
Preferred Stock outstanding. 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 and each share of
Series B Preferred Stock is entitled to two votes per share.
(4) 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.
(5) 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.
(6) The shareholder owns of record and beneficially shares of Series B
Preferred Stock only. Series B shares represent the equivalent of two
shares of Common Stock for every one share of Series B Preferred Stock. The
number of shares represents 53% of the outstanding Series B Preferred Stock
as of March 8, 2002.
(7) The shareholder owns of record and beneficially shares of Series A
Preferred Stock only. Series A shares represent the equivalent of one share
of Common Stock for every one share of Series A Preferred Stock. The number
of shares represent 47% of the outstanding Series A Preferred Stock as of
March 8, 2002.
(8) Includes 1,765,000 shares of Common Stock issuable pursuant to stock
options exercisable at price of $.10 per share.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
28
Item 13. Certain Relationships and Related Transactions
The following are certain transactions entered into between Enova and its
officers, directors and principal shareholders and their affiliates since
January 1, 2001.
Transactions with Management and Others:
During 2001, there were no transactions or series of similar transactions to
which we were or are to be a party in which the amount involved exceeds $60,000
and in which any of our directors, executive officers or holders of more than 5%
of our common stock, or an immediate family member of any of the foregoing, had
or will have a direct or indirect interest other than:
o compensation arrangements, which are described where required under
"Management"; and
o the transactions described below.
In May 2001, Jagen Pty, Ltd. exercised warrants to purchase 41,666,666 shares of
common stock at $0.06 per share for a total of $2,500,000 paid solely in cash.
Jagen represented that it was an accredited investor under the definition set
forth by the Securities and Exchange Commission. We relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the
exemption from registration of the sale of such shares.
In July 2001, Anthony Rawlinson exercised warrants to purchase 8,333,334 shares
of common stock at $0.06 per share for a total of $500,000 paid solely in cash.
Mr. Rawlinson represented that he was an accredited investor under the
definition set forth by the Securities and Exchange Commission. We relied on
Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as
amended, for the exemption from registration of the sale of such shares.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
29
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
None.l
(c) Exhibits
Exhibit Number Description
- --------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10K
for the year ended December 31, 2000 filed on March 30, 2001 and
incorporated herein by reference).
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 Enova 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 Enova 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 Enova 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).
30
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 Enova 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 Registrant 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 (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for fiscal year ended
December 31, 2000 and incorporated herein by reference).
10.17 Put/Call Option to sell Itochu shares between Registrant and Carl D.
Perry dated September 1, 1999 (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for fiscal year ended
December 31, 2000 and incorporated herein by reference).
23.1* Consent of Moss Adams, LLC, Independent Auditors
24* Power of Attorney (included on signature page)
- ----------------------
* Filed herewith.
31
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 28, 2002.
ENOVA SYSTEMS, INC.
By: /s/ Carl D. Perry
----------------------------------------------------------------------------
Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
Dated: March 28, 2002
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 28, 2002
- -------------------------- Officer and Director
Carl D. Perry (Principal Executive Officer)
/s/ Anthony N. Rawlinson Chairman March 28, 2002
- --------------------------
Anthony N. Rawlinson
/s/ Malcolm Currie Director March 28, 2002
- --------------------------
Malcolm Currie
/s/ Edwin O. Riddell Director March 28, 2002
- --------------------------
Edwin O. Riddell
/s/ John J. Micek, III Director March 28, 2002
- --------------------------
John J. Micek, III
/s/ Donald H. Dreyer Director March 28, 2002
- --------------------------
Donald H. Dreyer
/s/ James M. Strock Director March 28, 2002
- --------------------------
James M. Strock
32
- --------------------------------------------------------------------------------
