-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FD4WFZQ1T87eRe3AAOmGOXPI4SizJZmKwQbVpMgdx1YhZC0ymUZPcDURF6qw/0Z7 lP076ghfdUh4MjR5oSIrIg== 0000950005-03-000611.txt : 20030516 0000950005-03-000611.hdr.sgml : 20030516 20030516172946 ACCESSION NUMBER: 0000950005-03-000611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENOVA SYSTEMS INC CENTRAL INDEX KEY: 0000922237 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 953056150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25184 FILM NUMBER: 03709362 BUSINESS ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR STREET 2: SUITE 305 CITY: TORRANCE STATE: CA ZIP: 90502 BUSINESS PHONE: 3105272800 MAIL ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR STREET 2: SUITE 305 CITY: TORRANCE STATE: CA ZIP: 90502 FORMER COMPANY: FORMER CONFORMED NAME: US ELECTRICAR INC DATE OF NAME CHANGE: 19940425 10-Q 1 p17116_form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31 ,2003 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From To . ------------ ---------------- Commission File No. 0-25184 ENOVA SYSTEMS, INC. ------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-3056150 - ---------- ---------- (State or other jurisdiction of (IRS employer identification number) incorporation or organization) 19850 South Magellan Drive Torrance, CA 90502 --------------------------------------------- (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code (310) 527-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| As of May 13, 2003, there were 345,394,000 shares of Common Stock, no par value, 2,824,000 shares of Series A Preferred Stock, no par value, and 1,217,000 shares of Series B Preferred Stock, no par value, outstanding. 1 INDEX ENOVA SYSTEMS, INC. Page No. -------- PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)..................................3 Balance Sheets: March 31, 2003 and December 31, 2002..............................3 Statements of Operations: Three months ended March 31, 2003 and 2002........................4 Statements of Cash Flows: Three months ended March 31, 2003 and 2002........................5 Notes to Financial Statements: Three months ended March 31, 2003 and 2002........................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................9 Item 3. Quantitative and Qualitative Disclosure about Market Risk........15 Item 4. Control and Procedures...........................................15 PART II. OTHER INFORMATION Item 1. Legal Proceedings ...............................................16 Item 2. Changes in Securities and Use of Proceeds........................17 Item 3. Defaults upon Senior Securities..................................16 Item 4. Submission of Matters to a Vote of Security Holders..............16 Item 5. Other Information................................................16 Item 6. Exhibits and Reports on Form 8-K.................................17 SIGNATURE ........................................................18 CERTIFICATIONS ........................................................19 2 PART 1. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS ENOVA SYSTEMS, INC. BALANCE SHEETS (In thousands, except for share and per share data) - --------------------------------------------------------------------------------
As of As of March 31, 2003 December 31, 2002 -------------- ----------------- ASSETS (Unaudited) CURRENT ASSETS: Cash $ 894 $ 1,868 Accounts receivable, net 1,554 1,256 Inventory 1,608 1,652 Stockholder receivable 32 32 Prepaids and other current assets 95 107 -------- -------- Total Current Assets 4,183 4,915 PROPERTY, PLANT AND EQUIPMENT - NET 779 811 OTHER ASSETS 480 498 -------- -------- TOTAL ASSETS $ 5,442 $ 6,224 ======== ======== LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITES: Accounts payable $ 1,250 $ 1,192 Line of credit 11 14 Accrued payroll and related expense 119 240 Other accrued expenses 78 95 Bonds and notes payable 120 120 -------- -------- Total Current Liabilities 1,578 1,661 ACCRUED INTEREST PAYABLE 942 889 CAPITAL LEASE OBLIGATIONS 46 55 LONG TERM DEBT 3,332 3,332 -------- -------- TOTAL LIABILITIES $ 5,898 $ 5,937 -------- -------- SHAREHOLDERS' (DEFICIT): Series A convertible preferred stock - No par value; 30,000,000 shares authorized; 2,824,000 shares issued and outstanding at 3/31/03 and 12/31/02 liquidating preference at $0.60 per share aggregating $1,695,000 1,842 1,842 Series B convertible preferred stock - No par value; 5,000,000 shares authorized; 1,217,000 shares issued and outstanding at 3/31/03 and 12/31/02 2,434 2,434 liquidating preference at $2.00 per share aggregating $2,434,000 Common Stock - No par value; 500,000,000 shares authorized; 345,394,000 and 345,194,000 shares issued and outstanding at 3/31/03 and 12/31/02 84,156 84,026 Common stock subscribed 0 130 Stock notes receivable (1,203) (1,203) Additional paid-in capital 6,949 6,949 Accumulated deficit (94,634) (93,891) -------- -------- Total Shareholders' equity (deficit) (456) 287 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 5,442 $ 6,224 ======== ========
Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date. See notes to financial statements. 3 ENOVA SYSTEMS, INC. STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except for per share and share data) - --------------------------------------------------------------------------------
Three Months Ended March 31, ------------------------------ 2003 2002 ------------- ------------- NET REVENUES Research and development contracts $ 323 $ 465 Production $ 1,016 $ 476 ------------- ------------- 1,339 941 ------------- ------------- COST OF REVENUES Research and development contracts $ 212 $ 372 Production $ 765 $ 330 ------------- ------------- 977 702 ------------- ------------- GROSS MARGIN 362 239 ------------- ------------- OTHER COSTS AND EXPENSES: Research & development 208 275 Engineering 280 0 Selling, general & administrative 567 615 Interest and financing fees 55 55 Interest income (5) (2) ------------- ------------- Total other costs and expenses 1,105 943 ------------- ------------- LOSS FROM CONTINUING OPERATIONS $ (743) $ (704) ------------- ------------- NET LOSS $ (743) $ (704) ============= ============= NET LOSS PER COMMON SHARE: $ (0.01) $ (0.01) ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING 345,394,000 302,532,000 ============= =============
4 ENOVA SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 2003 2002 -------------- ------- OPERATIONS Net loss $ (743) $ (704) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and Amortization 82 38 Stock issued for Services 0 18 Change in operating assets and liabilities: Accounts Receivable (298) 359 Inventory 44 (420) Prepaids and other assets 3 31 Accounts payable and accrued expenses (30) 434 ------- ------- Net cash used by operating activities (942) (263) ------- ------- INVESTING: Purchases of property, plant and equipment, net of disposals (23) (174) ------- ------- Net cash used by investing activities (23) (174) ------- ------- FINANCING: Borrowing (Repayments) on leases (9) 47 Proceeds from issuance of common stock 0 3 ------- ------- Net cash provided by financing activities (9) 50 ------- ------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (974) (387) CASH AND EQUIVALENTS: Beginning of period 1,868 1,179 ------- ------- End of period $ 894 $ 792 ======= =======
5 ENOVA SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Continued) SUPPLEMENTAL CASH FLOW INFORMATION (UNAUDITED) (In thousands) - --------------------------------------------------------------------------------
Three Months Ended March 31, --------------------------------- 2003 2002 ------------- ------------- Cash paid for interest $ -- $ -- NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for services $ 12 $ --
6 ENOVA SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) For the Three Months Ended March 31, 2003 and 2002 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 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 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 March 31, 2003 and the interim results of operations and cash flows for the three months ended March 31, 2003 have been included. The balance sheet at December 31, 2002, 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 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 December 31, 2002 and March 31, 2003 inventories are reported at market value. Inventories have been valued on the basis that they would be used, converted and sold in the normal course of business. Certain accrued expenses are based upon an analysis of future costs expected to be incurred in meeting contracted obligations. 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, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States 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, 2002, which are included in the 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. Loss per common share is computed using the weighted average number of common shares outstanding. Since a loss from operations exists, diluted earnings per share number is not presented because the inclusion of common stock equivalents, consisting of Series A and B preferred stock, unexercised stock options and warrants, would be anti-dilutive. The results of operations for the three months ended March 31, 2003 presented herein are not necessarily indicative of the results to be expected for the full year. 7 NOTE 2 - Notes Payable, Long-Term Debt and Other Financing Notes payable and long-term debt is comprised of the following (in thousands): March 31, 2003 December 31, 2002 -------------- ----------------- (unaudited) ----------- Secured subordinated promissory note - CMAC as exclusive agent for Non-Qualified Creditors; interest at 3% through 2001, 6% in 2002 and 2003, and then at prime plus 3% thereafter through the date of maturity; interest payments are made upon payment of principal, with principal and interest due no later than April 2016; with an interest in a sinking fund escrow with a zero balance as of December 31, 2002 and March 31, 2003. The sinking fund escrow requires the Company to fund the account with 10% of future equity financing, including convertible debt converted to equity, based upon approval of the new investors per the terms of the note. 3,332 3,332 Other 120 120 ------ ------ 3,452 3,452 Less current maturities 120 120 ------ ------ Total $3,332 $3,332 ====== ====== NOTE 3 - Subsequent Events In April 2003, one of our customers, Advanced Vehicle Systems, Inc., filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of filing, AVS had an outstanding account balance with Enova of approximately $595,000 of which approximately $564,000 is for components delivered during the first quarter of 2003. Enova has reached a tentative agreement with AVS to be granted `critical vendor' status in order to receive a majority of these payments due as AVS's various vehicle manufacturing contracts are completed, all subject to bankruptcy court approval and the cooperation of various AVS customers involved with Enova's AVS programs. Enova's Audit Committee chairman is representing the Company's interest on the creditor's committee formed by the Bankruptcy Court to administer the payment of claims. While Enova believes it will recover a majority of the funds now owed by AVS, there are no assurances that we may recover any or all of these amounts owed. As of March 31, 2003, we have reserved $52,000 against these balances owed as an allowance for uncollectible receivables. There are no assurances that we will not be required to take additional reserves for uncollectible receivables in subsequent quarters as we learn more during the bankruptcy proceedings. