e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ending June 30, 2007
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file no. 1-33001
ENOVA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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| California
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95-3056150 |
| (State or other jurisdiction of
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(I.R.S. Employer |
| incorporation or organization)
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Identification Number) |
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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter periods that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act.) Yes o No þ
As of August 13, 2007, there were 17,099,000 shares of common stock outstanding.
INDEX
ENOVA SYSTEMS, INC.
Enova Systems is a trademark of Enova Systems, Inc. All other brand names or trademarks appearing
in this quarterly report on Form 10-Q are the property of their respective holders.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
As of June 30, 2007 (unaudited) and December 31, 2006 (audited)
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As of June 30, 2007 |
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As of December 31, 2006 |
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ASSETS |
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Current assets |
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|
|
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|
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Cash and cash equivalents |
|
$ |
5,597,000 |
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|
$ |
5,612,000 |
|
Short term investment |
|
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— |
|
|
|
5,000,000 |
|
Accounts receivable, net |
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|
1,234,000 |
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|
|
358,000 |
|
Inventories and supplies, net |
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3,918,000 |
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|
1,704,000 |
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Prepaid expenses and other current assets |
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246,000 |
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708,000 |
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Total current assets |
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10,995,000 |
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13,382,000 |
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Property and equipment, net |
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656,000 |
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627,000 |
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Ownership interest in joint venture company |
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1,577,000 |
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1,647,000 |
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Intangible assets |
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71,000 |
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74,000 |
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Total assets |
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$ |
13,299,000 |
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$ |
15,730,000 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
925,000 |
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$ |
382,000 |
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Deferred revenues |
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233,000 |
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|
399,000 |
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Accrued payroll and related expense |
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237,000 |
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220,000 |
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Other accrued expenses |
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1,215,000 |
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|
664,000 |
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Current portion of notes payable |
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82,000 |
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71,000 |
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Total current liabilities |
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2,692,000 |
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1,736,000 |
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Accrued interest payable |
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803,000 |
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735,000 |
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Notes payable, net of current portion |
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1,305,000 |
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1,295,000 |
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Total liabilities |
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$ |
4,800,000 |
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$ |
3,766,000 |
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Stockholders’ equity |
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Series A convertible preferred stock — no par
value 30,000,000 shares authorized 2,652,000
shares issued and outstanding Liquidating
preference at $0.60 per share, aggregating $1,591,000 |
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1,679,000 |
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1,679,000 |
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Series B convertible preferred stock — no par
value 5,000,000 shares authorized 1,185,000
shares issued and outstanding Liquidating
preference at $2 per share, aggregating $2,370,000 |
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2,432,000 |
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2,432,000 |
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Common Stock, no par value 750,000,000 shares
authorized 14,881,000 and 14,816,000 shares
issued and outstanding, respectively |
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109,725,000 |
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109,460,000 |
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Common stock issuable |
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36,000 |
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36,000 |
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Stock notes receivable |
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(1,149,000 |
) |
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(1,176,000 |
) |
Additional paid-in capital |
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6,995,000 |
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6,955,000 |
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Accumulated deficit |
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(111,219,000 |
) |
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(107,422,000 |
) |
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Total stockholders’ equity |
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8,499,000 |
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11,964,000 |
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Total liabilities and stockholders’ equity |
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$ |
13,299,000 |
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$ |
15,730,000 |
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See accompanying notes to these financial statements.
3
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, (unaudited)
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Three Months |
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Six Months |
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2007 |
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2006 |
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2007 |
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2006 |
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Net revenues |
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Research and development contracts |
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$ |
— |
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$ |
161,000 |
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$ |
— |
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$ |
419,000 |
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Production |
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1,059,000 |
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291,000 |
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2,602,000 |
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341,000 |
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Total net revenues |
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1,059,000 |
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452,000 |
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2,602,000 |
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760,000 |
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Cost of revenues |
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Research and development contracts |
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— |
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253,000 |
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— |
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556,000 |
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Production |
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1,637,000 |
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661,000 |
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3,020,000 |
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818,000 |
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Total cost of revenues |
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1,637,000 |
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|
914,000 |
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3,020,000 |
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1,374,000 |
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Gross profit (loss) |
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(578,000 |
) |
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(462,000 |
) |
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(418,000 |
) |
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(614,000 |
) |
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Operating expenses |
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Research and development |
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517,000 |
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308,000 |
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612,000 |
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632,000 |
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Selling, general & administrative |
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1,543,000 |
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1,035,000 |
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2,871,000 |
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1,959,000 |
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Total operating expenses |
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2,060,000 |
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1,343,000 |
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3,483,000 |
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2,591,000 |
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Loss from operations |
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(2,638,000 |
) |
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(1,805,000 |
) |
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(3,901,000 |
) |
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(3,205,000 |
) |
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Other income and (expense) |
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Interest and financing fees, net |
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65,000 |
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|
151,000 |
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176,000 |
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329,000 |
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Equity loss — share of joint venture company losses |
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(29,000 |
) |
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(16,000 |
) |
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(70,000 |
) |
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(42,000 |
) |
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Debt extinguishment |
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— |
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|
— |
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|
— |
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|
920,000 |
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Interest extinguishment |
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|
— |
|
|
|
— |
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|
— |
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|
472,000 |
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Total other income and (expense) |
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36,000 |
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|
135,000 |
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106,000 |
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1,679,000 |
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Net Income (loss) |
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$ |
(2,602,000 |
) |
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$ |
(1,670,000 |
) |
$ |
(3,795,000 |
) |
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$ |
(1,526,000 |
) |
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Basic and diluted earnings (loss) per share |
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$ |
(.18 |
) |
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$ |
(.11 |
) |
$ |
(.26 |
) |
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$ |
(.10 |
) |
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Weighted-average number of shares outstanding/basic and
diluted |
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14,837,000 |
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14,797,000 |
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14,837,000 |
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14,797,000 |
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See accompanying notes to these financial statements.
4
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, (unaudited)
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2007 |
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2006 |
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Cash flows from operating activities |
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Net Income (loss) |
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$ |
(3,795,000 |
) |
|
$ |
(1,526,000 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
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Debt extinguishment |
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— |
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(920,000 |
) |
Interest extinguishment |
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— |
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(472,000 |
) |
Depreciation and amortization |
|
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147,000 |
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|
169,000 |
|
Equity in losses of equity method investee |
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70,000 |
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42,000 |
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Issuance of common stock for services |
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72,000 |
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|
60,000 |
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Stock option expense |
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40,000 |
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28,000 |
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(Increase) decrease in |
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Accounts receivable |
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(876,000 |
) |
|
|
1,111,000 |
|
Inventory and supplies |
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(2,214,000 |
) |
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|
154,000 |
|
Note receivable — related party |
|
|
— |
|
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|
(204,000 |
) |
Prepaid expenses and other current assets |
|
|
462,000 |
|
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|
— |
|
Increase (decrease) in |
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|
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Accounts payable |
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|
543,000 |
|
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|
(1,211,000 |
) |
Accrued expenses |
|
|
568,000 |
|
|
|
(20,000 |
) |
Deferred revenues |
|
|
(166,000 |
) |
|
|
— |
|
Accrued interest payable |
|
|
68,000 |
|
|
|
25,000 |
|
|
|
|
|
|
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Net cash provided by (used in) operating activities |
|
|
(5,081,000 |
) |
|
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(2,764,000 |
) |
|
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Cash flows from investing activities |
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Purchases of short-term securities |
|
$ |
— |
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|
$ |
(10,000,000 |
) |
Sales of short-term securities |
|
|
5,000,000 |
|
|
|
— |
|
Purchases of property and equipment |
|
|
(139,000 |
) |
|
|
(153,000 |
) |
|
|
|
|
|
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Provided by Net (cash used) in investing activities |
|
|
4,861,000 |
|
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|
(10,153,000 |
) |
|
|
|
|
|
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Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payment on notes payable and capital lease obligations |
|
$ |
(14,000 |
) |
|
$ |
— |
|
Payment to extinguish debt |
|
|
— |
|
|
|
(165,000 |
) |
Net Proceeds
from exercise of stock options |
|
|
192,000 |
|
|
|
— |
|
Proceeds from stock notes receivable |
|
|
27,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
205,000 |
|
|
|
(165,000 |
) |
|
|
|
|
|
|
|
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Net increase (decrease) in cash and cash equivalents |
|
|
(15,000 |
) |
|
|
(13,082,000 |
) |
|
|
|
|
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Cash and cash equivalents, beginning of period |
|
|
5,612,000 |
|
|
|
16,187,000 |
|
|
|
|
|
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Cash and cash equivalents, end of period |
|
|
5,597,000 |
|
|
|
3,105,000 |
|
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|
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Supplemental
disclosure of cash flow information: |
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Interest paid |
|
$ |
3,000 |
|
|
$ |
4,000 |
|
|
|
|
|
|
|
|
Income taxes
paid |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
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Supplemental
disclosure of non-cash investing and financing activities |
|
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|
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Assets acquired through financing agreement |
|
$ |
35,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
$ |
40,000 |
|
|
$ |
28,000 |
|
|
|
|
|
|
|
|
Issuance of
common stock for services |
|
$ |
72,000 |
|
|
$ |
60,000 |
|
|
|
|
|
|
|
|
See accompanying notes to these financial statements.