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, 2001 AND 2000.................................F-2
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-3
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-4
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-5
NOTES TO FINANCIAL STATEMENTS................................................F-6
- --------------------------------------------------------------------------------
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, 2001and 2000, and the statements of
operations, stockholders' deficit, and cash flows for the two years ended
December 31, 2001, the five months ended December 31, 1999, and the year ended
July 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the results of its operations and cash flows for
the two years ended December 31, 2001, the five months ended December 31, 1999,
and the year ended July 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ MOSS ADAMS LLP
Santa Rosa, California
February 22, 2002
Page F-1
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
BALANCE SHEETS
December 31, 2001 and 2000
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
2001 2000
------------ ------------
CURRENT ASSETS
Cash $ 1,179,000 $ 1,310,000
Accounts receivable 1,237,000 1,004,000
Inventories and supplies 926,000 406,000
Related party receivable, current maturities 25,000 25,000
Prepaids and other current assets 87,000 68,000
------------ ------------
Total current assets 3,454,000 2,813,000
PROPERTY AND EQUIPMENT 280,000 214,000
RELATED PARTY RECEIVABLE, less current maturities 32,000 57,000
OTHER ASSETS 574,000 10,000
------------ ------------
Total assets $ 4,340,000 $ 3,094,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 167,000 $ 106,000
Accrued payroll and related expenses 194,000 301,000
Other accrued expenses 53,000 119,000
Current maturities of long-term debt 120,000 120,000
Current maturities of capital lease obligations 9,000 9,000
------------ ------------
Total current liabilities 543,000 655,000
ACCRUED INTEREST PAYABLE 677,000 514,000
LONG-TERM PAYABLES -- 210,000
CAPITAL LEASE OBLIGATIONS, less current maturities 20,000 31,000
LONG-TERM DEBT, less current maturities 3,332,000 3,332,000
------------ ------------
Total liabilities 4,572,000 4,742,000
------------ ------------
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock - no par value; 30,000,000 shares
authorized; 2,844,000 shares issued and outstanding; liquidating
preference at $0.60 per share aggregating $1,706,000 1,867,000 1,867,000
Series B convertible preferred stock - no par value; 5,000,000 shares
authorized; 1,217,000 shares issued and outstanding; liquidating
preference at $2.00 per share aggregating $2,434,000 2,434,000 2,434,000
Common stock - no par value; 500,000,000 shares authorized;
302,502,000 and 244,249,000 shares issued and outstanding 79,859,000 75,680,000
Common stock subscribed 160,000 13,000
Stock notes receivable (1,208,000) (1,149,000)
Additional paid-in capital 6,949,000 6,372,000
Accumulated deficit (90,293,000) (86,865,000)
------------ ------------
Total stockholders' deficit (232,000) (1,648,000)
------------ ------------
Total liabilities and stockholders' deficit $ 4,340,000 $ 3,094,000
============ ============
See accompanying notes.
- ----------------------------------------------------------------------------------------------------------------------
Page F-2
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
December July
2001 2000 1999 1999
------------- ------------- ------------- -------------
NET REVENUES $ 3,780,000 $ 2,883,000 $ 629,000 $ 2,774,000
COST OF REVENUES 2,783,000 2,013,000 377,000 1,460,000
------------- ------------- ------------- -------------
GROSS PROFIT 997,000 870,000 252,000 1,314,000
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES
Research and development 879,000 626,000 262,000 499,000
Selling, general, and administrative 2,894,000 1,999,000 796,000 1,141,000
Interest and financing fees 113,000 174,000 244,000 724,000
(Gain) loss on disposition of fixed assets (7,000) 6,000 -- --
Legal settlements 900,000 75,000 125,000 --
Gain on warranty accrual reevaluation -- -- -- (474,000)
Other (income)/expense -- -- -- (41,000)
------------- ------------- ------------- -------------
Total other costs and expenses 4,779,000 2,880,000 1,427,000 1,849,000
------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (3,782,000) (2,010,000) (1,175,000) (535,000)
EXTRAORDINARY ITEM - GAIN ON DEBT
RESTRUCTURING 354,000 1,551,000 214,000 140,000
------------- ------------- ------------- -------------
NET LOSS $ (3,428,000) $ (459,000) $ (961,000) $ (395,000)
============= ============= ============= =============
LOSS PER COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Gain on debt restructuring -- 0.01 -- --
------------- ------------- ------------- -------------
$ (0.01) $ -- $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING $ 275,188,979 $ 235,199,406 $ 251,993,533 $ 152,076,615
============= ============= ============= =============
See accompanying notes.