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following information should be read in conjunction with the consolidated interim financial statements and the notes thereto in Part I, Item I of this Quarterly Report and with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual report on Form 10-K for the year ended December 31, 2002. The matters addressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of the historical information presented contains certain forward-looking statements involving risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks discussed in this Item 2 and specifically discussed in this report under the heading "Certain Factors That May Affect Future Results" following this Management's Discussion and Analysis section, and elsewhere in this report. 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. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the necessary estimates inherent in the preparation of financial statements. Estimates and assumptions include, but are not limited to, customer receivables, inventories, equity investments, fixed asset lives, contingencies and litigation. The Company has also chosen certain accounting policies when options were available, including: o The first-in, first-out (FIFO) method to value our inventories; o The intrinsic value method, or APB Opinion No. 25, to account for our stock options; o Review of customers' receivable to determine the need for an allowance for credit losses based on estimates of customers' ability to pay. If the financial condition of our customers were to deteriorate, additional allowances may be required. These accounting policies are 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 consolidated financial statements. GENERAL Enova Systems, Inc., a California Corporation ("Enova" or the "Company"), was incorporated on July 30, 1976. The Company's fiscal year ends December 31. All year references refer to fiscal years. Enova believes it is a leader in the development and production of commercial digital power management 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 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 9 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. Enova develops and produces advanced 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 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. During the quarter ended March 31, 2003, we continued to develop and produce electric and hybrid electric drive systems and components for Ford Motor Company (Ford), Hyundai Motor Company (HMC) and several domestic and international vehicle and bus manufacturers, including Advanced Vehicle Systems (AVS) of Tennessee, Malaysia and Japan. Our various electric and hybrid-electric drive systems, power management and power conversion systems are being used in applications including Class 8 trucks, monorail systems, transit buses and industrial vehicles. Enova has furthered its development and production of systems for both mobile and stationary fuel cell powered systems with major companies such as Ford, ChevronTexaco and UTC Fuel Cells, a division of United Technologies. We also are continuing on our current research and development programs with ChevronTexaco, HMC and the U.S. Department of Transportation (DOT) as well as developing new programs with Hyundai Heavy Industries (HHI), the U.S. government and other private sector companies. This quarter, we entered into a joint venture agreement with HHI to create a separate research and development corporation, domiciled in the U.S., which will develop new technologies for mobile and stationary applications for both developing markets for Enova and HHI. The new company will be initially domiciled at our Torrance headquarters with operations intended to commence during the second quarter of 2003. Ford Motor Company - Fuel Cell Technology The High Voltage Energy Converter (HVEC) development program with Ford Motor Company for their fuel cell vehicle continues to advance on schedule. This converter is a key component in Ford's Focus Fuel Cell Vehicle. It converts high voltage power from the fuel cell into a lower voltage for use by the drive system and electronic accessories. The system is completing advanced testing in its final prototype phase prior to production. We anticipate receiving an order for limited production in mid 2003; however, we can give no assurance at this time that such sales will occur. For the quarter ended March 31, 2003, we billed approximately $331,000 for this Ford program. Light-Duty Drive Systems - Automobiles and Delivery vehicles Our 90kW controller, motor and gear unit is utilized in light duty vehicles such as midsize automobiles and delivery vehicles. As part of our corporate strategy to outsource manufacturing, Hyundai Heavy Industries produces the Panther 90kW drive system for Enova. 10 The City of Honolulu Hawaii has contracted with Enova to upgrade several S-10 trucks in its electric vehicle fleet. Initially, we will upgrade 3 trucks to our Panther 90kW drive system. This program is expected to generate approximately $100,000 for Enova and will be completed by mid 2003. We continue to cross-sell our systems to new and current customers in the light and medium duty vehicle markets both domestically and globally. Heavy-Duty Drive Systems - Buses and Truck for Urban operators A major focus of Enova's is the heavy-duty vehicle, buses and trucks, for urban operators. Our PantherTM 120kW and PantherTM 240kW drive systems are in production and operating above performance expectations in global markets. Sales of our PantherTM 120kW and 240kW drive systems continue to provide increased revenues for our company. We have entered into supplier agreements with OEMs in Europe and Japan, as well as domestically, for sales of our heavy-duty drive systems. Hyundai Heavy Industries has been selected as our outsource manufacturer for the Panther 120kW controller, as well as the manufacturer of the motor and controller for our Panther 240kW drive systems. This is a specific strategy of Enova's to minimize capital outlays and maximize efficiencies by utilizing proven manufacturing partners. Eco Power Technology of Italy purchased and received 27 Panther 120kW electric and hybrid electric drive systems last year and in early 2003 gave notice of its intent to purchase additional systems in 2003. Eco Power is one of the largest integrators of medium size transit buses for the European shuttle bus market, with key customers in Turin and Genoa, Italy. Tomoe Electro-Mechanical Engineering and Manufacturing, Inc. of Japan continues to procure our 120kW and 90kW drive systems for integration into their industrial vehicle platforms. Tomoe is reviewing additional applications for our drive system configurations. Wrights Environment, a division of Wrights Bus, one of the largest low-floor bus manufacturers in the United Kingdom, has integrated into two of its buses our hybrid electric PantherTM 120kW drive system, which utilizes a 30kW Capstone microturbine as its power source. These buses are currently in field service and are performing to specifications. Further, we continue to negotiate with Wrights to purchase our 240kW drive system. Although we anticipate additional orders for both electric and hybrid-electric 120kW drive systems during 2003, at this time there are no assurances that such additional orders will be forthcoming. In the high performance heavy-duty drive system area, Enova's proprietary 240kW drive system has been successfully integrated into several heavy-duty applications including several 38 foot transit buses and a Class 8 urban delivery truck. We are anticipating additional orders in 2003, although no such orders are guaranteed. One of our 240kW systems has also been integrated into a Class 8 urban delivery truck which was displayed at the Electric Drive Transportation Association Symposium in Hollywood Florida in December 2002. This 240kW drive system is capable of providing 3,000 ft-lbs of torque at the drive shaft. Additionally, Enova has modified the Panther 90kW to be used in a dual wheel motor configuration, expanding its potential market penetration with bus and delivery vehicle manufacturers. AVS purchased several of our Panther Dual 90kW drive systems for their 22-foot bus for New York City and other customers. Additionally, in the first quarter, AVS purchased two 240kW drive systems for several of their 38-foot bus programs. In April 2003, Advanced Vehicle Systems, Inc., filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Enova has reached a tentative agreement with AVS to be granted `critical vendor' status in order to receive a majority of these payments due as AVS's various vehicle manufacturing contracts are completed, all subject to bankruptcy court approval and the cooperation of various AVS customers involved with Enova's AVS programs. Enova's Audit Committee chairman is representing the Company's interest on the creditor's committee formed by the Bankruptcy Court to administer the payment of claims (refer to Part II, Item 1 below). Additionally, we are in discussions with other bus manufacturers, industrial, commercial and military vehicle manufacturers regarding the purchase of our heavy-duty, high performance, 240kW drive systems in 11 2003. There are no assurances, however that these discussions will result in any sales of the