5
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — Basis of Presentation
The accompanying unaudited financial statements have been prepared from the records of our company
without audit and have been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all the information and
notes required by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the financial position at June
30, 2007 and the interim results of operations for the three and six months ended June 30, 2007 and
cash flows for the six months ended June 30, 2007 have been included. The balance sheet at December
31, 2006, presented herein, has been prepared from the audited financial statements of our company
for the year then ended.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires us to make estimates and assumptions affecting the
reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. The June 30, 2007 and December 31, 2006 inventories are reported at the
lower of cost or market value. Inventories have been valued on the basis that they would be used,
converted and sold in the normal course of business. The amounts estimated for the above, in
addition to other estimates not specifically addressed, could differ from actual results; and the
difference could have a significant impact on the financial statements.
Accounting policies followed by us are described in Note 1 to the audited financial statements for
the fiscal year ended December 31, 2006. There have been no significant changes in Enova Systems,
Inc.’s significant accounting policies during the six months ended June 30, 2007 as compared to
what was previously disclosed in Enova Systems, Inc.’s Annual Report on 10-K for the year ended
December 31, 2006, except as noted. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted for purposes of the interim financial
statements. The financial statements should be read in conjunction with the audited financial
statements, including the notes thereto, for the year ended December 31, 2006, which are included
in our Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 as filed with the Securities and Exchange Commission.
Basic earnings (loss) per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share is computed using the weighted-average number of
common shares and dilutive potential common shares outstanding during the period. Dilutive
potential common shares consist of employee stock options and preferred stock conversions.
The results of operations for the three months ended June 30, 2007 presented herein are not
necessarily indicative of the results to be expected for the full year.
Stock Based Compensation
On January 1, 2006, the Company adopted SFAS 123 (revised 2004), Share-Based Payment (“SFAS
123(R)”), which requires the measurement and recognition of compensation expense for all
share-based awards made to employees and directors, including employee stock options and shares
issued through its employee stock purchase plan, based on estimated fair values. In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin 107 (“SAB 107”) relating to
SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). The
Company adopted SFAS 123(R) using the modified prospective transition method, which requires the
application of the accounting standard as of the beginning in 2006. The Company’ financial
statements as of and for the year ended December 31, 2006 reflect the impact of SFAS 123(R).
Stock compensation expense recognized during the period is based on the value of share-based awards
that are expected to vest during the period. Stock compensation expense recognized in The Company’
statement of operations for 2006 includes compensation expense related to share-based awards
granted prior to January 1, 2006 that vested during the current period based on the grant date fair
value estimated in accordance with the pro forma provisions of SFAS 123. Stock compensation expense
in 2006 also includes compensation expense for the share-based awards granted subsequent to January
1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS
123(R).
The Company determination of estimated fair value of share-based awards utilizes the Black-Scholes
option-pricing model. The Black-Scholes model is affected by the Company stock price as well as
assumptions regarding certain highly complex and subjective
6
variables. These variables include, but are not limited to, the Company expected stock price
volatility over the term of the awards and actual and projected employee stock option exercise
behaviors.
Stock Based Compensation Issued to Third Parties
The Company accounts for stock based compensation issued to third parties, including customers, in
accordance with the provisions of the Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling Goods or Services , and EITF 01-9, Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products). Under the provisions of EITF 96-18, if
none of the Company’s agreements have a disincentive for nonperformance, the Company records a
charge for the fair value of the stock and the portion of the warrants earned from the point in
time when vesting of the stock or warrants becomes probable. EITF 01-9 requires that the fair value
of certain types of warrants issued to customers be recorded as a reduction of revenue to the
extent of cumulative revenue recorded from that customer. The Company has not given any stock based
consideration to a customer.
Stock Option Program Description
For the year ended December 31, 2006, the Company had two equity compensation plans, the 1996
Stock Option Plan (the “1996 Plan”) and the 2006 equity compensation plan (the 2006 “Plan”). The
1996 Plan has expired for the purposes of issuing new grants. However, the 1996 Plan will
continue to govern awards previously granted under that plan. The 2006 Plan has been approved by
the Company’s Shareholders.
Equity compensation grants are designed to reward employees and executives for their long term
contributions to the Company and to provide incentives for them to remain with the Company. The
number and frequency of equity compensation grants are based on competitive practices, operating
results of the company, and government regulations.
The
maximum number of shares issuable over the term of the 1996 Plan was limited to 65 million shares. Options granted under the 1996 Plan typically have had an exercise price of 100% of the
fair market value of the underlying stock on the grant date and expired no later than ten years
from the grant date. The 2006 Plan has a total of 3,000,000 shares reserved for issuance, none of
which have been granted.
Stock options for the 1996 Stock Option Plan, and the 2006 Stock Option Plan were approved by the
stockholders. All stock options have terms of 10 years, except for options issued to employees
which have a term of 5 years, and generally vest and become fully exercisable four years from the
date of grant. The vesting schedule for stock option grants are generally as follows: 25% of the
grant vests upon one year from date of grant with the remainder of the grant vesting in 36 equal
monthly installments thereafter.
Quarter ended June 30, 2007
In conjunction with the adoption of SFAS 123(R), the Company elected to attribute the value of
share-based compensation to expense using the straight-line method, which was previously used for
its pro forma information required under SFAS 123. Share-based compensation expense related to
stock options and employee stock purchases was $20,000 for the three months ended June 30, 2007,
and was recorded in the financial statements as a component of selling, general and
administrative expense.