- ----------------------------------------------------------------------------------------------------------------------
Page F-3
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock
------------------------------------------------------------
Series A Series B Common Stock
---------------------------- ---------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 1998 3,321,000 $ 2,258,000 1,291,000 $ 2,584,000 151,767,000 $ 68,742,000
Common Stock Transactions
Conversion of Series A
preferred stock (62,000) (67,000) -- -- 62,000 67,000
Conversion of Series B
preferred stock -- -- (49,000) (98,000) 163,000 98,000
Sale of stock -- -- -- -- 83,333,000 2,375,000
Conversion of debt -- -- -- -- 16,667,000 219,000
Issuance of common stock warrants -- -- -- -- -- --
Debt forgiveness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 1999 3,259,000 2,191,000 1,242,000 2,486,000 251,992,000 71,501,000
Common Stock Transactions
Conversion of Series A
preferred stock (20,000) (25,000) -- -- 20,000 25,000
Stock issued for services -- -- -- -- -- --
Conversion of debt -- -- -- -- -- --
Debt forgivness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 3,239,000 2,166,000 1,242,000 2,486,000 252,012,000 71,526,000
Common Stock Transactions
Conversion of Series A
preferred stock (395,000) (299,000) -- -- 395,000 299,000
Conversion of Series B
preferred stock -- -- (25,000) (52,000) 71,000 52,000
Stock options exercised -- -- -- -- 3,315,000 392,000
Sale of stock -- -- -- -- 6,667,000 2,000,000
Stock issued for services -- -- -- -- 5,722,000 1,497,000
Conversion of debt -- -- -- -- 37,000 14,000
Repurchase of stock from stockholder -- -- -- -- (23,970,000) (100,000
Debt forgiveness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 2,844,000 1,867,000 1,217,000 2,434,000 244,249,000 75,680,000
Common Stock Transactions
Stock issued on exercise of warrants -- -- -- -- 50,000,000 3,000,000
Stock options exercised -- -- -- -- 1,805,000 181,000
Stock issued for services -- -- -- -- 448,000 98,000
Stock issued in legal settlement -- -- -- -- 6,000,000 900,000
Warrants issued for value
participation agreement -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 2,844,000 $ 1,867,000 1,217,000 $ 2,434,000 302,502,000 $ 79,859,000
============ ============ ============ ============ ============ ============
Common Stock
Subscribed Additional
--------------------------- Paid-In Stock Notes Accumulated
Shares Amount Capital Receivable Deficit Total
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 1998 -- $ -- $ -- $(1,149,000) $(85,050,000) $(12,615,000)
Common Stock Transactions
Conversion of Series A
preferred stock -- -- -- -- -- --
Conversion of Series B
preferred stock -- -- -- -- -- --
Sale of stock -- -- -- -- -- 2,375,000
Conversion of debt -- -- -- -- -- 219,000
Issuance of common stock warrants -- -- 406,000 -- -- 406,000
Debt forgiveness by stockholder -- -- 2,694,000 -- -- 2,694,000
Net loss -- -- -- -- (395,000) (395,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 1999 -- -- 3,100,000 (1,149,000) (85,445,000) (7,316,000)
Common Stock Transactions
Conversion of Series A
preferred stock -- -- -- -- -- --
Stock issued for services 1,317,000 148,000 -- -- -- 148,000
Conversion of debt 4,246,000 1,297,000 -- -- -- 1,297,000
Debt forgivness by stockholder -- -- 1,817,000 -- -- 1,817,000
Net loss -- -- -- -- (961,000) (961,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 5,563,000 1,445,000 4,917,000 (1,149,000) (86,406,000) (5,015,000)
Common Stock Transactions
Conversion of Series A
preferred stock -- -- -- -- -- --
Conversion of Series B
preferred stock -- -- -- -- -- --
Stock options exercised -- -- -- -- -- 392,000
Sale of stock -- -- -- -- -- 2,000,000
Stock issued for services (5,518,000) (1,432,000) -- -- -- 65,000
Conversion of debt -- -- -- -- -- 14,000
Repurchase of stock from stockholder -- -- -- -- -- (100,000)
Debt forgiveness by stockholder -- -- 1,455,000 -- -- 1,455,000