Panther 240kW or 120kW drive systems. Ballard Power Systems Our development and production program with Ballard Power Systems for low voltage 30kW electric drive system components for use in Ford's Global Th!nk City was terminated by Ford and Th!nk Nordic in early 2003, as previously reported. Ford Motor Company announced that they have sold the program and its assets to Kamkorp, Ltd, a United Kingdom company. Currently, approximately $450,000 of current inventory is materials purchased for the initial production of the drive system component. There are other additional material, tooling and engineering costs which may become due to our suppliers as a result of the termination of this program of approximately $300,000. Under the terms of our agreement with Ballard and Ford, we believe full reimbursement for these costs is warranted at termination. We have billed Ballard for these amounts; however no final determination or agreement on the total reimbursement from Ballard to Enova has been made. Research and Development Programs The U.S. Air Force and the State of Hawaii have contracted with Enova to integrate a Panther 120kW hybrid drive system into a second 30-foot bus for the Hickman Air Force base. In conjunction with the State of Hawaii, the all-electric Hyundai Santa Fe SUV demonstration project has completed its second year of testing and evaluation. The vehicles are meeting specifications with the results of the project, thus far, meeting the expectations of the State of Hawaii, Hyundai and Enova. All of these programs are funded in conjunction with the Hawaii Electric Vehicle Development Project, the U.S. DOT and the State of Hawaii. Development programs with these agencies have generated revenues of $77,500 for the quarter ended March 31, 2003. We intend to establish new development programs with the Hawaii High Technology Development Corporation in mobile and marine applications as well as other state and federal government agencies as funding becomes available. Stationary Power Applications Enova continues to attract new partners and customers from both fuel cell manufacturers and petroleum companies. It is our belief that utilizing our power management systems for stationary applications for fuel cells will open new markets for our Company. There are no assurances, however, that we will successfully develop such applications or that any such applications will find acceptance in the marketplace. We are currently designing a process controller for ChevronTexaco Technology Ventures (CTTV) for their fuel reformer for a stationary fuel cell application. Due to the milestones met and technologies developed thus far in the initial development on this contract, we are in discussions with CTTV regarding developing other components for this application in the areas of power management and power processing; however, we can make no assurances that these discussions will lead to future contracts at this time. For the three months ended March 31, 2003, Enova has billed ChevronTexaco $95,000. Our Fuel Cell Care (FCU) units are being delivered to UTC Fuel Cells, a division of United Technologies Corp., for use in their stationary fuel cell systems. In the first quarter of 2003, UTC Fuel Cell ordered 24 additional fuel cell care units. Sales to UTC for the three months ended March 31, 2003 totaled $52,000. We believe the stationary power market will play a key role in our future. We continue to pursue alliances with leading manufacturers in this area. There are, however, no assurances that this market will develop as anticipated or that such alliances will occur. 12 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 manufacturer 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. We anticipate that we may require additional outside financing within the next six months to meet research, development and general operations expenditures through 2003. During the three months ended March 31, 2003, we spent $942,000 in cash on operating activities to fund our net loss of $743,000 resulting from factors explained in the following section of this discussion and analysis. Accounts receivable increased by $350,000 from December 31, 2002 balances due to increased heavy-duty system sales primarily to AVS and additional engineering on the Ford HVEC program. This increase in accounts receivable was reduced by approximately $52,000 as a result of an allowance for doubtful accounts in connection with AVS sales (refer to Part II, Item 1 below) for a net increase of $298,000. Inventory decreased by $44,000 from December 31, 2002 to March 31, 2003 as inventories for products such as our 120kW and 240kW drive system were sold to AVS and other bus manufacturers. Current liabilities decreased by a net of $83,000 from December 31, 2002 to March 31, 2003 as a result of payment of several expense accruals including year-end payrolls and other accrued expenses and payables. Capital lease obligations decreased by $9,000 during the three months ended March 31, 2003 from December 31, 2002, also due to normal reductions of these liabilities. Interest accruing on notes payable increased by $53,000 for the three months ended March 31, 2003 from December 31, 2002 per the terms of our notes payable. The operations of the Company during the first quarter of fiscal 2003 were financed primarily by the funds received on engineering contracts and sales of drive system components as well as cash reserves provided by equity financings. It is management's intention to continue to support current operations through sales of products and engineering contracts, as well as to seek additional financing through private placements and other means to increase inventory reserves and to continue internal research and development. The future unavailability or inadequacy of financing to meet future needs could force the Company to delay, modify, suspend or cease some or all aspects of its planned operations this year. 13 RESULTS OF OPERATIONS Net revenues for the three months ending March 31, 2003 increased to $1,339,000 from $941,000 for the corresponding period in 2002, representing an increase of 42%. Net production sales for the quarter ended March 31, 2003 increased by $540,000 or over 113% compared to the same period in 2002. The increase in revenues is attributable to increased product sales of PantherTM 240kW and Dual 90kW drive systems, engineering services for the ChevronTexaco fuel reformer process controller and development work on the Ford HVEC program. Cost of sales for the three months ended March 31, 2003 increased to $977,000 compared to cost of sales of $702,000 for the same three-month period in 2002 representing a gross margin on revenues of approximately 27% in the first quarter of 2003. An increase in revenues for the comparable period, as noted above, accounted for a majority of the increase in costs of sales over the periods reported. Additionally, adjustments of approximately $195,000, for inventory sold but not booked in prior periods, increased costs of sales and reduced gross margins in the first quarter. Without these one-time adjustments, the gross margin on revenues would be approximately 42%. Internal research, development and engineering expenses increased in the three months ended March 31, 2003 to $488,000 as compared with $275,000 in the same period in 2002. Enova allocated increased personnel to the development of its diesel generation motor as well as other internally funded programs such as its high voltage drive system components and the 18kW on-board charger. Additionally, Enova is enhancing its product line to maintain its competitive advantage in the digital power management. Selling, general and administrative expenses decreased $48,000 to $567,000 for the three months ended March 31, 2003 from the previous year's comparable period. We continue to attempt to reduce general and administrative expenses wherever possible. Interest and financing fees remained the same at $55,000 in the first three months of 2003 and 2002. We incurred a loss from continuing operations of $743,000 in the first quarter of 2003 compared to a loss of $704,000 in the first quarter of 2002. The increase was primarily due to additional one-time costs of revenues incurred in connection with an inventory adjustment, as previously noted. Without this adjustment, the net loss from operations would be approximately $548,000. We will continue to review all costs and develop methods in our efforts to produce our systems more efficiently by utilizing contract manufacturers where applicable. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This Form 10-Q contains forward-looking statements concerning our existing and future products, markets, expenses, revenues, liquidity, performance and cash needs as well as our plans and strategies. Forward-looking statements may be identified by the use of terminology such as "may," "anticipate," "estimate," "plans," "expects," "believes," "will," "potential" and by other comparable terminology or the negative of any of the foregoing. These forward-looking statements involve risks and uncertainties and are based on current management's expectations and we are not obligated to update this information. Many factors could cause actual results and events to differ significantly from the results anticipated by us and described in these forward looking statements including, but not limited to, the following risk factors. Net Operating Losses. We experienced recurring losses from operations and had an accumulated deficit of $94,634,000 at March 31, 2003. There is no assurance, however, that any net operating losses will be available to us in the future as an offset against future profits for income tax purposes. Continued Losses. For the three months ended March 31, 2003 and 2002, we had losses from continuing operations of $743,000 and $704,000 respectively on sales of $1,339,000 and $941,000, respectively. 