Share-based compensation expense reduced the Company’s results of operations as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three |
|
Three |
| |
|
Months |
|
Months |
| |
|
ended |
|
ended |
| |
|
6-30-2007 |
|
6-30-2006 |
Income from continuing operations before income taxes |
|
$ |
20,000 |
|
|
$ |
14,000 |
|
Income from continuing operations after income taxes |
|
$ |
20,000 |
|
|
$ |
14,000 |
|
Cash flows from operations |
|
$ |
20,000 |
|
|
$ |
14,000 |
|
Cash flows from financing activities |
|
$ |
— |
|
|
$ |
— |
|
Basic and Diluted EPS |
|
$ |
— |
|
|
$ |
— |
|
7
| |
|
|
|
|
|
|
|
|
| |
|
Six Months |
|
Six Months |
| |
|
ended |
|
ended |
| |
|
6-30-2007 |
|
6-30-2006 |
Income from continuing operations before income taxes |
|
$ |
40,000 |
|
|
$ |
28,000 |
|
Income from continuing operations after income taxes |
|
$ |
40,000 |
|
|
$ |
28,000 |
|
Cash flows from operations |
|
$ |
40,000 |
|
|
$ |
28,000 |
|
Cash flows from financing activities |
|
$ |
— |
|
|
$ |
— |
|
Basic and Diluted EPS |
|
$ |
— |
|
|
$ |
— |
|
During the quarters ended June 30, 2007, and 2006 the Company did not grant any stock options
As of June 30, 2007, the total compensation cost related to non-vested awards not yet recognized is
$80,000. The weighted average period over which the future compensation cost is expected to be
recognized is 27 months. The aggregate intrinsic value of the total awards is $781,000.
General Option Information
A summary of option activity is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1996 Plan |
|
|
Weighted Average |
|
|
Weighted Average |
|
| |
|
Shares |
|
|
Exercise Price |
|
|
Contractual Term |
|
Outstanding December 31, 2006 |
|
|
162,000 |
|
|
$ |
4.43 |
|
|
|
7.96 |
|
Granted |
|
|
|
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
44,000 |
|
|
$ |
4.36 |
|
|
|
7.85 |
|
Forfeited |
|
|
4,000 |
|
|
$ |
4.35 |
|
|
|
8.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2007 |
|
|
114,000 |
|
|
$ |
4.46 |
|
|
|
7.34 |
|
|
|
|
|
|
|
|
|
|
|
|
Vested Expected to Vest |
|
|
108,000 |
|
|
$ |
4.46 |
|
|
|
7.35 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2007 |
|
|
87,000 |
|
|
$ |
4.47 |
|
|
|
7.28 |
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average remaining contractual life of the options outstanding at June 30, 2007 was
7.34 years. The exercise prices of the options outstanding at June 30, 2007 ranged from $4.35 to
$4.95. The weighted-average remaining contractual life of the options outstanding at December 31,
2006 was 7.96 years. The exercise prices of the options outstanding at December 31, 2006 ranged
from $4.35 to $4.95. Options exercisable were 87,000 and 119,000 at June 30, 2007 and December
31, 2006, respectively.
Revenue Recognition
The Company manufactures proprietary products and other products based on design specifications
provided by its customers.
The Company recognizes revenue only when all of the following criteria have been met:
| |
• |
|
Persuasive evidence of an arrangement exists; |
| |
| |
• |
|
Delivery has occurred or services have been rendered; |
| |
| |
• |
|
The fee for the arrangement is fixed or determinable; and |
| |
| |
• |
|
Collectibility is reasonably assured. |
Persuasive Evidence of an Arrangement — The Company documents all terms of an arrangement in a
written contract signed by the customer prior to recognizing revenue.
Delivery Has Occurred or Services Have Been Performed — The Company performs all services or
delivers all products prior to recognizing revenue. Professional consulting and engineering
services are considered to be performed when the services are complete. Equipment is considered
delivered upon delivery to a customer’s designated location.
The Fee for the Arrangement is Fixed or Determinable — Prior to recognizing revenue, a customer’s
fee is either fixed or determinable under the terms of the written contract. Fees professional
consulting services, engineering services and equipment
sales are fixed under the terms of the written contract. The customer’s fee is negotiated at the
outset of the arrangement and is not subject to refund or adjustment during the initial term of
the arrangement.
8
Collectibility is Reasonably Assured — The Company determines that collectibility is reasonably
assured prior to recognizing revenue. Collectibility is assessed on a customer-by-customer basis
based on criteria outlined by management. New customers are subject to a credit review process,
which evaluates the customer’s financial position and ultimately its ability to pay. The Company
does not enter into arrangements unless collectibility is reasonably assured at the outset.
Existing customers are subject to ongoing credit evaluations based on payment history and other
factors. If it is determined during the arrangement that collectibility is not reasonably
assured, revenue is recognized on a cash basis. Additionally, in accordance with the Securities
and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”), amounts received upfront
for engineering or development fees under multiple-element arrangements are deferred and
recognized over the period of committed services or performance, if such arrangements require the
Company to provide on-going services or performance. All amounts received under collaborative
research agreements or research and development contracts are nonrefundable, regardless of the
success of the underlying research.
Revenues from milestone payments are recognized when earned, as evidenced by written
acknowledgment from the customer, provided that (i) the milestone event is substantive and its
achievement was not reasonably assured at the inception of the agreement, and (ii) our performance
obligations after the milestone achievement will continue to be funded by our collaborator at a
comparable level to that before the milestone achievement. If both of these criteria are not met,
the milestone payment is recognized over the remaining minimum period of our performance
obligations under the agreement.
Pursuant to Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board Issue
00-21. EITF Issue 00-21 addressed the accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets. Specifically, Issue 00-21
requires the recognition of revenue from milestone payments over the remaining minimum period of
performance obligations. As required, we apply the principles of Issue 00-21 to multiple element
agreements.
The Company recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred to date compared with
total estimated contract costs. Customer-furnished materials, labor, and equipment, and in certain
cases subcontractor materials, labor, and equipment, are included in revenues and cost of revenues
when management believes that the company is responsible for the ultimate acceptability of the
project. Contracts are segmented between types of services, such as engineering and construction,
and accordingly, gross margin related to each activity is recognized as those separate services
are rendered.
Changes to total estimated contract costs or losses, if any, are recognized in the period in which
they are determined. Claims against customers are recognized as revenue upon settlement. Revenues
recognized in excess of amounts billed are classified as current assets under contract
work-in-progress. Amounts billed to clients in excess of revenues recognized to date are
classified as current liabilities under advance billings on contracts.
Changes in project performance and conditions, estimated profitability, and final contract
settlements may result in future revisions to engineering and development contract costs and
revenue.
ACCOUNTING PRONOUNCEMENTS ADOPTED IN THE CURRENT YEAR
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 48 (“FIN
48”), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in accordance with SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a comprehensive model for how a company should recognize, measure, present and disclose
in its financial statements uncertain tax positions that the company has taken or expects to take
on a tax return. This interpretation is effective for fiscal years beginning after December 15,
2006. Enova adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company had no changes in the carrying value of its tax assets or liabilities for
any unrecognized tax benefits.
The Company files federal income tax returns in the U.S. The Company is no longer subject to U.S.
state, or non-U.S. income tax examinations by tax authorities for years before 2003. Certain U.S.
Federal returns for years 2006 and following are not closed by relevant statutes of limitation due
to unused net operating losses reported on those returns.
9
Recently Issued Pronouncement
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11, “Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 provides for the
recognition and classification of deferred taxes associated with dividends or dividend equivalents
on nonvested equity shares or nonvested equity share units (including restricted stock units
(RSUs)) that are paid to employees and charged to retained earnings. This issue is effective for
annual periods beginning after September 15, 2007. Also in June 2007, the EITF ratified EITF Issue
No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities.” EITF 07-3 provides that nonrefundable advance payments made for goods or
services to be used in future research and development activities should be deferred and
capitalized until such time as the related goods or services are delivered or are performed, at
which point the amounts would be recognized as an expense. This issue is effective for fiscal years
beginning after December 15, 2007 We have evaluated the potential impact of these issues and
anticipate that they will have no material impact on our financial position and results of
operations.