Net loss -- -- -- -- (459,000) (459,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 45,000 13,000 6,372,000 (1,149,000) (86,865,000) (1,648,000)
Common Stock Transactions
Stock issued on exercise of warrants -- -- -- -- -- 3,000,000
Stock options exercised -- -- -- (59,000) -- 122,000
Stock issued for services 955,000 147,000 -- -- -- 245,000
Stock issued in legal settlement -- -- -- -- -- 900,000
Warrants issued for value
participation agreement -- -- 577,000 -- -- 577,000
Net loss -- -- -- -- (3,428,000) (3,428,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 1,000,000 $ 160,000 $ 6,949,000 $ (1,208,000) $(90,293,000) $ (232,000)
============ ============ ============ ============ ============ ============
See accompanying notes.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-4
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
December July
2001 2000 1999 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,428,000) $ (459,000) $ (961,000) $ (395,000)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 205,000 136,000 60,000 179,000
Loss on disposition of fixed assets -- 6,000 -- --
Gain on debt restructuring and extinguishment (210,000) (1,551,000) (214,000) (140,000)
Stock issued for services 245,000 66,000 148,000 --
Stock issued for legal settlement 900,000 -- -- --
Accrued interest forgiven -- 156,000 219,000 --
Change in allowance for doubtful accounts -- -- -- (108,000)
Provision to reduce inventory values -- -- -- (36,000)
Changes in valuation allowances and reserves -- -- -- (640,000)
Change in operating assets and liabilities:
Accounts receivable (233,000) (432,000) 185,000 (560,000)
Inventories (520,000) (151,000) (33,000) 329,000
Related party receivable 25,000 25,000 12,000 --
Note receivable -- -- -- 250,000
Prepaids and other current assets (19,000) (7,000) 21,000 32,000
Other assets (39,000) -- -- --
Accounts payable and accrued expenses (112,000) (120,000) (77,000) 678,000
Accrued interest payable 163,000 75,000 (154,000) --
Customer deposits -- (102,000) 102,000 (387,000)
----------- ----------- ----------- -----------
Net cash from operating activities (3,023,000) (2,358,000) (692,000) (798,000)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment acquisitions (219,000) (88,000) (3,000) (1,000)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable -- -- -- 400,000
Proceeds from exercise of warrants and options 3,122,000 -- -- --
Proceeds from sale of stock -- 2,392,000 -- --
Purchase of common stock -- (100,000) -- 2,600,000
Payments on notes payable and capital lease obligations (11,000) (1,000) (307,000) --
----------- ----------- ----------- -----------
Net cash from financing activities 3,111,000 2,291,000 (307,000) 3,000,000
----------- ----------- ----------- -----------
NET CHANGE IN CASH (131,000) (155,000) (1,002,000) 2,201,000
CASH, beginning of the period 1,310,000 1,465,000 2,467,000 266,000
----------- ----------- ----------- -----------
CASH, end of the period $ 1,179,000 $ 1,310,000 $ 1,465,000 $ 2,467,000
=========== =========== =========== ===========
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ 5,000 $ 40,000 $ 9,000 $ --
Non-cash investing and financing activities:
Conversion of preferred stock to common stock $ -- $ 351,000 $ 25,000 $ 166,000
Conversion of debt and accrued interest to equity $ -- $ 1,470,000 $ 2,894,000 $ 400,000
Issuance of warrants $ -- $ -- $ -- $ 406,000
Equipment acquired under capital lease $ -- $ 41,000 $ -- $ --
See accompanying notes.
- -----------------------------------------------------------------------------------------------------------------------
Page F-5
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of operations - Enova Systems, Inc., formerly U.S. Electricar, Inc.,
is a California corporation that develops drive trains and related components
for electric, hybrid electric, and fuel cell systems for mobile and stationary
applications. 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. The Company develops and sells components in the
United States and Asia and sells components in Europe.