14 Nature of Industry. The mobile and stationary power markets, including electric vehicle and hybrid electric vehicles, continue to be subject to rapid technological change. Most of the major domestic and foreign automobile manufacturers: (1) have already produced electric and hybrid vehicles, and/or (2) have developed improved electric storage, propulsion and control systems, and/or (3) are now entering or have entered into production, while continuing to improve technology or incorporate newer technology. Various companies are also developing improved electric storage, propulsion and control systems. In addition, the stationary power market is still in its infancy. A number of established energy companies are developing new technologies. Cost-effective methods to reduce price per kilowatt have yet to be established and the stationary power market is not yet viable. Our current products are designed for use with, and are dependent upon, existing technology. As technologies change, and subject to our limited available resources, we plan to upgrade or adapt our products in order to continue to provide products with the latest technology. We cannot assure you, however, that we will be able to avoid technological obsolescence, that the market for our products will not ultimately be dominated by technologies other than ours, or that we will be able to adapt to changes in or create "leading-edge" technology. In addition, further proprietary technological development by others could prohibit us from using our own technology. Changed Legislative Climate. Our industry is affected by political and legislative changes. In recent years there has been significant public pressure to enact legislation in the United States and abroad to reduce or eliminate automobile pollution. Although states such as California have enacted such legislation, we cannot assure you that there will not be further legislation enacted changing current requirements or that current legislation or state mandates will not be repealed or amended, or that a different form of zero emission or low emission vehicle will not be invented, developed and produced, and achieve greater market acceptance than electric or hybrid electric vehicles. Extensions, modifications or reductions of current federal and state legislation, mandates and potential tax incentives could also adversely affect our business prospects if implemented. Because vehicles powered by internal combustion engines cause pollution, there has been significant public pressure in Europe and Asia, and enacted or pending legislation in the United States at the federal level and in certain states, to promote or mandate the use of vehicles with no tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions ("low emission vehicles"). Legislation requiring or promoting zero or low emission vehicles is necessary to create a significant market for electric vehicles. The California Air Resources Board (CARB) is continuing to modify its regulations regarding its mandatory limits for zero emission and low emission vehicles. Furthermore, several car manufacturers have challenged these mandates in court and have obtained injunctions to delay these mandates. Our products are subject to federal, state, local and foreign laws and regulations, governing, among other things, emissions as well as laws relating to occupational health and safety. Regulatory agencies may impose special requirements for implementation and operation of our products or may significantly impact or even eliminate some of our target markets. We may incur material costs or liabilities in complying with government regulations. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations and requirements that may be adopted or imposed in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. ITEM 4. CONTROLS AND PROCEDURE Within the 90-day period prior to the filing of this report, an evaluation was carried out by Carl Perry, the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, Mr. Perry concluded that these disclosure controls and procedures were effective. No significant changes were made in the Company's internal controls or in other factors 15 that could significantly affect these controls subsequent to the date of their evaluation. 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. In April 2003, one of our customers, Advanced Vehicle Systems, Inc., filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of filing, AVS had an outstanding account balance with Enova of approximately $595,000 for components delivered during the first quarter of 2003. Enova has reached a tentative agreement with AVS to be granted `critical vendor' status in order to receive a majority of these payments due as AVS's various vehicle manufacturing contracts are completed, all subject to bankruptcy court approval and the cooperation of various AVS customers involved with Enova's AVS programs. While Enova believes it will recover a majority of the funds now owed by AVS, there are no assurances that we may recover any or all of these amounts owed. As of March 31, 2003, we have reserved $52,000 against these balances owed as an allowance for uncollectible receivables. There are no assurances that we will not be required to take additional reserves for uncollectible receivables in subsequent quarters as we learn more during the bankruptcy proceedings. Item 2. Changes in Securities and Use of Proceeds Pursuant to the Joint Venture Agreement with HHI as described above, we have agreed to sell equity to HHI as more fully described in our 8-K filed with the SEC on March 24, 2003 and as set forth in the Stock Purchase Agreement referenced therein and attached hereto as Exhibit 10.25. Item 3. Defaults Upon Senior Securities: None. Item 4. Submission of Matters to a Vote of Securities Holders None. Item 5. Other Information None. 16 Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: 10.24* Joint Venture Agreement (redacted**) to form advanced research and development corporation, dated as of March 18, 2003, by and between the Registrant and Hyundai Heavy Industries Co. Ltd. 10.25* Securities Purchase Agreement dated as of March 18, 2003, by and between the Registrant and Hyundai Heavy Industries Co. Ltd. 99.1* CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 * - attached herewith ** - Certain information has been redacted as part of a confidential treatment request filed separately with the SEC. (b) Reports on Form 8-K The Company filed on March 24, 2003, a Form 8-K describing the equity to be sold to HHI pursuant to Enova's Joint Venture Agreement entered into with HHI during the quarter ended March 31, 2003. 17 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: May 15, 2003 ENOVA SYSTEMS, INC. (Registrant) /s/ Carl D. Perry - -------------------------------------------------------------------------------- By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer 18 CERTIFICATIONS I, Carl D. Perry, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Enova Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Carl D. Perry - -------------------------------------------------------------------------------- By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer 19 EX-10.24 3 ex1024.txt JOINT VENTURE AGREEMENT JOINT VENTURE AGREEMENT This Agreement is entered into effective as of this 18th day of March 2003 by and between Enova Systems, Inc., a corporation organized and existing under the laws of the State of California, U.S.A., with its principal place of business at 19850 South Magellan Drive, Torrance CA 90502 (hereinafter referred to as "ENOVA") and Hyundai Heavy Industries Co., Ltd., a corporation organized and existing under the laws of the Republic of Korea, with its principal place of business at Ulsan, Korea (hereinafter referred to as "HHI"). WITNESSETH WHEREAS, ENOVA is engaged in research, development, sales and marketing of power management, conversion and propulsion systems for electric, hybrid-electric and fuel cell vehicles; and WHEREAS, HHI is engaged in design, development and manufacture of electrical equipment such as switchgears, transformers, circuit breakers, instrumentation and control system, power electronics, motors and generators; and WHEREAS, ENOVA and HHI desire to collaborate by establishing and funding a joint venture company ("JVC") to which ENOVA and HHI will license certain of their respective technologies to the JVC, pursuant to the License and Technology Transfer Agreements in form and substance as set forth in Exhibits B-1 and B-2 attached hereto (the "Licenses"), in consideration of HHI investing $6,000,000 ($3,000,000 directly in ENOVA and $3,000,000 in the JVC), pursuant to Stock Purchase Agreement substantially in form and substance attached hereto as Exhibit A (the "Stock Purchase Agreement") and ENOVA investing $2 million in the JVC; and WHEREAS, the JVC shall engage in the research and development of certain power conversion and power management technology and products, including electric vehicle products and distributed generation systems as set forth herein, and shall grant licenses of its technologies to HHI and ENOVA to manufacture and market products as more fully set forth in Exhibits C-1 and C-2 attached hereto (the "Manufacturing and Sales Agreements"). NOW, THEREFORE, in consideration of promises and covenants hereinafter set forth, ENOVA and HHI agree as follows: 1 Article 1. Definitions For the purposes of this Agreement, the following terms shall have the following meanings respectively: 1.1 The term "Agreement " shall mean this Joint Venture Agreement. 1.2 The term "Agreement Date" shall mean the effective date of this Agreement as set forth in the preamble above. 1.3 The term "Parties" shall mean ENOVA and HHI. 1.4 The term "JVC" shall mean that joint venture company to be incorporated under the laws of the State of California by the Parties in the manner provided in this Agreement. 1.5 The term "Related Agreements" shall mean those agreements to be incorporated into this Agreement as exhibits which are to be entered into between or among ENOVA, HHI and/or the JVC, as the case may be, pursuant to Article 3 hereof. 1.6 The term "Products" shall mean those products set forth on Schedule 1 attached hereto. 1.7 Unless specifically provided to the contrary, all amounts referred to in this Agreement are in United States Dollars. Article 2. Formation of JVC 2.1 Formation. As soon as practically possible after the Agreement Date, but in no event later than ninety (90) days after the Agreement Date, provided that all of the Related Agreements referred to in Article 3 have been executed by the Parties, the Parties shall cause the JVC to be organized and registered under the laws of the State of California. The Parties shall closely cooperate and consult with each other with respect to the procedures and particulars of the organization and registration of the JVC. The JVC will be a close corporation and the initial registered principal office of the JVC shall be located at 19850 South Magellan Drive, Torrance CA 90502. 