Also in June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) No. 07-1, “Clarification of the Scope of the Audit and Accounting Guide
“Investment Companies” and Accounting by Parent Companies and Equity Method Investors for
Investments in Investment Companies.” This SOP provides guidance for determining whether an entity
is an investment company and also addresses when the specialized industry accounting principles of
an investment company should be used by a parent company in consolidation or by an investor that
applies the equity method of accounting to its investment in the entity. This SOP is effective for
fiscal years beginning on or after December 15, 2007. We have evaluated the potential impact of
this standard and anticipate it will have no material impact on our financial position and results
of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157
clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a
liability in an orderly transaction between market participants. Further, the standard establishes
a framework for measuring fair value in generally accepted accounting principles and expands
certain disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. The Company does not expect the adoption of SFAS 157 to have a material
impact on its financial statements.
In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
FINANCIAL LIABILITIES-INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115 (“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value, with unrealized gains and
losses related to these financial instruments reported in earnings at each subsequent reporting
date. SFAS 159 will be effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be adopted by the Company January 1, 2008. The Company does not expect
the adoption of SFAS 159 to result in a significant impact on its consolidated financial position,
cash flows and results of operations.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force
(“EITF”)), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or
are not believed by management to have a material impact on the Company’s present or future
financial statements.
NOTE 2 — Notes Payable, Long-Term Debt and Other Financing
Notes payable and long-term debt is comprised of the following:
| |
|
|
|
|
|
|
|
|
| |
|
June 30, 2007 |
|
|
|
|
| |
|
(unaudited) |
|
|
December 31, 2006 |
|
Secured note payable to
Credit Managers Association of
California, bearing interest at
prime plus 3% per annum in 2005
and through maturity. Principal
and unpaid interest due in
April 2016. A sinking fund
escrow is required to be funded
with 10% of future equity
financing, as defined in the
agreement |
|
$ |
1,238,000 |
|
|
$ |
1,238,000 |
|
Secured notes payable to a
financial institution in the
original amounts totaling
$130,000, bearing interest at
6.21% and 10.45%, payable in
monthly installments |
|
|
109,000 |
|
|
|
88,000 |
|
Secured note payable to Coca
Cola Enterprises in the
original amount of $40,000,
bearing interest at 10% per
annum. Principal and unpaid
interest due now |
|
|
40,000 |
|
|
|
40,000 |
|
Less current maturities |
|
|
(82,000 |
) |
|
|
(71,000 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
|
1,305,000 |
|
|
|
1,295,000 |
|
|
|
|
|
|
|
|
During the quarter ended March, 31, 2006, the Company settled $1,083,000 of principal and $472,000
accrued interest under the secured note payable to the Credit Managers Association of California
(CMAC). In consideration for the settlement, the Company
10
paid the beneficiaries $165,000. The Company evaluated this transaction under the guidance set
forth in SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities” and noted that the extinguishment of these liabilities was consistent with the
guidance.
NOTE 3
— Shareholders’ Equity
During the quarter ended June 30, 2007, the Company recorded 5,250 shares of restricted common
stock as common stock subscribed, valued at $36,000, to the Board of Directors at an average price
of $6.85 per share for board meetings and committee meetings during the first quarter of 2007.
During the three months ended June 30, 2007, the Company issued 9,000 shares of restricted common
stock to the Board of Directors from common stock subscribed.
Directors receive quarterly compensation at a flat rate of $4,000 in cash and $6,000 in stock
valued on the date of the meeting at the average of the closing ask and bid prices. The flat rate
is not dependent on the amount or type of services performed by the Directors.
Prior to September, 2005, for each meeting attended in person, each outside director received
$2,000 in cash and $4,000 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 received $500 in cash
and $500 of stock valued on the date of the meeting at the average of the closing ask and bid
prices; and for each meeting of a Board committee attended in person, a committee member received
$1,000 in cash and $1,000 of stock valued on the date of the meeting at the average of the closing
ask and bid prices. In September, 2005, the compensation structure for Directors was changed.
Effective in the fourth quarter of 2005 and the first quarter of 2006, Directors receive quarterly
compensation at a flat rate of $4,000 in cash and $6,000 in stock valued on the last business day
of the quarter at the average of the closing ask and bid prices. The flat rate is not dependent on
the amount or type of services performed by the Directors. Compensation for the chairman of the
audit committee is $2,500 per quarter. The two audit committee members each receive $1,250 per
quarter, effective March 31, 2006.
All Directors are also reimbursed for out-of-pocket expenses incurred in connection with attending
Board and committee meetings.
11
NOTE 4
— Related Party Transactions
During the three months ended June 30, 2007, the Company purchased approximately $435,000 in
components, materials, and services from Hyundai Heavy Industries (HHI), a related party. The
outstanding payable balance owed to HHI on June 30, 2007 was approximately $646,000.
A relative of the Company’s CEO, is a majority owner of a website consulting firm, which provides
services (branding) to the Company. During the three months ended June 30, 2007, The Company paid
consulting fees and expenses to this firm in the amount of approximately $52,000
NOTE 5 — Material Commitments: None
NOTE 6
— Subsequent Events
On July 25, 2007, the Company entered into an agreement with Investec Bank (UK) Limited as
placement agent to sell 2,218,000 shares of common stock. Investec presently serves as the
Nominated Adviser in connection the listing of Enova’s common shares on the Alternative Investment
Market (AIM) of the London Stock Exchange.
On the closing date of August 1, 2007, pursuant to the placing agreement, Enova sold the 2,218,000
shares of common stock at 260 pence sterling per share (approximately US$5.35 per share) to certain
eligible offshore investors. The Company will receive 5,767,000 British Pounds Sterling
(US$11,698,000) in gross proceeds from the offering. Investec received a 5% selling commission,
resulting in proceeds to Enova before offering expenses of 5,478,650 pounds sterling
(US$11,073,000).
The offer and sale of the shares were made pursuant to Regulation S under the Securities Act. Among
other things, each investor purchasing shares of Enova’s common stock in the offering represented
that the investor is not a United States person as defined in Regulation S. In addition, neither
Enova nor the placement agent conducted any selling efforts directed at the United States in
connection with the offering. All shares of common stock issued in the offering included a
restrictive legend indicating that the shares are being issued pursuant to Regulation S under the
Securities Act and are deemed to be “restricted securities.” As a result, the purchasers of such
shares will not be able to resell the shares unless in accordance with Regulation S, pursuant to a
registration statement, or upon reliance of an applicable exemption from registration under the
Securities Act.
Enova presently expects to prepare and file a resale registration statement with the Securities and
Exchange Commission covering the placing shares within 60 days of their admission for trading on
AIM, which occurred on August 1, 2007. There is no assurance the shares will be registered for
resale or that the investors will choose to sell their shares pursuant to the registration
statement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING STATEMENTS OF EXPECTED FUTURE PERFORMANCE
This Quarterly Report on Form 10-Q contains statements indicating expectations about future
performance and other forward-looking statements that involve risks and uncertainties. We usually
use words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “future,” “intend,” “potential,” or “continue” or the negative of these terms or similar
expressions to identify forward-looking statements. These statements appear throughout this
Quarterly Report on Form 10-Q and are statements regarding our current intent, belief or
expectation, primarily with respect to our operations and related industry developments. Examples
of these statements include, but are not limited to, statements regarding the following: our future
operating expenses, our future losses, our future expenditures for research and development and the
sufficiency of our cash resources. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual
results could differ materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us and described in our Annual
Report on Form 10-K for the year ended December 31, 2006.
The following discussion and analysis should be read in conjunction with the unaudited interim
financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form
10-Q and with the financial statements and notes thereto and Management’s Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for
the year ended December 31, 2006.