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, 2001 or 2000.
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 and equipment - Property 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 indicate 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. Revenues from sales of components are recognized when shipped and
title passes to the customer. During 1999, revenue from the sale of electric
vehicles was recognized when the vehicle was delivered to the customer.
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. A customer, Hyundai, is also a stockholder that holds
less than 5% of the outstanding common stock. For the years ended December 31,
2001 and 2000, Hyundai accounted for approximately 13% and 58% of total
revenues. Revenues associated with Hyundai for the five months ended December
31, 1999, and the twelve months ended July 31, 1999, were 63% and 44%.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires the
Company 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
- --------------------------------------------------------------------------------
Shipping costs - Shipping and handling are included in costs of goods sold.
Warranties - In 1999, electric vehicle warranties were provided by the Company
on vehicles sold when the Company was U.S. Electricar. The warranties 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
concurrent with the reevaluation of the warranty accrual.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with accounting principles generally accepted in
the United States. 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) has issued the following accounting pronouncements:
SFAS No. 141, "Business Combinations." This Statement addresses financial
accounting and reporting for business combinations and supersedes Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001. The adoption of SFAS
No. 141 is not expected to have a material effect on the Company's financial
statements.
SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The provisions of this
Statement are required to be applied starting with fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 142 is not expected to have a
material effect on the Company's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset. The provisions
of this Statement are required to be applied starting with fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to
have a material effect on the Company's financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS 144 replaces SFAS 121 and amends certain
other accounting pronouncements. The provisions of this Statement are effective
for financial statements issued for fiscal years beginning after December 15,
2001. The adoption of SFAS No. 144 is not expected to have a material effect on
the Company's financial statements.
- --------------------------------------------------------------------------------
Page F-7
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - MANAGEMENT'S PLANS
The Company has experienced cash flow shortages due to operating losses
primarily attributable to research and development, marketing, and other costs
associated with its strategic plan to become an international manufacturer and
supplier of electric propulsion and power management systems and components.
Additional outside financing is anticipated until the Company reaches a
breakeven volume in sales and develops and/or acquires the capability to
manufacture and sell products profitably. While the Company continues its
efforts to obtain additional equity funding, a major stockholder has committed
up to $2 million to fund operations during 2002.
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.
NOTE 3 - PROPERTY AND EQUIPMENT
2001 2000
---------- ----------
Computers $ 154,000 $ 124,000
Machinery and equipment 407,000 285,000
Furniture and office equipment 186,000 126,000
Demonstration vehicles and buses 147,000 142,000
Leasehold improvements 68,000 66,000
Equipment under capital lease 41,000 41,000
---------- ----------
1,003,000 784,000
Less accumulated depreciation and amortization 723,000 570,000
---------- ----------
$ 280,000 $ 214,000
========== ==========
NOTE 4 - 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 5 - OTHER ASSETS
The Company is in the process of obtaining patents for several products. The
legal costs associated with the patents, $49,000 to date, have been capitalized
and will be amortized over the life of the patents upon receiving the patent.
In June 2001, the Company entered into a strategic relationship with Ford Motor
Company to develop and manufacture a high power, high voltage conversion module
for Ford's fuel cell vehicle. Warrants were issued to Ford Motor Company in
exchange for Ford's commitment to enter into this five-year agreement. The
issuance of the warrants was recorded as a noncurrent asset (Value Participation
Agreement) at its fair market value of $ 577,000, and is being amortized on a
straight-line basis over the life of the contract. Fair market value was
determined using the Black-Scholes option pricing model.