2 2.2 Articles of Incorporation. At the time of the organization and registration of the JVC, the Parties shall cause the JVC to adopt the Articles of Incorporation and Bylaws annexed hereto and marked as Exhibits D-1 and D-2, respectively (collectively, the Articles and Bylaws to be hereinafter referred to as the "Charter Documents"). 2.3 Paid-in Capital. JVC shall have a paid-in capital of US Five Million Dollars (USD 5,000,000) consisting of five million shares (5,000,000) of common stock. HHI shall subscribe to and pay US Three Million Dollars (USD 3,000,000) for three million shares (3,000,000) amounting to sixty percent (60%) of JVC common stock shares and ENOVA shall subscribe to and pay US Two Million Dollars (USD 2,000,000) for two million shares (2,000,000) amounting to forty percent (40%) of JVC common stock shares. The subscription shall take place in the following manner: A. At the time of incorporation of JVC, HHI shall wire transfer [REDACTED]* to the bank account of JVC [REDACTED]* and at the same time, shall wire transfer [REDACTED]* to the bank account of ENOVA pursuant to the Stock Purchase Agreement attached as Exhibit A hereto. B. One year following the Agreement Date, HHI shall wire transfer [REDACTED]* to the bank account of JVC [REDACTED]* and at the same time, shall wire transfer [REDACTED]* to the bank account of ENOVA pursuant to the ENOVA Stock Purchase Agreement attached as Exhibit A hereto. C. From the above transactions and as pursuant to the Stock Purchase Agreement, ENOVA shall be deemed to have subscribed to and purchased forty percent (40%) of JVC common stock shares and HHI shall be deemed to have subscribed to and purchased sixty percent (60%) of JVC common stock shares. Moreover, as consideration of HHI paying US Two Million Dollars (USD 2,000,000) on behalf of ENOVA for ENOVA's subscription of JVC's common stock shares, HHI shall be deemed to have purchased ENOVA's common stock shares equivalent to US Three Million Dollars (USD 3,000,000). 2.4 Formation Costs. Expenses incurred by each Party up to the Agreement Date, including travel expenses and legal fees, shall be borne by the Party so incurring such expenses. After the Agreement Date, all costs and expenses of the formation of JVC, to the extent the same are not incurred or assumed by the JVC, be borne equally by the Parties. 3 Article 3. Related Agreements Immediately after the formation and registration of the JVC, including but not limited to filing of the Articles of Incorporation ("Exhibit D-1") and adoption of the Bylaws (Exhibit D-2") by the JVC, the following agreements shall be entered into between the relevant Parties. A. The Stock Purchase Agreement ("Exhibits A"); B. The License and Technology Transfer Agreements (Exhibits B-1 and B-2); and C. The Manufacturing and Sales Agreements (Exhibits C-1 and C-2). Article 4. Organization of JVC 4.1 JVC Governance. The organization and governance of the JVC shall be governed by the Charter Documents except as otherwise set forth in this Agreement. Notwithstanding anything set forth in the Charter Documents to the contrary, the following corporate actions shall require the written consent or authorization at a duly held meeting of the shareholders of the JVC holding at least seventy-five percent (75%) of the outstanding shares in the JVC: A. Any amendment to the Charter Documents which has the effect of increasing or decreasing of the share capital of the JVC or the authorized number of directors of the JVC; B. Any merger or other reorganization with another entity; C. Any dissolution of the JVC except pursuant to the termination of this Agreement in accordance with its terms; D. Any sale of all or substantially all of the assets of the JVC; and E. Any compensation of the Board of Directors. 4.2 Directors and the Board of Directors. 4.2.1 Except as otherwise required by mandatory provisions of law or provided for in the Charter Documents or this Agreement, responsibility for the management, direction and control of the JVC shall be vested in the Board of Directors. 4 4.2.2 The Board of Directors may delegate authority for management of the JVC to officers of the JVC in accordance with this Agreement and the Bylaws, resolutions duly passed by the Board of Directors and as consistent with the Articles of Incorporation and mandatory provisions of law. 4.2.3 The directors of the JVC shall be elected as provided in the Bylaws. The Bylaws of the JVC shall provide for the election of five (5) directors. It is understood and agreed by the Parties that three (3) of the directors of the JVC shall be individuals appointed by HHI and two (2) of the directors shall be individuals nominated by ENOVA. The term of directors shall be for one (1) year and directors shall be eligible for re-election as are consistent with applicable law and the Bylaws. 4.2.4 In the event of death, incapacity, prolonged illness, resignation or removal of a director prior to the completion of the term to which he was elected, the Board of Directors or shareholders shall vote their shares and take such other action as may be necessary to appoint or cause to be appointed a director nominated by the shareholder Party which originally elected such director as his replacement. 4.2.5 Meetings of the Board of Directors of JVC shall be convened and conducted not less than once during each calendar quarter of the JVC. Meetings of the Board of Directors shall be called by the President of the JVC or at the request of any member of the Board of Directors. Meetings of the Board of Directors shall be chaired by the President/CEO of JVC who shall be a member of the Board of Directors. 4.2.6 [REDACTED]* A. [REDACTED]*; B. [REDACTED]*; C. [REDACTED]*; D. [REDACTED]*; E. [REDACTED]*; F. [REDACTED]*; G. [REDACTED]*; H. [REDACTED]*; I. [REDACTED]*; J. [REDACTED]*; 5 K. [REDACTED]*; and L. [REDACTED]*. 4.3 Officers and Employees of JVC. 4.3.1 President/CEO. The JVC shall have a President/CEO responsible for day-to-day management and operation of the JVC, who shall be elected by the Board of Directors. The first President/CEO shall be nominated by ENOVA for approval by the Board of Directors for a two-year term. [REDACTED]* 4.3.2 Vice President. The JVC shall have one (1) Vice President of Finance/CFO who shall be in charge of finance and accounting. The Vice President of Finance/CFO shall be appointed by HHI. 4.3.3 Employees of JVC. As the Parties recognize the importance of the JVC obtaining the best available personnel for its success, during the first two (2) years of the JVC's formation, the Parties agree to use best efforts to assist, at no additional financial expense, the JVC in its efforts to locate and hire capable employees and the Board of Directors of the JVC shall have the right to approve the personnel employed by the JVC. 4.4 Financial Records and Fiscal Year. 4.4.1. A single set of complete books of account shall be kept at all times by the JVC which shall accurately reflect its financial affairs. Such books shall be kept in accordance with GAAP and applicable U.S. Securities and Exchange rules and regulations. Major financial and operating statements, including balance sheets, income statements, statements of changes in financial position, and others as may be requested by the Parties from time to time, shall be prepared by the JVC and shall be furnished to each of the Parties on no less than a quarterly basis to insure that each party is reasonably able to comply with governmental regulatory obligations. 4.4.2 The accounts and records of the JVC shall be audited at the end of each fiscal year and at the expense of the JVC by a firm of independent public accountants selected by agreement between the Parties. 4.4.3 The Parties agree that each of them may at its own expense have the full right and power to 6 examine, audit, inspect and copy the books, records, and accounts of the JVC during normal business hours. For this purpose, the JVC shall preserve all records relating to each fiscal year for a minimum period of seven (7) years. Article 5. Business and Operations of JVC 5.1 Business Scope. The business scope of the JVC shall be research and development of power conversion, power management, including electric vehicle products, distributed generation systems, manufacturing technology of such products, and other technologies which are deemed to be feasible and consistent with the terms and conditions of the Licenses (Exhibits B-1 and B-2) and the Manufacturing and Sales Agreements (Exhibits C-1 and C-2) and the products and technologies identified on Schedule 1 attached hereto and incorporated herein by reference. The JVC agrees not to develop, sell or license Products or technologies which would compete with either Party's existing products or technologies without the other Party's consent. Furthermore, in no event will the JVC develop, sell or license any Products or technologies that conflict with existing contractual obligations of either Party. 5.1.1 [REDACTED]*. 5.1.2 [REDACTED]*. 5.2 Assistance to JVC. 5.2.1 Both Parties shall diligently assist the JVC for a period of two (2) years following formation of the JVC without financial cost: A. [REDACTED]*; B. [REDACTED]*; C. [REDACTED]*; and D. [REDACTED]*. 5.3 Grants by ENOVA and HHI to JVC. 7 5.3.1 ENOVA and HHI shall each grant the JVC [REDACTED]* as set forth in the respective License and Technology Transfer Agreements (Exhibits B-1 and B-2). Each Party shall likewise be granted manufacturing and sales licenses from the JVC as set forth in the respective Manufacturing and Sales Agreements as set in Exhibits C-1 and C-2. Article 6. Financing 6.1 Working Capital. 6.1.1 If necessary, upon prior approval of a majority of the authorized number of the Board of Directors in accordance with applicable law, the JVC may obtain its necessary working capital over and above its original share capital by commercial borrowing. If, as a condition to granting any such loan, the lender requires guarantee(s), the Parties may undertake to provide the guarantee(s), each in proportion to its equity interest in the JVC as they may mutually agree in writing in their sole discretion. 6.1.2 In the event the JVC is unable to borrow funds considered by HHI and ENOVA to be necessary, subject to approval by a majority of the authorized number of the Board of Directors of the JVC in accordance with applicable law, the Parties [REDACTED]* to the JVC the [REDACTED]* in the JVC up to such amounts as they may from time to time mutually agree upon in writing in their sole discretion. Each Party shall make each such loan to the JVC, unless otherwise mutually agreed in writing in their sole discretion , on the same terms and conditions regarding duration, interest, repayment and otherwise, as the corresponding loan made by the other Party. 