12
GENERAL
Enova believes it is a leader in the development and production of proprietary, commercial digital
power management systems for transportation vehicles and stationary power generation systems. Power
management systems control and monitor electric power in an automotive or commercial application
such as an automobile or a stand-alone power generator. Drive systems are comprised of an electric
motor, an electronics control unit and a gear unit which power an electric vehicle. Hybrid systems,
which are similar to pure electric drive systems, contain an internal combustion engine in addition
to the electric motor, eliminating external recharging of the battery system. A hydrogen fuel cell
based system is similar to a hybrid system, except that instead of an internal combustion engine, a
fuel cell is utilized as the power source. A fuel cell is a system which combines hydrogen and
oxygen in a chemical process to produce electricity. Stationary power systems utilize similar
components to those which are in a mobile drive system in addition to other elements. These
stationary systems are effective as power-assist or back-up systems, alternative power, for
residential, commercial and industrial applications.
A fundamental element of Enova’s strategy is to develop and produce advanced proprietary software,
firmware and hardware for applications in these alternative power markets. Our focus is digital
power conversion, power management, and system integration, for two broad market applications —
vehicle power generation and stationary power generation.
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 distributed power generation
systems. These stationary applications can employ hydrogen fuel cells, microturbines, or advanced
batteries for power storage and generation. Additionally, we perform research and development to
augment and support others’ and our own related product development efforts.
Our product development strategy is to design and introduce to market successively advanced
products, each based on our core technical competencies. In each of our product/market segments, we
provide 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.
Enova’s primary market focus centers on both series and parallel heavy-duty drive systems for
multiple vehicle and marine applications. A series hybrid system is one where only the electric
motor connects to the drive shaft; a parallel hybrid system is one where both the internal
combustion engine and the electric motor are connected to the drive shaft. We believe series-hybrid
and parallel hybrid medium and heavy-duty drive system sales offer Enova the greatest return on
investment in both the short and long term. We believe the medium and heavy-duty hybrid market’s
best chances of significant growth lie in identifying and pooling the largest possible numbers of
early adopters in high-volume applications. We will attempt to utilize our competitive advantages,
including customer alliances, to gain greater market share. By aligning ourselves with key
customers in our target market(s), we believe that the alliance will result in the latest
technology being implemented and customer requirements being met, with a minimal level of
additional time or expense. Additionally, our management believes that this area will see
significant growth over the next several years. As we penetrate more market areas, we are
continually refining and optimizing both our market strategy and our product line to maintain our
leading edge in power management and conversion systems for mobile applications.
On July 25, 2007, Enova Systems, Inc. entered into an agreement with a placement agent to sell
2,218,000 shares of common stock. Pursuant to the placing agreement, the placement agent has agreed
to use its reasonable efforts to sell, and has conditionally sold, all such shares of Enova common
stock at 260 pence sterling per share (approximately US$5.35 per share) to certain eligible
offshore investors. On the closing date of August 1, 2007, Enova will receive 5,767,000 pounds
sterling ( US$11,698,000) in gross proceeds from the offering. Investec received a 5% selling
commission, resulting in proceeds to Enova before offering expenses of 5,478,650 pounds sterling
(approximately $11,073,000).
13
Enova presently expects to prepare and file a resale registration statement with the Securities and
Exchange Commission covering the placing shares within 60 days of their admission for trading on
AIM. There is no assurance the shares will be registered for resale or that the investors will
choose to sell their shares pursuant to the registration statement.
Enova plans to utilize these funds to support our working capital needs, to continue to support our
research and development initiatives, and to further support the rollout of our production
infrastructure. Furthermore, Enova is beginning to build a worldwide service and support
capability, which will also utilize the funds we have raised.
In July, 2007, we entered into a partnership with a major Asia based OEM to integrate and test its
unique proprietary Post Transmission Parallel Hybrid system. The system is targeted for integration
and/or retrofit into North American delivered 2008 model year Vehicles. This partnership
illustrates what we believe to be greater market acceptance of our Post Transmission Parallel
Hybrid system, as well as further enhances our visibility in Asia, which along with this OEM,
include Hyundai, First Auto Works, and Tomoe.
In December, 2006, we announced a production contract with the Tanfield Group Plc., which we expect
will lead to production of up to 304 units in 2007. We expect that this agreement will help to
consolidate our position as a market leader in Europe. As of June 30, 2007, we have shipped 52
units to the Tanfield Group
In August, 2006, we entered into a contract with Verizon to design, integrate, and deliver 13
service vans. As of June 30, 2007, all 13 vans have been delivered to Verizon. In 2007, we continue to work actively with Verizon. Our current work with Verizon
includes continued engineering, drive cycle research, and miniaturization. These projects are
currently being integrated into a 14th prototype vehicle. We believe that working with
the 2nd largest fleet operator in North America will generate further exposure in the domestic
market, and bring additional focus on our unique fleet solutions.
As part of our continuing strategic relationship with International Truck and Engine Corp (IC
Corp), we executed an agreement to produce the nations first 19 hybrid school buses. IC Corp is the
nation’s largest school bus manufacturer, claiming over 60% of the Domestic Build. In addition to
school buses, IC Corp is teaming with Enova to supply hybrid buses to the Commercial Bus Market.
Throughout the second quarter of 2007, we hosted and visited numerous potential customers from the
Pick Up and Delivery, Medium Duty and Heavy Duty markets. Every effort is made to continue to
mature these relationships, as we believe that they will eventually lead to viable business
relationships.
Enova has incurred significant operating losses in the past. As of June 30, 2007, we had an
accumulated deficit of approximately $111.2 million. We expect to incur additional operating losses
until we achieve a level of product sales sufficient to cover our operating and other expenses.
However, Enova believes that our business outlook is improving. Greater recognition and
strong engineering have allowed us to make several key strides towards sustainable revenue. In
conjunction with this expected outlook, and consistent with our internal succession plan, we have
recently made several key management changes in the past months:
| • |
|
On June 26, 2007 Enova announced the expected resignation of its Chief Executive Office, Edwin Riddell. On July 12, 2007, Enova and Mr. Riddell entered into an agreement setting forth terms by which Mr. Riddell will retire as
Chief Executive Officer on October 1, 2007, but will remain on the board of directors. |
| |
| • |
|
Also, on June 26, 2007, Enova announced the appointment of Michael Staran as President and Chief Operating Officer
effective July 1, 2007. Under Enova’s corporate succession planning policy, it currently is anticipated that Mr. Staran
will assume principal executive officer responsibility effective October 1, 2007 upon Mr. Riddell’s retirement. |
| |
| • |
|
In January 2007, Corinne Bertrand resigned as Chief Financial Officer. In her place, Jarett Fenton was appointed as Chief
Financial Officer. |
| |
| • |
|
In February of 2007, John Dexter retired from his position as Director of Operations. |
We continue to receive greater recognition from both governmental and private industry with regards
to both commercial and military application of its hybrid drive systems and fuel cell power
management technologies. Although we believe that current negotiations with several parties may
result in development and production contracts during 2007 and beyond, there are no assurances that
such additional agreements will be realized.
14
During the second quarter of 2007, we continued to advance our technologies and products for
greater market penetration. We continue to develop independently and in conjunction with the
Hyundai-Enova Innovative Technology Center (ITC) progress on several fronts to produce commercially
available heavy-duty, series and parallel hybrid drive systems.