2001 2000
-------- --------
Patents $ 49,000 $ 10,000
Valuation Participation Agreement 577,000 --
-------- --------
626,000 10,000
Less accumulated amortization 52,000 --
-------- --------
$574,000 $ 10,000
======== ========
- --------------------------------------------------------------------------------
Page F-8
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT
2001 2000
---------- ----------
Secured promissory note to Credit Managers Association of
California, with interest at 3% for the first five years beginning
June 1996, 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 $3,332,000 $3,332,000
Unsecured promissory note with interest at 10%, note is past due 120,000 120,000
---------- ----------
3,452,000 3,452,000
Less current maturities 120,000 120,000
---------- ----------
$3,332,000 $3,332,000
========== ==========
NOTE 7 - CAPITAL LEASE OBLIGATIONS
The Company rents manufacturing and office equipment under various capital lease
agreements that expire beginning in 2003. Future minimum lease payments under
these capital lease agreements are as follows:
Year Ending December 31,
------------------------
2002 $ 14,000
2003 16,000
2004 6,000
2005 7,000
--------
43,000
Less amounts representing interest 14,000
--------
Present value of minimum lease payments 29,000
Less current maturities 9,000
--------
$ 20,000
========
NOTE 8 - OPERATING LEASES
The Company's lease on its Torrance, California, facility expires in February
2003. Rent expense was $210,000 and $177,000 for the years ended December 31,
2001 and 2000. Rent for the five months ended December 31, 1999, and the twelve
months ended July 31, 1999, was $40,000 and $144,000. Future minimum lease
payments are as follows:
Year Ending December 31,
------------------------
2002 $ 163,000
2003 27,000
----------
$ 190,000
==========
- --------------------------------------------------------------------------------
Page F-9
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - 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.
Substantially all of the stock notes receivable stem from a Board of Directors
plan for the sale of shares of Series A preferred stock in 1993 to certain
officers and directors (Participants). 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 on a two-for-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, if the
offering results in net proceeds of $10,000,000, and the per share price of
common stock is at least $2.00; and the merger, consolidation, or sale of common
stock or sale of substantially all of the Company's assets in which gross
proceeds received are at least $10,000,000. 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.
Stock issued for legal settlement - In December 2001, the Company settled an
outstanding lawsuit related to warrants that were issued during 1996 in exchange
for services performed. The warrants contained a cashless exercise option and
were originally set to expire in 1997. The holders of these warrants claimed,
however, that the Company had agreed to extend the term. To settle the lawsuit,
the Company agreed to issue to the warrant holders 6,000,000 shares of common
stock with a fair market value on the date of issuance of $900,000.
NOTE 10 - 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 1,500,000 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 or 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.
- --------------------------------------------------------------------------------
Page F-10
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
The following summarizes common stock option activity (shares in thousands):
1996 Plan 1993 Plan Other
-------------------------- --------------------------- --------------------------
Shares Price Shares Price Shares Price
----------- ----------- ------------- ----------- ------------ -----------
Options outstanding at July 31, 1998 8,439,000 $ 0.10-0.30 11,383,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 1,765,000 0.10 -- -- -- --
Exercised (1,765,000) 0.30 (113,000) 0.30 -- --
Forfeited (49,000) 0.30 (159,000) 0.30 -- --
----------- ----------- -----------
Options outstanding at July 31, 1999 8,390,000 11,111,000 1,495,000 0.60-2.80
Granted 12,339,000 $ 0.11 -- -- -- --
Forfeited (234,000) 0.11-0.30 -- -- -- --
----------- ----------- -----------
Options outstanding at December 31, 1999 20,495,000 $ 0.10-0.30 11,111,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 3,600,000 0.17-0.30 -- -- -- --
Exercised (3,286,000) 0.10-0.30 -- -- -- --
Forfeited (344,000) 0.10-0.30 (1,457,000) -- -- --
----------- ----------- -----------
Options outstanding at December 31, 2000 20,465,000 $ 0.10-0.30 9,654,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 7,472,000 0.11-0.18 -- -- -- --
Exercised (1,805,000) 0.06-0.11 -- -- -- --
Forfeited (5,266,000) 0.11-030 -- -- -- --
----------- ----------- -----------
Options outstanding at December 31, 2001 20,866,000 $ 0.10-0.30 9,654,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
=========== =========== ===========
Weighted average remaining
contractual life 3.5 years 1.5 years 1.5 years
=========== =========== ===========
Options exercisable were 26,293,358 and 24,106,626 as of December 31, 2001 and
2000. Options exercisable at December 31, 1999, and July 31, 1999, were
20,879,245 and 18,567,454.