6.2 Manner of Providing Additional Equity Capital. [REDACTED]*, upon approval of a majority of the authorized number of the Board of Directors in accordance with applicable law and the provisions of this Agreement. Upon the contribution of such capital to the JVC, the Parties shall [REDACTED]* to their contribution as agreed by both Parties in writing. Article 7. Other Matters Pertaining to JVC Stock 7.1 Preemptive Rights. ENOVA and HHI shall retain the preemptive right to subscribe and pay for 8 any shares of the JVC issued after the Agreement Date as more fully set forth in the Bylaws. 7.2 Transfers of Shares. 7.2.1 Except as otherwise expressly provided for in this Article 7, the Parties mutually covenant and agree [REDACTED]* any of the shares of JVC held by them, or preemptive rights to new shares allotted to them, except (i) with the written consent of the other Party or (ii) as stipulated in this Agreement. 7.2.2 No [REDACTED]* 7.2.3 Each Party to the extent permitted by law hereby extends to the other Party a right of first refusal with respect to the sale of the shares of JVC held by it as set forth in the Bylaws of the JVC. Article 8. Payment and Withholding 8.1 Manner and Place of Payments. Any and all payments to be made to ENOVA or HHI by the JVC in consequence of or in connection with the acts or transactions contemplated by this Agreement and the Related Agreements, including but not limited to dividends, royalties, interest payments, reimbursable expenses and repatriated capital, shall be made, except as otherwise provided herein, in United States Dollars, to ENOVA or HHI, as applicable, to the attention of the appropriate individual and address as ENOVA or HHI, as applicable, shall have specified by written notice or at such bank in Korea or the United States as may from time to time be designated by ENOVA or HHI, as applicable. 8.2 Withholding Taxes. Any sum required under California or U.S. Federal tax laws to be withheld by JVC for the account of ENOVA or HHI from payments due to ENOVA or HHI, as applicable, shall be withheld and shall be promptly paid by JVC to the appropriate tax authorities, and the Parties shall cause JVC to furnish ENOVA or HHI, as applicable, official tax receipts or other appropriate evidence issued by the State of California or U.S. Federal tax authorities sufficient to enable ENOVA or HHI, as applicable, to establish the payment of the taxes described above. 9 Article 9. Confidentiality of Information 9.1 Duty of Secrecy and Confidentiality. Except to the extent that disclosures may be permitted by any of the Related Agreements, each Party agrees to keep strictly secret and confidential all information obtained from the other Party or the JVC which is designated as confidential by said other Party or JVC, as the case may be until three (3) years after termination of this Agreement. To that end, all records, copies, reproductions, reprints and translation of such information shall be plainly marked to indicate the secret and confidential nature thereof and to prevent unauthorized use or reproduction thereof. 9.2 Limitations and Survival of Obligation. Such obligations, as undertaken by the Parties pursuant to this Article 9, shall survive termination of this Agreement and shall remain in effect and be binding on the Parties for a period of three (3) years after the termination of this Agreement except for information that becomes part of the public domain, is received from an independent source, or disclosure is required under applicable law or by governmental authority. Article 10. Compliance with the Law The Parties shall comply with and shall cause JVC to comply with all statutes, regulations, judicial or governmental agency orders or other laws of the State of California, U.S.A. or any other jurisdiction which are or may be applicable to JVC, and shall obtain and maintain all approvals, licenses and authorization necessary for JVC to conduct its business as it may from time to time be conducted. Article 11. Term and Termination 11.1 Term. The term of this Agreement shall begin as of the Agreement Date and shall continue in force and effect for an indefinite term thereafter, until the JVC shall be dissolved or otherwise cease to exist as a separate entity, or until this Agreement is terminated earlier pursuant to the following provision of this Article 11. 10 11.2 Termination. This Agreement shall be terminated as provided below: 11.2.1 Upon agreement in writing between the Parties to terminate this Agreement; 11.2.2 By either Party if any of the conditions prior to signing will not have been met, or not have been waived in writing by the other Party prior to or on the Agreement Date; 11.2.3 [REDACTED]*; 11.2.4 Upon liquidation or dissolution of the JVC; or 11.2.5 Upon a Party giving rise to an event listed below (referred to herein as the "Event of Default") unless waived in writing by the Non-Defaulting Party. For purposes of this Agreement, the Party giving rise to the Event of Default is referred to herein as the "Defaulting Party" and the Party not giving rise to the Event of Default is referred to herein as the "Non-Defaulting Party". Events of Default are as follows: A. [REDACTED]*; B. [REDACTED]*; C. [REDACTED]*; D. [REDACTED]*; or E. [REDACTED]*. 11.2.6 Upon the rise of an Event of Default, Non-Defaulting Party may elect to terminate this Agreement upon written notice given within thirty (30) days after each Event of Default (except for Section 11.2.5 (D), whereupon the Party desiring to sell such assets or equity may notify the other Party of its intention to sell and the non-selling Party must make its termination election within thirty (30) days after such notice), and may thereafter elect one of the following options: A. The Defaulting Party will [REDACTED]* B. [REDACTED]* 11 11.3 Upon termination of the Agreement, the Licenses [REDACTED]* compliance with the Manufacturing and Sales Agreements and the Manufacturing and Sales Agreements shall [REDACTED]* except in accordance with their specific terms. Any ongoing royalties or other payments that would otherwise be payable to the JVC after dissolution shall be paid first to any creditors of the JVC and then paid to the shareholders of the JVC at the time of dissolution in accordance with their respective ownership interests in the JVC at the time of dissolution and applicable law. 11.4 Upon termination of the Agreement, no Party shall be discharged from and of its antecedent obligations or liabilities to the other Party provided herein or under any of the Related Agreements and confidentiality obligations as set forth in Article 9, unless otherwise agreed in writing by the Parties. 11.5 If either Party challenges or disagrees with the asserted basis of a termination hereunder, the termination will not be considered effective until after a decision of the arbitration tribunal, in accordance with the procedures of Article 12 hereto. Article 12. Interpretation 12.1 Applicable Law. The validity, construction and performance of this Agreement shall be governed by and interpreted in accordance with the laws of the State of California excluding that body of law known as conflicts of law. 12.2 Settlement of Dispute. Any dispute or conflict which may arise between the Parties, out of or in relation to or in connection with this Agreement or for the breach thereof which cannot be resolved between the Parties shall be referred to the board of directors of each such Party. Each board shall nominate one of its members to confer with a member nominated by the other Party and present to each board a recommended solution. If within thirty (30) days after receipt of such recommendation, the respective boards cannot agree with each other, then each Party shall be entitled to initiate the relevant arbitration procedures. 12.3 Arbitration. All disputes, controversies, or differences, that remain after the settlement of dispute procedure as provided in paragraph 12.2, shall be submitted to arbitration in Los Angeles under the 12 then current Commercial Arbitration Rules of the American Arbitration Association ("AAA") by three arbitrators. The award rendered by the arbitrators shall be final and binding upon both Parties. 12.4 Effect of Headings. The headings to articles and paragraphs of this Agreement are to facilitate reference only, do not form a part of this Agreement, and shall not in any way affect the interpretation hereof. 12.5 Entire Agreement. This Agreement, with Related Agreements and exhibits, constitutes the entire agreement of the Parties with respect to the subject matter hereof and supercedes and cancels any and all prior understandings or agreements, verbal or otherwise, in relation hereto, which may exist between the Parties. No amendment or change hereof or addition hereto shall be effective or binding on either of the Parties unless reduced to writing and executed by the respective duly authorized representatives of the Parties. 12.6 Waivers. No term or condition shall be deemed waived by any Party unless the waiver has been reduced to writing, and signed by the Parties and such waiver shall not constitute or be deemed a waiver of any other right hereunder or against any other failure to perform or breach hereof by such other Party, whether of a similar or dissimilar nature hereto. 12.7. Representations and Warranties. All representations and warranties made by either Party, whether by Party's officers, employees, agents, representatives and consultants, whether acting or not in their authorized capacity but so long as relied upon by the other Party relating to a material fact, shall be deemed to be an essential condition of this Agreement, the misstatement of which shall give cause to the non-defaulting Party to rescind this Agreement with the resulting legal consequences. Article 13. Miscellaneous 13.1 No Agency. The Parties and JVC shall act in all matters pertaining to this Agreement as independent contractors and nothing contained herein shall constitute any Party or JVC the partner, agent or legal representative of any other Party or JVC. 13.2 Force Majeure. Not withstanding any other provisions of this Agreement, a Party shall not be liable to the other Party for any loss, injury, delay, damages or other casualty suffered or incurred by 13 the latter due to strikes, riots, storms, fires, explosions, acts of God, war, action of any governmental or any other cause beyond the reasonable control of the Party, and any failure or delay by either Party in performance of any of its obligations under this Agreement due to one or more of the foregoing causes shall not be a breach of this Agreement. However, each Party shall promptly notify the other Party of the occurrence of such force majeure condition. If such condition continues for longer than three (3) months, the Parties shall mutually consult about the appropriate modification of this Agreement. This provision shall not exempt any Party from its duty to perform the obligations under this Agreement as soon as practicable after a force majeure condition ceases to exist. 