During the second quarter of 2007, we continued to develop and produce electric and hybrid electric
drive systems and components for First Auto Works of China, International Truck and Engine (IC
Corp), Ford Motor Company (Ford), Hyundai Motor Car, US Military, Wright Bus of the United Kingdom,
and Tomoe of Japan as well as several other domestic and international vehicle and bus
manufacturers. We also were successful in introducing our technology to companies such as
Concurrent Technology Corporation (CTC), PUES (Tokyo Research and Development), Verizon,
Volvo/Mack, Tanfield/Smith Electric Vehicles and Navistar (International Truck and Engine, IC
Corporation). The continued relationships, in addition to our newest customers helped Enova easily
surpass, since our inception, the manufacturing of its 900th system. Our various electric and
hybrid-electric drive systems, power management and power conversion systems are being used in
applications including several light, medium and heavy duty trucks, train locomotives, transit
buses and industrial vehicles.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
In the ordinary course of business, the Company has made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in the preparation of
its financial statements in conformity with accounting principles generally accepted in the United
States of America. The Company constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Estimates and assumptions include, but are not
limited to, customer receivables, inventories, equity investments, fixed asset lives, contingencies
and litigation. There have been no material changes in estimates or assumptions compared to our
most recent Annual Report for the fiscal year ended December 31, 2006
The Company has also chosen certain accounting policies when options were available, including:
Cash consists of currency held at reputable financial institutions.
Inventories are priced at the lower of cost or market utilizing first-in, first-out (FIFO) cost
flow assumption. We maintain a perpetual inventory system and continuously record the quantity
on-hand and standard cost for each product, including purchased components, subassemblies and
finished goods. We maintain the integrity of perpetual inventory records through periodic
physical counts of quantities on hand. Finished goods are reported as inventories until the point
of transfer to the customer. Generally, title transfer is documented in the terms of sale.
We maintain an allowance against inventory for the potential future obsolescence or excess
inventory that is based on our estimate of future sales. A substantial decrease in expected
demand for our products, or decreases in our selling prices could lead to excess or overvalued
inventories and could require us to substantially increase our allowance for excess inventory. If
future customer demand or market conditions are less favorable than our projections, additional
inventory write-downs may be required, and would be reflected in cost of revenues in the period
the revision is made.
Stock Based Compensation- Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires the
measurement and recognition of compensation expense for all share-based payment awards made to
employees and directors, including stock options and employee stock purchases related to the
Company’s Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”) based on their fair
values. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”), which the Company previously followed in accounting for
stock-based awards. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”)
to provide guidance on SFAS 123(R). The Company has applied SAB 107 in its adoption of SFAS
123(R).
The Company adopted SFAS 123(R) using the modified prospective transition method as of and for
the three months ended March 31, 2006. In accordance with the modified prospective transition
method, the Company’s financial statements for prior periods have not been restated to reflect,
and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized is
based on the value of the portion of share-based payment awards that is ultimately expected to
vest. Share-based compensation expense recognized in the Company’s Statement of Operations during
the three months ended March 31, 2007 includes compensation expense for share-based payment
awards granted prior to, but not yet vested as of, December 31, 2005 based on the grant date fair
value estimated in accordance with the pro forma provisions of SFAS 123.
15
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. The assessment of
the ultimate realization of accounts receivable including the current credit-worthiness of each
customer is subject to a considerable degree to the judgment of our management. If the financial
condition of the Company’s customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
Contract Services Revenue and Cost Recognition. The Company is required to make judgments based
on historical experience and future expectations, as to the reliability of shipments made to its
customers. These judgments are required to assess the propriety of the recognition of revenue
based on Staff Accounting Bulletin (“SAB”) No. 101 and 104, “Revenue Recognition,” and related
guidance. The Company makes these assessments based on the following factors: i)
customer-specific information, ii) return policies, and iii) historical experience for issues not
yet identified. Under FAS Concepts No. 5, revenues are not recognized until earned.
The Company manufactures proprietary products and other products based on design specifications
provided by its customers. Revenue from sales of products are generally recognized at the time
title to the goods and the benefits and risks of ownership passes to the customer which is
typically when products are shipped based on the terms of the customer purchase agreement.
Revenue relating to long-term fixed price contracts is recognized using the percentage of
completion method. Under the percentage of completion method, contract revenues and related costs
are recognized based on the percentage that costs incurred to date bear to total estimated costs.
Changes in job performance, estimated profitability and final contract settlements may result in
revisions to cost and revenue, and are recognized in the period in which the revisions are
determined. Contract costs include all direct materials, subcontract and labor costs and other
indirect costs. General and administrative costs are charged to expense as incurred. At the time
a loss on a contract becomes known, the entire amount of the estimated loss is accrued. The
aggregate of costs incurred and estimated earnings recognized on uncompleted contracts in excess
of related billings is shown as a current asset, and billings on uncompleted contracts in excess
of costs incurred and estimated earnings is shown as a current liability.
These accounting policies were applied consistently for all periods presented. Our operating
results would be affected if other alternatives were used. Information about the impact on our
operating results is included in the footnotes to our financial statements.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 48 (“FIN
48”), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in accordance with SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a comprehensive model for how a company should recognize, measure, present and disclose
in its financial statements uncertain tax positions that the company has taken or expects to take
on a tax return. This interpretation is effective for fiscal years beginning after December 15,
2006.
The Company files federal income tax returns in the U.S. The Company is no longer subject to U.S.
state, or non-U.S. income tax examinations by tax authorities for years before 2003. Certain U.S.
Federal returns for years 2006 and following are not closed by relevant statutes of limitation due
to unused net operating losses reported on those returns.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company had no changes in the carrying value of its tax assets or liabilities for
any unrecognized tax benefits.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11, “Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 provides for the
recognition and classification of deferred taxes associated with dividends or dividend equivalents
on nonvested equity shares or nonvested equity share units (including restricted stock units
(RSUs)) that are paid to employees and charged to retained earnings. This issue is effective for
annual periods beginning after September 15, 2007. Also in June 2007, the EITF ratified EITF Issue
No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities.” EITF 07-3 provides that nonrefundable advance payments made for goods or
services to be used in future research and development activities should be deferred and
capitalized until such time as the related goods or services are delivered or are performed, at
which point the amounts would be recognized as an expense. This issue is effective for fiscal years
beginning after December 15, 2007 We have evaluated the potential impact of this issue and
anticipate it will have no material impact on our financial position and results of operations.
Also in June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) No. 07-1, “Clarification of the Scope of the Audit and Accounting Guide
“Investment Companies” and Accounting by Parent Companies and
16
Equity Method Investors for Investments in Investment Companies.” This SOP provides guidance for
determining whether an entity is an investment company and also addresses when the specialized
industry accounting principles of an investment company should be used by a parent company in
consolidation or by an investor that applies the equity method of accounting to its investment in
the entity. This SOP is effective for fiscal years beginning on or after December 15, 2007. We have
evaluated the potential impact of this standard and anticipate it will have no material impact on
our financial position and results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157
clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a
liability in an orderly transaction between market participants. Further, the standard establishes
a framework for measuring fair value in generally accepted accounting principles and expands
certain disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. The Company does not expect the adoption of SFAS 157 to have a material
impact on its financial statements.