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 as follows:
December July
2001 2000 1999 1999
----------- ----------- ----------- -----------
Net loss for the year $(3,428,000) $ (459,000)) $ (961,000)0) $ (395,000)
Compensation expense, net of tax effect 776,500 88,000 174,000 640,700
----------- ----------- ----------- -----------
Proforma net loss $(4,204,500) $ (547,000) $(1,135,000) $ 245,700
=========== =========== =========== ===========
Proforma earnings per common share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
The fair value of options granted were estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
December July
2001 2000 1999 1999
--------------- -------------- ---------------- ---------------
Dividends 0% 0% 0% 0%
Expected volatility 125% 124% 164% 164%
Risk-free interest rate 5% 5% 5.88% - 6.69% 5.88% - 6.59%
Expected life 5 years 5 years 5 years 5 years
- --------------------------------------------------------------------------------
Page F-11
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The agreement with Ford Motor Company, as discussed in Note 4, included issuing
warrants to Ford to purchase 4.6% of the fully diluted common stock of Enova
Systems over a 66 month period. The number of shares to be acquired will be
adjusted from time to time for increases in the Company's fully diluted common
stock. The vesting of these warrants is dependent upon Ford meeting specific
purchase agreements. Warrants issued and vested under this agreement totaled
2,500,000 at an exercise price of $0.29 per share during the year ended December
31, 2001. Initially, the exercise price of the warrants is equal to the price of
the stock on the date of issuance, with the exercise price adjusted when the
aggregate number of shares is adjusted. Warrants may not be exercised until July
2003. The fair value of warrants 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 102%, (3) risk-free interest
rate of 4.76%, and (4) an expected life of the warrants of 66 months.
NOTE 11 - INCOME TAXES
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.
2001 2000
----------- -----------
Deferred tax assets
Federal tax loss carryforward $25,692,000 $24,666,000
State tax loss carryforward 674,000 920,000
Basis difference 1,610,000 1,610,000
Other, net 290,000 218,000
----------- -----------
28,266,000 27,414,000
Less valuation allowance 28,266,000 27,414,000
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
Net operating losses expire as follows:
Net Operating Loss
-----------------------------
Date of Expiration Federal California
------------------ ------------- ------------
2002 $ 11,000 $ 2,778,000
2003 64,000 1,541,000
2004 322,000 709,000
2005 443,000 655,000
2006 680,000 -
2007 2,552,000 -
2008 24,221,000 -
2009 33,460,000 -
2010 9,083,000 177,000
2011 5,557,000 1,770,000
2012 2,998,000 -
2013 1,418,000 -
2014 1,965,000 -
2015 322,000 -
2016 3,217,000 -
------------- ------------
$ 86,313,000 $ 7,630,000
============= ============
- --------------------------------------------------------------------------------
Page F-12
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - EXTRAORDINARY ITEM
The Company has been negotiating repayment of long-term trade payables for less
than the amounts originally recorded. The gain from these negotiated payments is
reflected as an extraordinary item.
In consultation with legal counsel, the Company extinguished certain 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 determined that conditions surrounding the application of the statute of
limitations had been met; accordingly, the extraordinary item includes the gain
from the extinguishments.
NOTE 13 - GEOGRAPHIC AREA DATA
The Company operates as a single reportable segment and attributes revenues to
countries based upon the location of the entity originating the sale. Revenues
by geographic area are as follows:
December July
2001 2000 1999 1999
---------- ---------- ---------- ----------
United States $2,854,000 $1,003,000 $ 235,000 $1,564,000
Korea 483,000 1,670,000 394,000 1,210,000
England 84,000 -- -- --
Canada -- 110,000 -- --
Italy 359,000 100,000 -- --
---------- ---------- ---------- ----------
$3,780,000 $2,883,000 $ 629,000 $2,774,000
========== ========== ========== ==========
- --------------------------------------------------------------------------------
Page F-13