13.3 Severability. In the event any term or provision of this Agreement shall for any reason be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other terms or provisions hereof, and in such event, this Agreement shall be interpreted and construed as if such term or provision, to the extent, that shall have been held invalid, illegal or unenforceable, had never been contained herein. 13.4 Notices. Any notice or other communication required or permitted by this Agreement shall be made in the English language and shall be sufficiently given (i) if delivered in person, on the date so delivered or (ii) if sent by telex or e-mail with confirmation of receipt or simultaneous confirmation sent by registered airmail, on the date so sent, to the following address or such other address as may be furnished by written notice by a Party to the other Party: To HHI Mr. C. D. Lee Senior Vice President Electro-Mechanical Research Institute 102-18, MABOOK-RI, KUSEOUNG-EUP, YONGIN-SHI, GYUNGGI-DO, KOREA 449-716 To ENOVA Mr. Carl D. Perry President Enova Systems Inc. 14 19850 S. Magellan Drive, Torrance, CA 90502, U.S.A. 13.5 Use of Trademarks. It is understood and agreed that no Party's trademark, trade name, service mark, symbol or any other identification or any abbreviation, contraction or simulation thereof or reference to any Party or its customers shall be used in connection with any of JVC's products or in any of its or their advertising or promotional efforts without prior consultation with and approval of the relative Party. 13.6 Assignment. No Party shall have the right to assign by operation of law or otherwise any or all of its rights or obligations under this Agreement without the prior written consent of the other Party. 13.7 Survival. The Parties agree that the terms and conditions of this Agreement shall survive all legal acts contemplated herein. Any third party called upon to interpret and resolve any difference between the Parties to this Agreement in the future, even after the realization of the legal acts contemplated, shall be guided by the general principles of intention and general obligations set forth in this Agreement. 13.8 Exhibits. The Exhibits attached to this Agreement shall constitute the part -------- of this Agreement and have same effect with this Agreement. IN WITNESS WHEREOF, and having been approved by the Board of Directors of each Party, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives on the day and year first set above. Enova Systems Inc. By __________________________________ Hyundai Heavy Industries Co., Ltd. By_________________________________ 15 Schedule 1 Technology and Product Development 1.1.1 [REDACTED]* 1.1.2 [REDACTED]* 1.1.3 [REDACTED]* 1.1.4 [REDACTED]* 1.1.5 [REDACTED]* 1.1.6 [REDACTED]* 16 EX-10 4 ex1025.txt STOCK PURCHASE AGREEMENT THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS ("BLUE SKY LAWS"), AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY LAWS IN EFFECT AS TO SUCH TRANSFER, UNLESS AN EXEMPTION FROM SUCH REGISTRATION UNDER STATE AND FEDERAL LAW IS AVAILABLE. STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT is dated effective as of 18th of March, 2003, by and between Enova Systems, Inc., a California corporation (the "Corporation") and Hyundai Heavy Industries Co., Ltd., (the "Investor"). R E C I T A L S A. The Investor desires to purchase from the Corporation, and the Corporation desires to sell to the Investor, Common Stock on the terms and conditions hereinafter set forth pursuant to the Joint Venture Agreement (the "JVA") to which this Stock Purchase Agreement is attached as Exhibit A thereto. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual agreements, covenants, representations and warranties contained in this Agreement, the parties hereby agree as follows: 1. Issuance of Securities, Payment and Delivery. a. Sale of Securities. Subject to the terms and conditions of this Agreement, the Investor agrees to purchase and the Company agrees to sell and issue to the Investor the Shares of the Company which is equivalent to US Three Million Dollars (USD 3,000,000) in aggregate divided into two separate purchases on an equal basis as set forth on Schedule 1 to the signature page attached hereto. b. First Purchase. As for the first purchase, the Investor agrees to purchase on the date of incorporation of the Joint Venture Company, as specified in the JVA, (the "First Closing") that number of shares of the Corporation's Common Stock set forth on Schedule 1 (the "Shares" or "First Purchase Shares") at $0.065 per share for an aggregate purchase of US One Million Five Hundred Thousand Dollars (1,500,000) as set forth on Schedule 1. c. Second Purchase. One year after the first purchase (the "Second Closing"), the Investor agrees to purchase that number of shares of the Corporation's Common Stock set forth on Schedule 1 (the "Shares" or "Second Purchase Shares") at the per share price which is equivalent to the average daily volume weighted closing price of NASDAQ OTC (or successor trading market such as the BBX if applicable) market share price for three (3) months before the second purchase date for an aggregate purchase of US One Million Five Hundred Thousand Dollars (1,500,000) as set forth on Schedule 1. d. Payment and Delivery. For the first purchase, the Investor shall purchase the Shares by making payment of US Five Hundred Thousand Dollars (USD 500,000) to Enova Systems, Inc. in cash, by cashiers check or wire transfer of funds, in immediately available U.S. Dollars funds at the First Closing and by making payment to JVC on behalf of ENOVA, US One Million Dollars (USD 1,000,000) for ENOVA's subscription obligations as set forth in the JVA. The second purchase shall occur in the same manner one year after the first purchase. 2. Deliveries at Closing. At the Closing or thereafter as indicated: a. The Corporation and the Investor will at the Closing deliver an executed counterpart of this Stock Purchase Agreement; b. The Investor will provide the Corporation at the Closing with payment in immediately available funds of the aggregate amount of the Purchase Price; c. The Corporation will deliver at the Closing a share certificate evidencing the Shares in the name of the Investor; d. The Corporation will deliver an officer's certificate providing that its representations and warranties contained in this Agreement are true and correct as of the Closing; e. The Investor will deliver a certificate providing that its representations and warranties contained in this Agreement are true and correct as of the Closing; and f. The Corporation will deliver a copy of its most recently prepared audited financial statements as well as unaudited financial statements (the "Financial Statements"). 3. Corporation's Representations and Warranties. The Corporation hereby represents and warrants to the Investor that as of the Closing: a. Corporate Organization and Standing. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Corporation has the requisite corporate power to carry on its business as presently conducted, and as proposed or contemplated to be conducted in the future, and to enter into and carry out the provisions of this Agreement and the transactions contemplated under this Agreement. b. Authorization. All corporate action on the part of the Corporation, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement by the Corporation and the performance of all of the Corporation's obligations hereunder has been taken. This Agreement, when executed and delivered by the Corporation, shall constitute a valid and binding obligation of the Corporation, enforceable in accordance with its terms, except as may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable. c. No Breach. The issue and sale of the Shares by the Corporation does not and will not conflict with and does not and will not result in a breach of any of the terms of the Corporation's incorporating documents or any agreement or instrument to which the Corporation is a party. The consummation of the transactions or performance of the obligations contemplated by this Agreement will not result in a breach of any term of, or constitute a default under, any statute, indenture, mortgage, or other agreement or instrument to which the Corporation or any of its subsidiaries is or are a party or by which any of them is or are bound. d. Pending or Threatened Claims. Neither the Corporation nor any of its subsidiaries is a party to any action, suit or proceeding which could materially affect its business or financial condition, and no such actions, suits or proceedings are contemplated or have been threatened. e. No Preemptive Rights. There are no preemptive rights of any shareholder of the Corporation with respect to the Shares. 