In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
FINANCIAL LIABILITIES-INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115 (“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value, with unrealized gains and
losses related to these financial instruments reported in earnings at each subsequent reporting
date. SFAS 159 will be effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be adopted by the Company January 1, 2008. The Company does not expect
the adoption of SFAS 159 to result in a significant impact on its consolidated financial position,
cash flows and results of operations.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2007 compared to Three and Six Months Ended June 30, 2006
Second Quarter of Fiscal 2007 vs. Second Quarter of Fiscal 2006
The following table presents the consolidated statements of operations as well as the percentage
relationship to total revenues of items included in our Consolidated Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
| Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of total revenues |
Research and
development
contracts |
|
$ |
— |
|
|
$ |
161,000 |
|
|
|
(100 |
%) |
|
|
— |
|
|
|
36 |
% |
Production |
|
|
1,059,000 |
|
|
|
291,000 |
|
|
|
264 |
% |
|
|
100 |
% |
|
|
64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
1,059,000 |
|
|
|
452,000 |
|
|
|
134 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
contracts |
|
|
— |
|
|
|
253,000 |
|
|
|
(100 |
%) |
|
|
|
|
|
|
56 |
% |
Production |
|
|
1,637,000 |
|
|
|
661,000 |
|
|
|
148 |
% |
|
|
155 |
% |
|
|
146 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(578,000 |
) |
|
|
(462,000 |
) |
|
|
(25 |
%) |
|
|
(55 |
%) |
|
|
(102 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
517,000 |
|
|
|
308,000 |
|
|
|
68 |
% |
|
|
49 |
% |
|
|
68 |
% |
Selling, general &
administrative |
|
|
1,543,000 |
|
|
|
1,035,000 |
|
|
|
49 |
% |
|
|
146 |
% |
|
|
229 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
2,060,000 |
|
|
|
1,343,000 |
|
|
|
53 |
% |
|
|
195 |
% |
|
|
297 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(2,638,000 |
) |
|
|
(1,805,000 |
) |
|
|
(46 |
%) |
|
|
(249 |
%) |
|
|
(399 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and
(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
financing fees,
net |
|
|
65,000 |
|
|
|
151,000 |
|
|
|
(57 |
%) |
|
|
6 |
% |
|
|
33 |
% |
Equity loss in
share of joint
venture company |
|
|
(29,000 |
) |
|
|
(16,000 |
) |
|
|
81 |
% |
|
|
(3 |
%) |
|
|
(4 |
%) |
Others, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
and (expense) |
|
|
36,000 |
|
|
|
135,000 |
|
|
|
(73 |
%) |
|
|
3 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,602,000 |
) |
|
$ |
(1,670,000 |
) |
|
|
(56 |
%) |
|
|
(246 |
%) |
|
|
(369 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The sum of the amounts and percentages may not equal the totals for the period due to the effects
of rounding. |
17
First
Six Months of Fiscal 2007 vs. First Six Months of Fiscal
2006
The following table presents the consolidated statements of operations as well as the percentage
relationship to total revenues of items included in our Consolidated Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Six Months Ended |
|
|
Six Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
| Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of total revenues |
Research and
development contracts |
|
$ |
— |
|
|
$ |
419,000 |
|
|
|
(100 |
%) |
|
|
— |
|
|
|
55 |
% |
Production |
|
|
2,602,000 |
|
|
|
341,000 |
|
|
|
663 |
% |
|
|
100 |
% |
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
2,602,000 |
|
|
|
760,000 |
|
|
|
242 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development contracts |
|
|
|
|
|
|
556,000 |
|
|
|
(100 |
%) |
|
|
— |
|
|
|
(73 |
%) |
Production |
|
|
3,020,000 |
|
|
|
818,000 |
|
|
|
269 |
% |
|
|
(116 |
%) |
|
|
(108 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(418,000 |
) |
|
|
(614,000 |
) |
|
|
32 |
% |
|
|
(16 |
%) |
|
|
(81 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
612,000 |
|
|
|
632,000 |
|
|
|
(3 |
%) |
|
|
24 |
% |
|
|
83 |
% |
Selling, general &
administrative |
|
|
2,871,000 |
|
|
|
1,959,000 |
|
|
|
47 |
% |
|
|
110 |
% |
|
|
258 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
3,483,000 |
|
|
|
2,591,000 |
|
|
|
34 |
% |
|
|
134 |
% |
|
|
341 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(3,901,000 |
) |
|
|
(3,205,000 |
) |
|
|
(22 |
%) |
|
|
(150 |
%) |
|
|
(422 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and financing
fees, net |
|
|
176,000 |
|
|
|
329,000 |
|
|
|
(47 |
%) |
|
|
7 |
% |
|
|
43 |
% |
Equity loss in share of
joint venture company |
|
|
(70,000 |
) |
|
|
(42,000 |
) |
|
|
67 |
% |
|
|
(3 |
%) |
|
|
(6 |
%) |
Others, net |
|
|
|
|
|
|
1,392,000 |
|
|
|
(100 |
%) |
|
|
— |
|
|
|
183 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and
(expense) |
|
|
106,000 |
|
|
|
1,679,000 |
|
|
|
(94 |
%) |
|
|
4 |
% |
|
|
221 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,795,000 |
) |
|
$ |
(1,526,000 |
) |
|
|
(149 |
%) |
|
|
(146 |
%) |
|
|
(201 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The sum of the amounts and percentages may not equal the totals for the period due to the effects
of rounding. |
Several other factors related to our business may have a significant impact on our operating
results from year to year. For example, the accounting rules governing the timing of revenue
recognition related to product contracts are complex and it can be difficult to estimate when we
will recognize revenue generated by a given transaction. Factors such as acceptance of services
provided, payment terms, creditworthiness of the customer, and timing of delivery or acceptance of
our products often cause revenues related to sales generated in one period to be deferred and
recognized in later periods. For arrangements in which services revenue is deferred, related direct
and incremental costs may also be deferred.
Net revenues for the six months ended June 30, 2007 were $2,602,000 as compared to $760,000 for the
corresponding period in 2006. Net revenues for the three months ended June 30, 2007 were $1,059,000
as compared to $452,000 for the corresponding period in 2006. Net production sales for the six
months ended June 30, 2007 increased to $2,602,000 from $341,000 in the same period in 2006. Net
production sales for the three months ended June 30, 2007 increased to $1,059,000 from $291,000 in
the same period in 2006. This represents a large increase in production revenue when comparing both
period on period and quarter on quarter. Our research and development revenues for the six months ended June 30, 2007 decreased to zero,
from $419,000 in the same period in 2006. For the three months ended June 30, 2007,
research and development revenues decreased to zero, from $161,000 in the same period in 2006. The company did not have any
research and development revenues in the first half or second quarter of 2007, though we may
realize research and development revenues in the future. In the second quarter of 2007, our
revenues derived mostly from production contracts with International
Truck, Tanfield Wright Bus, and the State
of Hawaii.
Cost of revenues consists of component and material costs, direct labor costs, integration costs
and overhead related to manufacturing our products. 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. Cost of revenues for the six and three months
ended June 30, 2007 increased by $1,646,000 and $723,000, respectively from $1,374,000 and $914,000
respectively, for the same period in 2006. This is primarily attributable to the increase in sales
for the period, although we are also experiencing an increase in integration support costs.
Additionally, the increase in the cost of revenue as a percentage of revenue was primarily due to a
increased inventory costs related to contracts. We anticipate there may be an increase in cost of
sales for products due to foreign exchange rate fluctuations of the U.S. dollar versus those
currencies of our primary suppliers.
18
Negative gross margin for the 2007 quarter and year to date is $578,000 and $418,000 respectively. As
a result of a periodic evaluation of our production contracts, we determined that certain
contracts resulted in increased cost to deliver the product. This increase relates primarily to
increased material cost as well as increased labor and overhead. Going forward, as the Company
matures from a research and development company into a production company, we intend to stabilize
our production processes, improve our contract evaluation, and effectively manage our suppliers for
volume discounts. We expect that these initiatives will contribute to improving margins going
forward.
Internal research, development and engineering expenses decreased in the six and three months ended
June 30, 2007 to $612,000 and $517,000 respectively, as compared with $632,000 and $308,000
respectively, for the same period in 2006. While we continue to develop several new products such
as our post transmission parallel hybrid drive system, engine off capability, wireless software
tracking and upgrade, and enhancements to our diesel generator set, our focus has shifted towards
production type arrangements, which accounts for the decrease in our internal research and
development costs. We continue to allocate necessary resources to the development of our parallel hybrid drive systems, upgraded proprietary control software, enhanced
DC-DC converters and advanced digital inverters and other power management firmware.