4. Investor Representations and Warranties. The Investor represents and warrants to the Corporation that: a. Account. The Investor is acquiring the Shares for investment for its own account, and not with a view to, or for resale in connection with, any distribution thereof, and it has no present intention of selling or distributing any of the Shares. The Investor understands that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act") by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment as expressed herein. b. Access to Data. The Investor has had an opportunity to discuss the Corporation's business, management and financial affairs with its management and to obtain any additional information which the Investor has deemed necessary or appropriate for deciding whether or not to purchase the Securities, and has had an opportunity to receive, review and understand the disclosures and information regarding the Corporation's financial statements, capitalization and other business information as set forth in Corporation's filings with the Securities and Exchange Commission (the "SEC Filings") which are all incorporated herein by reference, together with all exhibits referenced therein. Investor understands that the Financial Statements and any other information obtained from the Corporation that has not been disclosed in the Corporation's SEC Filings are confidential and may not be disclosed to any third party or used by the Investor for purposes of trading in the Corporation's publicly traded stock until such information is publicly released by the Corporation. The Investor acknowledges that no other representations or warranties, oral or written, have been made by the Corporation or any agent thereof except as set forth in this Agreement. c. No Fairness Determination. The Investor is aware that no federal, state or other agency has made any finding or determination as to the fairness of the investment, nor made any recommendation or endorsement of the Shares. d. Limited Public Market. The Investor is aware that there is currently a very limited "over-the-counter" public market for the Corporation's registered securities and that the Corporation became a "reporting issuer" under the Securities Exchange Act of 1934, as amended, on January 27, 1995. There is no guarantee that a more established public market will develop at any time in the future. The Investor understands that the Shares are all unregistered and may not presently be sold in even this limited public market. The Investor understands that the Shares cannot be readily sold or liquidated in case of an emergency or other financial need. The Investor has sufficient liquid assets available so that the purchase and holding of the Shares will not cause it undue financial difficulties. e. Authority. If Investor is a corporation, partnership, trust or estate: (i) the individual executing and delivering this Agreement on behalf of the Investor has been duly authorized and is duly qualified to execute and deliver this Agreement on behalf of Investor in connection with the purchase of the Shares and (ii) the signature of such individual is binding upon Investor. f. Investment Experience. The Investor is an "accredited investor" as that term is defined in Regulation D promulgated by the Securities and Exchange Commission. The term "Accredited Investor" under Regulation D refers to: (i) A person or entity who is a director or executive officer of the Corporation; (ii) Any bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Exchange Act; insurance Corporation as defined in Section 2(13) of the Securities Act; investment Corporation registered under the Investment Corporation Act of 1940; or a business development Corporation as defined in Section 2(a)(48) of that Act; Small Business Investment Corporation licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance Corporation, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decision made solely by persons that are accredited investors; (iii) Any private business development Corporation as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; (iv) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of $5,000,000; (v) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; (vi) Any natural person who had an individual income in excess of $200,000 during each of the previous two years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; (vii) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment; or (viii) Any entity in which all of the equity owners are accredited investors. (ix) As used in this Section 4(g), the term "net worth" means the excess of total assets over total liabilities. For the purpose of determining a person's net worth, the principal residence owned by an individual should be valued at fair market value, including the cost of improvements, net of current encumbrances. As used in this Section 4(g), "income" means actual economic income, which may differ from adjusted gross income for income tax purposes. Accordingly, the undersigned should consider whether it should add any or all of the following items to its adjusted gross income for income tax purposes in order to reflect more accurately its actual economic income: Any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, and alimony payments. 5. Lock-Up. The Investor acknowledges and agrees that the Shares shall be subject to certain restrictions on transfer following a registered public offering of the Corporation's securities. In connection with any registration of the Corporation's securities, the Investor agrees, upon the request of the Corporation and/or the underwriters managing such offering of the Corporation's securities, if applicable, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Corporation and, if applicable, such underwriters, as the case may be, for such period of time, not to exceed fourteen (14) days before and one hundred eighty (180) days, after the effective date of such registration as the Corporation or the underwriters may specify; provided, however, that all executive officers, directors and shareholders holding more than 1% of the fully diluted capital stock of the Corporation enter into similar agreements. The Corporation and underwriters may request such additional written agreements in furtherance of such standoff in the form reasonably satisfactory to the Corporation and such underwriter. The Corporation may also impose stop-transfer instructions with respect to the shares subject to the foregoing restrictions until the end of said one hundred eighty (180) day period. Furthermore, with respect to (i) the First Purchase Shares for a period of 18 months after the First Closing and (ii) the Second Purchase Shares for a period of 12 months after the Second Closing , the Investor agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any such Shares. 6. Restrictive Legends. Each certificate evidencing the Shares which the Investor may acquire hereunder and any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event (unless no longer required in the opinion of the counsel for the Corporation) shall be imprinted with one or more legends substantially in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED). THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. A COPY OF THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF EACH CLASS AND SERIES WILL BE PROVIDED TO EACH STOCKHOLDER WITHOUT CHARGE, UPON WRITTEN REQUEST. The Corporation shall be entitled to enter stop transfer notices on its transfer books with respect to the Securities. 7. Miscellaneous. a. Notices. Any notice, request or other communication required or permitted hereunder will be in writing and shall be deemed to have been duly given if personally delivered or if telecopied or mailed by registered or certified mail, postage prepaid, at the respective addresses of the parties as set forth below. Any party hereto may by notice so given change its address for future notice hereunder. Notice will be deemed to have been given when personally delivered or when deposited in the mail or telecopied in the manner set forth above and will be deemed to have been received when delivered. (a) If to the Investor: as set forth on Schedule 1 (b) If to the Company Enova Systems, Inc. 19850 South Magellan Drive Torrance, California 90502 Attention: President with a copy to: Reed Smith Crosby Heafey 1999 Harrison Street, 25th Flr. Oakland, CA 94612 Attention: Donald C. Reinke, Esq. Telecopier (510) 466-6899 b. Survival. The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby. c. Successors and Assigns. Except as otherwise expressly provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. d. Applicable Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. e. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile. f. Title and Subtitles. The titles of the Sections and subsections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement. g. Attorney's Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. h. Waiver. The provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the written consent of the Corporation and the Investor. No waiver by any party hereto of any breach of this Agreement by any other party shall operate or be construed as a waiver of any other or subsequent breach. No waiver by any party hereto of any breach of this Agreement by any other party hereto shall be effective unless it is in writing and signed by the party claimed to have waived such breach. i. Remedies Cumulative; Specific Performance. The rights and remedies of the parties hereto shall be cumulative (and not alternative). The parties to this Agreement agree that, in the event of any breach or threatened breach by the Corporation to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other party to this Agreement, such other party shall be entitled (in addition to any other remedy that may be available to it) to (A) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (B) an injunction restraining such breach or threatened breach. j. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith to achieve the closest comparable terms as is possible. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. k. Venue. Any action, arbitration, or proceeding arising directly or indirectly from this Agreement or any other instrument or security referenced herein shall be litigated or arbitrated, as appropriate, in the County of Los Angeles, State of California. l. Entire Agreement. This Agreement and the Exhibits, Schedules and other documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements regarding the subject matter hereof existing between the parties hereto are expressly canceled. SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year hereinabove first written. HYUNDAI HEAVY INDUSTRIES Co., Ltd. ENOVA SYSTEMS, INC. ______________________________ __________________________________ By: Dr. Keh-Sik Min, President/CEO Carl D. Perry, President/CEO Schedule 1 Closing Date: March 18, 2003 First Year Second Year Number of Shares: 23,076,923 [TO BE DETERMINED AT SECOND CLOSING ACCORDING TO SECTION 1.(a) OF THIS AGREEMENT] Purchase Price: US$1,500,000 US$1,500,000 Price per share: $0.065 $0.XX_[SEE FORMULA ABOVE] EX-99.1 5 ex991.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Enova Systems, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carl D. Perry. Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Carl D. Perry - ------------------------------------------------- Carl D. Perry Chief Executive Officer and Acting Chief Financial Officer May 15, 2003 This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----