Selling, general and administrative expenses increased by $912,000 to $2,871,000 for the six months
ended June 30, 2007 from the previous year’s comparable period. For the three months ended June 30,
2007, selling, general and administrative expenses increased by $508,000 to $1,543,000 when
compared to the comparable period in 2006. The increase is attributable to additional engineering
and technical staff employed in the first half and quarter of 2007 as well as increased expense due
to stricter regulatory oversight. Further, we have experienced increased costs related to our
implementation of a new firm-wide software solution. We have also increased our sales and marketing
expenditures, our public relations expenditures, and have incurred additional costs associated with
improving our internal processes to support our goal of becoming a production company. While
management continues to explore cost reduction strategies in 2007, it is likely that our selling,
general, and administrative expenses will continue to increase in the near future. Although we put
a priority on achieving profitability, management cannot assure that profitability will be
achieved.
Interest income decreased by $153,000 and $86,000 to $176,000 and $65,000 in the six and three
months ended June 30, 2007 respectively, when compared to the same period in 2006. This decrease is
a result of the Company having a smaller average cash balance for the comparable periods in 2007
and 2006.
We realized a net loss of $3,795,000 for the six months ended June 30, 2007. Our net loss for the
three months ended June 30, 2007 was $2,602,000. We have incurred additional costs, specifically
in the selling and general administrative area to facilitate our transition to a production
company. These additional costs have increased our net loss when compared to the comparable
periods in 2006.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced cash flow shortages due to operating losses primarily attributable to research,
development, marketing and other costs associated with our strategic plan as an international
developer and supplier of electric propulsion and power management systems and components. Cash
flows from operations have not been sufficient to meet our obligations. Therefore, we have had to
raise funds through several financing 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 sources.
Our operations during the year ended December 31, 2006 were financed by development contracts and
product sales, as well as from working capital reserves.
During the six months ended June 30, 2007, our operations required $5,081,000 more in cash than was
generated. We continue to increase marketing and development spending as well as administrative
expenses necessary for expansion to meet customer demand. Accounts
receivable are
$1,234,000, a 245% increase from the balance at December 31, 2006 (net of write-offs). The increase
is due to our increased sales volume in the second quarter of 2007.
Inventory balances increased by $2,214,000 when comparing the balances at June 30, 2007 and
December 31, 2006. This represents a 130% increase in the inventory balance between the two
periods. We have increased our materials purchasing volume during in the second quarter of 2007 to
support our current sales order volume, as well as anticipated increases in future sales volume.
Prepaid expenses and other current assets decreased by net $462,000 at June 30, 2007 from the
December 31, 2006 balance of $708,000, or 65%. The Company elected to transfer all Certificate of
Deposit balances to a money market account, resulting in a decline in the accrued interest
receivable of approximately $240,000 on investments of $5 million.
Fixed assets increased by $29,000, net of depreciation and writeoffs, at June 30, 2007, when
compared to the December balance of $627,000. In the second quarter of 2007, the Company purchased
$63,000 in new property and equipment. The Company recognized $73,000 worth of depreciation expense
in the second quarter.
Equity method investments decreased by $70,000 in the first half of 2007 from a balance of
$1,647,000 at December 31, 2006, reflecting a pro-rata share of losses attributable to our forty
percent investment interest in the Hyundai-Enova Innovative Technology Center (ITC). For the
quarter ended June 30, 2007, the ITC generated a net loss of approximately $72,500 resulting in a
charge to us of $29,000 utilizing the equity method of accounting for our interest in the ITC.
19
Accounts payable increased in the second quarter of 2007 by $543,000 to $925,000 from $382,000 at
December 31, 2006. This increase is attributable to increased materials purchasing to support
current sales orders as well as anticipated future orders.
Deferred revenues decreased at June 30, 2007 by $166,000, when comparing to the December 31, 2006
balance of $399,000. This difference represents the realization of revenue that had been deferred
in December, predominantly associated with the Company’s contract with the State of Hawaii.
Accrued payroll and related expense increased by $17,000 or 8% at June 30, 2007, when compared to
the balance reported at December 31, 2006. The Company has continued to increase headcount to
support expanded production efforts.
Other accrued expenses increased by $551,000 at June 30, 2007 from the balance of $664,000 at
December 31, 2006, primarily due to the accrual of professional services, software implementation, as well as accruals for certain un-invoiced inventory purchases.
Accrued interest payable increased by $68,000 for the quarter ended June 30, 2007, an increase of
9% from the balance of $735,000 at December 31, 2006. The increase is due to interest related to
our debt
instruments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Credit Risk
Our exposure to market rate risk for changes in interest rates relates to our investment portfolio.
Our primary investment strategy is to preserve the principal amounts invested, maximize investment
yields subject to other investment objectives and maintain liquidity to meet projected cash
requirements. Accordingly, we invest in instruments such as money market funds, certificates of
deposit, United States government/agencies bonds, notes, bills and municipal bonds that meet high
credit quality standards, as specified in our investment policy guidelines. Our investment policy
also limits the amount of credit exposure to any one issue, issuer and type of instrument. We do
not currently use derivative financial instruments in our investment portfolio and we do not enter
into market risk sensitive instruments for trading purposes. We do not expect to incur any material
losses with respect to our investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, we carried out an evaluation, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934. Based on this evaluation, our principal executive officer (Mr. Michael Staran) and principal financial officer
(Mr. Jarett Fenton) concluded that our disclosure controls and procedures were not effective.
In particular, as of June 30, 2007, we did not maintain effective controls over the inventory
pricing, tracking, and the reserve analysis process. This control could result in a misstatement to
cost of sales that would result in a material misstatement to the annual and interim financial
statements that would not be prevented or detected. Our independent registered public accounting
firm, PMB Helin Donovan, concluded that these significant deficiencies constituted a “material
weakness” in our internal controls. Our management also determined that these deficiencies
constitute a material weakness that impacted our disclosure controls and procedures.
Changes in Internal Controls over Financial Reporting
There were no changes in internal control over financial reporting period covered by this Form 10-Q
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising in the ordinary course
of business. As of August 13, 2007 and during the quarter ended June 30, 2007, we were not involved
in any material legal proceedings.
ITEM 1A. RISK FACTORS
Compliance with Sarbanes-Oxley Act of 2002.
We are exposed to significant costs and risks associated with complying with increasingly stringent
and complex regulations of corporate governance and disclosure standards. Changing laws,
regulations and standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations and AMEX rules require growing expenditure of
management time and external resources. In particular, Section 404 of the Sarbanes-Oxley Act of
2002 requires management’s annual review and evaluation of our internal controls, and for fiscal
year 2008 attestations of the effectiveness of our internal controls by our independent registered
public accounting firm. This process may require us to hire additional personnel and outside
advisory services and may result in significant accounting, audit and legal expenses. We expect to
continue to incur expenses in future periods to comply with regulations pertaining to corporate
governance as described above. In addition, we have recently implemented an ERP system, which was
an extremely complicated, time consuming and expensive process.
There have been no other material changes from the risk factors as previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6.
EXHIBITS
| 31.1 |
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
| |
| 31.2 |
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| 32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2007
ENOVA SYSTEMS, INC.
(Registrant)
/s/ Jarett Fenton
By: Jarett Fenton, Chief Financial Officer
22
Exhibit Index
EXHIBITS
| 31.1 |
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 |
| |
| 31.2 |
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| 32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |