-----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, B5DHSQyFG3zWLmo7vpVzT7WRGran+Jy25RRrt+ognZ7gG2aEgy9HQJk7X4X2r1bM kJGtq9KY5D3momWpyqK26g== 0000950005-04-000661.txt : 20040816 0000950005-04-000661.hdr.sgml : 20040816 20040816172159 ACCESSION NUMBER: 0000950005-04-000661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040816 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: 04979931 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 p18832_10q.txt FORM 10Q 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 June 30 ,2004 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 August 13, 2004, there were 403,334,000 shares of Common Stock, no par value, 2,747,500 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: June 30, 2004 and December 31, 2003......................................3 Statements of Operations: Three and Six months ended June 30, 2004 and 2003........................4 Statements of Cash Flows: Six months ended June 30, 2004 and 2003..................................5 Notes to Financial Statements: Six months ended June 30, 2004 and 2003..................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................9 Item 3. Quantitative and Qualitative Disclosures about Market Risk..............18 Item 4. Controls and Procedures.................................................18 PART II. OTHER INFORMATION Item 1. Legal Proceedings ......................................................19 Item 2. Changes in Securities and Use of Proceeds...............................19 Item 3. Defaults upon Senior Securities.........................................19 Item 4. Submission of Matters to a Vote of Security Holders.....................19 Item 5. Other Information.......................................................19 Item 6. Exhibits and Reports on Form 8-K........................................20 SIGNATURE ........................................................................21 CERTIFICATIONS ........................................................................26
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 June 30, 2004 December 31, 2003 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 2,676 $ 530 Accounts receivable 638 803 Inventory 1,320 1,606 Stockholder receivable -- 8 Prepaids and other current assets 94 78 ----------- ----------- Total Current Assets 4,728 3,025 PROPERTY AND EQUIPMENT - NET 489 481 INVESTMENTS in JOINT VENTURE 872 960 OTHER ASSETS 350 404 ----------- ----------- TOTAL ASSETS $ 6,439 $ 4,870 =========== =========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITES: Accounts payable $ 151 $ 768 Line of credit 233 120 Accrued payroll and related expense 182 120 Other accrued expenses 66 98 Current portion of notes payable and captial lease obligations 190 154 ----------- ----------- Total Current Liabilities 822 1,260 ACCRUED INTEREST PAYABLE 1,246 1,122 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 0 5 NOTES PAYABLE, NET OF CURRENT PORTION 3,340 3,347 ----------- ----------- TOTAL LIABILITIES $ 5,408 $ 5,734 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT: Series A convertible preferred stock - No par value; 30,000,000 shares authorized; 2,747,500 and 2,820,000 shares issued and outstanding at 6/30/04 and 12/31/03 1,773 1,837 liquidating preference at $0.60 per share aggregating $1,680,000 and $1,692,000 Series B convertible preferred stock - No par value; 5,000,000 shares authorized; 1,217,000 shares issued and outstanding at 6/30/04 and 12/31/03 liquidating preference at $2.00 per share aggregating $ 2,434,000 2,434 2,434 Common Stock - No par value; 500,000,000 shares authorized; 403,334,000 and 378,341,000 shares issued and outstanding at 6/30/04 and 12/31/03 88,789 86,054 Common stock subscribed 21 60 Stock notes receivable (1,176) (1,203) Additional paid-in capital 7,031 7,031 Accumulated deficit (97,841) (97,077) ----------- ----------- Total Shareholders' deficit 1,031 (864) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 6,439 $ 4,870 =========== ===========
Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date. See notes to financial statements. 3
INCOME and EXPENSE STATEMENTS (Unaudited) (In thousands, except for share and per share data) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended June 30 June 30 --------------------------------- --------------------------------- 2004 2003 2004 2003 ------------- ------------- ------------- ------------- NET REVENUES Research and development contracts $ 262 $ 405 $ 698 $ 728 Production $ 456 $ 950 $ 1,128 $ 1,966 ------------- ------------- ------------- ------------- $ 718 $ 1,355 $ 1,826 $ 2,694 ------------- ------------- ------------- ------------- COST OF REVENUES Research and development contracts 188 200 493 412 Production 331 1,002 684 1,767 ------------- ------------- ------------- ------------- 519 1,202 1,177 2,179 ------------- ------------- ------------- ------------- GROSS MARGIN 199 153 649 515 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Research & development 96 114 128 322 Engineering 85 225 181 505 Selling, general & administrative 449 879 804 1,364 Depreciation and amortization 92 87 175 169 ------------- ------------- ------------- ------------- Total operating expenses 722 1,304 1,288 2,359 ------------- ------------- ------------- ------------- NET OPERATING LOSS (523) (1,151) (639) (1,844) OTHER COSTS AND EXPENSES: Interest and financing fees 63 54 127 109 Other (income)/expense 20 0 1 0 Interest income (4) (2) (4) (7) ------------- ------------- ------------- ------------- Total other costs and expenses 79 52 124 102 ------------- ------------- ------------- ------------- NET LOSS $ (602) $ (1,203) $ (763) $ (1,946) ------------- ------------- ------------- ------------- NET LOSS PER COMMON SHARE: $ (0.01) $ (0.01) $ (0.01) $ (0.01) ============= ============= ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING 383,344,000 345,594,000 383,344,000 345,594,000
4
ENOVA SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended June 30 ---------------------------- 2004 2003 ------- ------- OPERATIONS Net loss $ (763) $(1,946) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 175 168 Equity in losses 88 0 Stock and stock options issued for services 37 16 Change in operating assets and liabilities: Accounts receivable 165 263 Inventory 286 338 Stockholder receivable 8 0 Prepaids and other assets (16) (39) Accounts payable and accrued expenses (464) 421 ------- ------- Net cash used by operating activities (484) (779) ------- ------- INVESTING: Purchases of property, plant and equipment, net of disposals (129) (74) ------- ------- Net cash used by investing activities (129) (74) ------- ------- FINANCING: Borrowing (repayments) on leases and notes payable 24 (16) Borrowing on line of credit 113 0 Proceeds from issuance of common stock, exercise of stock options and remittances on stock notes receivable 2,622 0 ------- ------- Net cash provided (used) by financing activities 2,759 (16) ------- ------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,146 (869) CASH AND EQUIVALENTS: Beginning of period 530 1,868 ------- ------- End of period $ 2,676 $ 999 ======= =======
5
ENOVA SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Continued) SUPPLEMENTAL CASH FLOW INFORMATION (UNAUDITED) (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended June 30 ----------------------------- 2004 2003 ------- ------- NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for services $ 37 $ 12 Conversion of Series A preferred stock to common stock $ 64 $ 5
6 ENOVA SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) For the Six months ended June 30, 2004 and 2003 NOTE 1 - Basis of Presentation The accompanying unaudited financial statements have been prepared from the records of our company without audit and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position at June 30, 2004 and the interim results of operations for the three and six months ended June 30, 2004 and cash flows for the six months ended June 30, 2004 have been included. The balance sheet at December 31, 2003, presented herein, has been prepared from the audited financial statements of our company for the year then ended. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The June 30, 2004 and December 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 reclassifications have been made to the prior periods financial statements to conform with the current periods presentation. 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, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of the interim financial statements. The financial statements should be read in conjunction with the audited financial statements, including the notes thereto, for the year ended December 31, 2003, which are included in our Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 as filed with the Securities and Exchange Commission. Basic and diluted net 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 and six months ended June 30, 2004 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): June 30, 2004 December 31, (unaudited) 2003 ------------- ------------ 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, 2003 and June 30, 2004. 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. No additions were made to the sinking fund with respect to the equity investment from the accredited investors at the investors' option. 3,332 3,332 Unsecured note payable - Schulz 120 120 Secured note payable - CCE, Inc. 40 0 Secured note payable - Microsoft 20 26 ------ ------ 3,512 3,478 Less current maturities 172 131 ------ ------ Total $3,340 $3,347 ====== ====== NOTE 3 - Shareholders Deficit In the first quarter of 2004, Enova entered into several stock purchase agreements to issue 16,250,000 shares of our common stock through a private placement offering at $0.12 per share for a total cash purchase of $1,950,000. The funds were received and the shares were issued in April 2004. Additionally, we received approximately $650,000 in equity capital during the six months ended June 30, 2004 as a result of our employees exercising incentive stock options, a majority of which expires in July 2004. On May 4, 2004, 140,000 shares of restricted common stock were issued to the Board of Directors at a price of $0.15 per share for full board meetings and committee meetings during that the second quarter of 2004. 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 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, 2003. 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 of America. 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. o Revenue recognition - The Company is required to make judgments based on historical experience and future expectations, as to the reliability of shipments made to its customers. These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," and related guidance. The Company makes these assessments based on the following factors: i) customer-specific information, ii) return policies, and iii) historical experience for issues not yet identified. These accounting policies were applied consistently for all periods presented. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the footnotes to our financial statements. 9 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 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 second quarter of 2004, the Company's technologies and products made further in-roads in the areas of heavy-duty hybrid vehicle applications. Notably, Enova completed negotiations for two development and production contracts for Asian markets. Enova continued its expansion into the Chinese hybrid vehicle markets by securing contracts for hybrid buses and trains in China and Singapore respectively. Enova's potential in China is growing with the addition of two more bus manufacturers, First Auto Works and Top-Electric. Enova now sells its hybrid drive systems to four bus developers in China, including Shenzhen Minghua Environmental Protection Vehicle Co., Ltd. and Tsinghua University of China. Each of these companies is seeking a share of the hybrid bus and vehicle production for the 2008 Beijing Summer Olympics. Management believes that these development and initial production programs will result in additional production contracts during 2005 and beyond; however at this time; there are no assurances that such additional contracts will be consummated. During the quarter ended June 30, 2004, we continued to develop and produce electric and hybrid electric drive systems and components for Mack/Volvo, Ford Motor Company (Ford), Wright Bus and Eneco of the United Kingdom, and Tomoe of Japan and several other domestic and international vehicle and bus manufacturers. In July of 2004, we entered into an agreement with Tomoe and Hyundai Heavy Industries of Korea for the development and production of eight, 10 36-ton battery electric locomotives for the Singapore Land Transport Authority for anticipated delivery in late 2005 or early 2006. Our various electric and hybrid-electric drive systems, power management and power conversion systems are being used in applications including Class 8 trucks, train locomotives, transit buses and industrial vehicles as well as in non-transportation applications such as fuel-cell management and power management systems including the EDO minesweeper. 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 Hydrogenics, a fuel cell developer in Canada. Heavy-Duty Drive Systems - Buses, Trucks, Vans and Other Industrial Vehicle - -------------------------------------------------------------------------------- Applications - ------------ Enova's primary market focus continues to center around the heavy-duty drive systems sector for multiple vehicle and marine applications. We believe series-hybrid and parallel hybrid heavy-duty drive system sales offer Enova the greatest return on investment in both the short and long term. Although this market sector has developed more slowly than anticipated, management believes that this area will see significant growth over the next several years. Our PantherTM 120kW and PantherTM 240kW drive systems were developed completely in-house and are in production and operating in global markets giving Enova a potential edge on other competitors in this sector. As the Company penetrates more market areas, we are continually refining and optimizing both our market strategy and our product line to maintain our leading edge in power management and conversion systems for mobile applications. In July 2004, Enova completed negotiations for two development and production contracts for Asian markets. Enova continued its expansion into the Chinese hybrid vehicle markets by securing contracts for hybrid buses and trains in China and Singapore respectively. Enova's potential in China is growing with the addition of two more bus manufacturers, First Auto Works and Top-Electric. Enova now sells its hybrid drive systems to four bus developers in China, including Shenzhen Minghua Environmental Protection Vehicle Co., Ltd. and Tsinghua University of China. Each of these companies is seeking a share of the hybrid bus and vehicle production for the 2008 Beijing Summer Olympics. Tsinghua is the premier research university in China, its automotive engineering department selecting Enova's drive systems for its government funded hybrid fuel cell bus development. During the second quarter of 2004, Enova delivered 3 PantherTM 120kW drive systems to Tsinghua for their development program. Engineers at Tsinghua have been pleased with the results of Enova drive systems and are in discussions for further activity. Management believes that these development and initial production programs will result in additional production contracts during 2005 and beyond; however at this time; there are no assurances that such additional contracts will be consummated. In Japan, Tomoe Electro-Mechanical Engineering and Manufacturing, Inc. has entered into a development and production contract with Enova for eight battery-electric locomotives for the Singapore Land Transport Authority for service vehicles for the Singapore Mass Rapid Transit Circle Line system for maintenance, repair, shunting and recovery of passenger trains. Over the last several years, Enova successfully integrated its PantherTM drive systems into Tomoe's heavy-duty Isuzu dump truck application, three passenger trams and a mine tunnel crawler. It is anticipated that the hybrid drive train components will be delivered in late 2005 at Tomoe's Japan-based facilities. Enova anticipates the total contract to exceed US$3 million over the life of the contract. This latest market penetration in Asia enhances not only Enova's alliances with both Tomoe and HHI, but also advances Enova's hybrid-electric technologies in high voltage power management components. As part of this contract, Enova will develop a high voltage charging system to enable the locomotive to receive a direct battery charge from the high voltage rail. Tomoe and Enova continue to develop other commercial and industrial applications for our drive systems including potential light rail applications. Although we anticipate additional orders for these systems in 2004 and beyond, there are no assurances that such additional orders will be forthcoming. 11 Wrights Environment, a division of Wrights Bus, one of the largest low-floor bus manufacturers in the United Kingdom, continues to negotiate with Enova regarding our diesel genset ,powered, series hybrid drive systems for their medium and large bus applications. Wright Bus has agreed to partially fund development of our diesel generator system for diesel engines compatible with their driveline. Such development is scheduled to commence in the second half of 2004. Wrights has notified us of additional purchase requirements for the 2004 through 2006. At this time, however, there are no assurances that such additional orders will be forthcoming. EcoPower Technology of Italy continues to purchase components for its hybrid electric drive systems during the first half of 2004 for service and maintenance parts for its fleet of buses powered by PantherTM 120kw drive systems. To date, we have sold 42 drive systems to EcoPower forming one of the largest fleets of hybrid buses in the world. EcoPower is one of the largest integrators of medium size transit buses for the European shuttle bus market, with key customers in five Italian cities namely Turin, Genoa, Brescia, Ferrara and Vicenza. EcoPower has notified Enova of its requirements for additional drive systems in 2004, however, there are no assurances that such additional orders will be forthcoming. Additionally, we are in discussions with other bus manufacturers and industrial, commercial and military vehicle manufacturers regarding the purchase of our heavy-duty, high performance, 120kW and 240kW drive systems in 2004. There are no assurances, however, that these discussions will result in any sales of the PantherTM 240kW or 120kW drive systems. 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. The topology of this system is being adapted to also be utilized as a parallel hybrid motor and controller system. We are beginning to receive more interest in our light-duty systems from both European and Asian customers. Eneco of the United Kingdom, a vehicle integrator which utilizes Enova's PantherTM 120kW drive systems in its hybrid bus applications, purchased two PantherTM 90kW drive systems for integration into delivery vans. Eneco plans to order PantherTM 120kW systems for its bus programs in the latter half of 2004 for its hybrid bus programs. At this time, however, there are no assurances that such additional orders will be forthcoming. We continue to cross-sell our systems to new and current customers in the light and medium duty vehicle markets, both domestically and globally. Fuel Cell Technologies - ---------------------- The High Voltage Energy Converter (HVEC) development program with Ford Motor Company for their fuel cell vehicle was essentially completed in 2003. This converter is a key component in Ford's Focus Fuel Cell Vehicle (FCV) which utilizes the Ballard fuel cell system. It converts high voltage power from the fuel cell into a lower voltage for use by the drive system and electronic accessories. Enova delivered 8 additional HVEC production systems to Ford in the second quarter of 2004 valued at approximately $100,000. These systems will be integrated into the Ford Focus FCV which will be part of an evaluation program being implemented by Ford later in 2004. There is a potential for additional production orders for HVEC units from Ford in 2005 and beyond; however at this time, there are no assurances that such additional orders will be forthcoming. Furthermore, we are applying the technology and components derived from this program to other applications. The HVEC is a critical component of our Fuel Cell bus programs, noted below in development programs, and other fuel cell powered 12 systems such as the Hyundai fuel cell vehicle noted below under research and development programs. Enova's fuel cell enabling components are part of the proposed fleets of fuel cell vehicles being utilized by both Ford Motor Company - the Ford Focus FCV- and Hyundai Motor Company - the Hyundai Tucson fuel cell hybrid electric vehicle - - in response to the U.S. Department of Energy's solicitation, entitled "Controlled Hydrogen Fleet and Infrastructure Demonstration and Validation Project." This government-funded project will last over five years, commencing in late 2004, evaluating the economic and performance feasibility of fuel cell vehicles and infrastructure across the U.S. The Company will continue to explore new applications for this versatile technology in both mobile and stationary systems. Research and Development Programs - --------------------------------- We continue to aggressively pursue government and commercially sponsored development programs for both ground and marine heavy-duty drive system applications. Our program with Mack Truck, Inc., Powertrain division - a unit of The Volvo Group, Sweden, for the development and manufacture of a motor controller, electric motor and battery management systems for a new parallel hybrid drive system continues on schedule. The new parallel hybrid vehicle program is part of the Air Force's efforts to improve efficiency, reduce fuel and maintenance costs, provide re-generative brake energy and reduce emissions. The refueler fleet consists of approximately 300 vehicles and, upon successful completion and evaluation of the refueler vehicle, there is the potential for additional upgrades to the parallel hybrid drive system. As part of the program, Mack Trucks will also evaluate the applicability of the drive system to commercial vehicle commencing with its Class 8 Refuse Hauler. Mack Trucks currently produces approximately 3,000 refuse vehicles per annum for major customers such as Waste Management. This development program is anticipated to be completed in late 2004 followed by an evaluation period of approximately three to six months. The program generated $75,000 in revenues for us in the first half of 2004. This program has opened several avenues within Mack and Volvo for Enova to develop and manufacture advanced drive system components. However, at this time, there are no assurances that such additional orders will be forthcoming. Our development contract, with EDO Corporation of New York for the design and fabrication of a high voltage DC-DC power conversion system utilizing a Capstone microturbine as the primary power source for the U.S. Navy unmanned minesweeper project, also continues to progress during the first quarter of 2004. The electronics package will include Enova's advanced power components including a new, enhanced 50V, 700A DC-DC power converter, our Battery Care Unit and Hybrid Control Unit which will power the minesweeper's electromagnetic detection system. Our power management and conversion system will be used to provide on-board power to other accessories on the platform. During the second quarter of 2004, Enova completed and presented the hardware to EDO which is now undergoing functional testing. We believe that the aggregate value of the program will be approximately $420,000, of which $297,000 was billed in the first half of 2004. Although this program also has the potential for additional system sales following the demonstration phase, there are no assurances that such additional orders will be forthcoming. The all-electric Hyundai Santa Fe SUV demonstration project in Honolulu Hawaii has been extended for another two years for three of the vehicles. Fast-charging capabilities and performance will be the primary focus of this continued evaluation. This is a continuation of the State of Hawaii and Hyundai Motor Company's program for pure electric vehicle performance. Enova continues its development for Hyundai Motor Company (HMC) of the fuel cell power management and conversion components for Hyundai's latest fuel cell hybrid electric vehicle, the Tucson, which was unveiled at the Geneva Auto Show in 13 March 2004. During the second quarter of 2004, Enova completed the development of this next generation hybrid-electric motor and control unit based on its prior development work on both light and heavy-duty power-trains for both electric and hybrid-electric vehicle platforms. As of June 2004, we have delivered 8 systems to HMC for test, evaluation and integration into vehicles. Enova is working in conjunction with UTC Fuel Cells, part of the UTC Power unit of United Technologies Corporation, to develop the power electronics for this vehicle. During the second quarter of 2004, this program generated $223,000 in revenues from development and hardware sales. Although we believe there is potential for further production of these drive system components in late 2004, there can be no assurances at this time that such orders will be realized. Several other programs are in discussion in conjunction with the U.S. Air Force, and several other government agencies and private corporations for both fuel cell hybrid and hybrid-electric vehicles. We anticipate finalizing these contracts in the second half of 2004. There can be no assurances at this time, however, that such contracts will be realized. 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. Our process controller for ChevronTexaco Technology Ventures (CTTV) for their fuel reformer for a stationary fuel cell application continues to undergo test and evaluation as it is integrated into CTTV's overall systems at ChevronTexaco's office in Texas. 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. 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 sources. In the first quarter of 2004, Enova entered into several stock purchase agreements to issue 16,250,000 shares of our common stock through a private placement offering at $0.12 per share for a total cash purchase of $1,950,000. The funds were received and the shares were issued in April 2004. These investors represented that they were accredited investors. We relied on Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the exemption from registration of the sale of such shares. Enova continues to seek additional investment capital to fund its operations, development and expansion plans. As of August 12, 2004, there were no other firm commitments. Enova also has a commitment from Hyundai Heavy Industries to invest, in the third quarter of 2004, an additional $1,500,000 in Enova under the same terms as the initial investment, subject to stock price adjustments, in accordance with the terms of the Joint Venture Agreement. Additionally, we received 14 approximately $650,000 in equity capital during the six months ended June 30, 2004 as a result of our employees exercising incentive stock options, a majority of which expires in July 2004. On May 4, 2004, 140,000 shares of restricted common stock were issued to the Board of Directors at a price of $0.15 per share for full board meetings and committee meetings during that the second quarter of 2004. During the six months ended June 30, 2004, we spent $484,000 in cash on operating activities to fund our net loss of $763,000 resulting from factors explained in the following section of this discussion and analysis. Accounts receivable decreased by $165,000, net of the $595,000 allowance for uncollectible accounts receivable from December 31, 2003 balances as remittances for prior quarters' sales were greater than current period sales. Management believes this trend will not continue in the third and fourth quarter of 2004. Inventory decreased by $286,000 from December 31, 2003 to June 30, 2004 as the Company worked down inventories from sales of production systems, notably 120kW drive systems. Current liabilities decreased by a net of $438,000 from December 31, 2003 to June 30, 2004 due primarily to reductions of outstanding vendor payables primarily due Hyundai Heavy Industries in connection with additional power management and conversion component inventory and Hyundai Autonet for materials associated with the terminated Ballard/Ford Th!nk city program. At June 30, 2004, accounts payable were $151,000 from a balance of $768,000 at December 31, 2003, a decrease of $617,000 or 87%. The offsetting increases of $179,000 during the six-month period were due mainly to draws on our bank line of credit, which are being repaid during the remainder of the year. Capital lease obligations decreased to $18,000 from $28,000 during the six months ended June 30, 2004, from December 31, 2003 as a result of scheduled payments of these liabilities. Short term notes payable increased by $40,000 during the six months ended June 30, 2004 in connection with the $125,000 purchase of an International Class 8 truck which will be used for demonstration of Enova's new diesel genset powered drive system. Interest accruing on notes payable increased by $124,000 for the six months ended June 30, 2004 as per the terms of the liabilities discussed in Note 2 of the financial statements. The operations of the Company during the first quarter of fiscal 2004 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. RESULTS OF OPERATIONS Net revenues for the three and six month periods ending June 30, 2004 were $718,000 and $1,826,000, respectively, as compared with $1,355,000 and $2,694,000 for the corresponding periods in 2003. Net production revenues for the quarter ended June 30, 2004 decreased to $456,000 from $950,000 for the same period in 2003. Net R&D revenues for the quarter ended June 30, 2004 decreased to $262,000 from $405,000 for the quarter ended June 30, 2003, however for the six month period, the decrease was only $30,000 from $728,000 to $698,000 as compared with 2003. For the six months ended June 30, 2004, the decrease in revenues as compared to the prior year was $868,000. The decreases in production and development revenues are a result of an ongoing slowdown in heavy-duty alternative fuel drive system sales as manufacturers assess the various new types of systems on the market. There has been a greater shift to parallel hybrid type systems, however, as yet, no particular type of systems has gained a major foothold. Management's strategy, in this regard, is to provide a dual path 15 approach in offering both a series and parallel hybrid drive systems solution commencing in 2004. To offset this temporary decline in production sales, the Company is aggressively pursuing privately and governmental funded development programs. This allows the Company to increase its revenue base, form new alliances with major OEMs and participate in the latest trends in alternative fuel technologies. Research and development revenues decreased in 2004 to $698,000 from $728,000 during the six-month period in 2003. This decrease was due to customer requirement slippage during the quarter. Research and development revenues are a result of engineering services for the Mack/Volvo hybrid drive system, the EDO minesweeper project, the HEVDP Hickam fuel cell bus program and the Hyundai Motor Company fuel cell project. Cost of revenues for the three months ended June 30, 2004 decreased to $519,000 from $1,202,000 for the same period in 2003. For the six months ended June 30, 2004, the decrease in cost of revenues was to $1,177,000 from $2,179,000 for the same six-month period in 2003. The decrease in cost of sales is directly attributable to lower sales volumes for these periods. Internal research, development and engineering expenses decreased in the three months ended June 30, 2004 to $181,000 as compared with $339,000 in the same period in 2003. For the six months ended June 30, 2004, such expenses decreased from $827,000 to $309,000 in 2003. Due to an increase in externally funded development programs and the decrease in the Company's workforce, Enova has allocated less of its own funds to new product development. This reduction in engineering expense is also a result of our cost reduction programs resulting in higher productivity per employee in the areas of new and sustaining development engineering. We continue to allocate engineering resources to the development of our diesel generation motor, upgrading proprietary control software, enhancing DC-DC converters and advance digital inverters and other power management firmware. The Company will continue to seek external funding, however, for a greater percentage of these development costs. Selling, general and administrative expenses decreased from $879,000 to $449,000 for the three months ended June 30, 2004 from the previous year's comparable period. For the six months ended June 30, 2004, the decrease was from $1,364,000 to $804,000 or over a 41% reduction. These decreases are a direct result of management's cost reduction strategies, which the Company will strive to maintain in 2004 in its efforts to achieve profitability, although management cannot assure that profitability will be achieved. Interest and financing fees remained relatively constant at approximately $63,000 for the second quarter of 2004, up slightly from the same period in 2003 due to an increase in the interest rate charged per the terms of our long term note. We incurred a loss from continuing operations of $523,000 in the second quarter of 2004 compared to a loss of $1,151,000 in the second quarter of 2003, which represents a 55% reduction in loss. For the six months ending June 30, 2004, the loss decreased from $1,844,000 to $639,00 or a 65% reduction. As noted above, this decrease is primarily due to aggressive cost reduction strategies implemented by management and increases in productivity throughout company operations. By increasing sales revenues while maintaining these cost management strategies, the Company believes it will be able to reduce its annual loss from operations as compared with prior years results; however, management cannot assure that these results will be achieved. 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 16 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 $97,841,000 at June 30, 2004. 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 June 30, 2004 and 2003, we had losses from continuing operations of $523,000 and $1,151,000 respectively on sales of $718,000 and $1,355,000, respectively. For the six months ended June 30, 2004 and 2003, we had losses from continuing operations of $639,000 and $1,844,000 respectively on sales of $1,826,000 and $2,694,000, respectively. 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 of America 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 of America 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 17 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 PROCEDURES Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), an evaluation was carried out by the Company's President and Chief Executive Officer and its acting Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Exchange Act) as of the end of the quarter ended June 30, 2004. Based upon that evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and acting Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the quarter ended June 30, 2004 to ensure that material information relating to the Company was made known to him particularly during the period in which this quarterly report on Form 10-Q was being prepared. Changes in internal contros over financial reporting. There was not any change in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of August 12, 2004, the Company was not involved in any legal proceedings. Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities. During the three months ended June 30, 2004, the Company has issued or accrued common stock of Enova to the non-executive board directors in accordance with the September 1999 Board of Directors compensation package for outside directors. For each meeting attended in person, each outside director is to receive $1,000 in cash and $2,000 of stock valued on the date of the meeting at the average of the closing ask and bid prices; for each telephonic Board meeting, each outside director is to receive $250 in cash and $250 of stock valued on the date of the meeting at the average of the closing ask and bid prices; for each meeting of a Board committee attended in person, the committee chairperson is to receive $500 in cash and $500 of stock valued on the date of the meeting at the average of the closing ask and bid prices. As of January 2002, this package was amended to include like compensation of $500 in cash and $500 in stock to all committee members in attendance at each committee meeting. All Directors are also reimbursed for out-of-pocket expenses incurred in connection with attending Board and committee meetings. In May 2004, the Company's Board of Directors unanimously approved an increase in compensation for outside directors, which doubled the amount of cash and stock paid for the various directors' meetings. On May 4, 2004, 140,000 shares of restricted common stock were issued to the Board of Directors at a price of $0.15 per share for full board meetings and committee meetings during that the second quarter of 2004. We relied on Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the exemption from registration of the sale of such shares. As of June 30, 2004, 3,092,814 shares had been issued under the above compensation plan for Directors. Item 3. Defaults Upon Senior Securities: None. Item 4. Submission of Matters to a Vote of Securities Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: 10.21* Form of finder's fee agreement dated April 1, 2004 between Registrant and The Global Value Investment Portfolio Management Pte Ltd as disclosed in our Form 10-Q for the quarter ended March 31, 2004. 31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. 19 31.2* Certification of Acting Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification Pursuant to 18 U.S.C. Section 1350 of President and Chief Executive Officer. 32.2* Certification Pursuant to 18 U.S.C. Section 1350 of Acting Chief Financial Officer. * - attached herewith. (b) Reports on Form 8-K None. 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 16, 2004 ENOVA SYSTEMS, INC. (Registrant) /s/ LARRY B. LOMBARD - ---------------------------------------------------- By: Larry B. Lombard, Acting Chief Financial Officer 21 EX-10 2 p18832-ex10_21.txt EXHIBIT 10.21 Exhibit 10.21 EXHIBIT 10.21 - ------------- FINDER'S AGREEMENT ------------------ This Finder's Agreement is entered into as of April 1, 2004 (the "Effective Date"), by and between Enova Systems, Inc., a California corporation (the "Company"), and The Global Value Investment Portfolio Management Pte Ltd, a Singapore Company (the "Finder"), with reference to the following facts: R E C I T A L S --------------- WHEREAS, the Company intends to offer and sell, pursuant to exemptions from registration under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder ("Regulation D") shares of Common Stock of the Company (the "Securities"), a private offering to be directed to individuals and entities which are suitable investors (the "Offering"); and WHEREAS, the Company desires to engage Finder and Finder desires to be engaged by the Company to identify and introduce to the Company qualified individuals and entities who may be solicited by the Company to subscribe for Securities in the Offering. NOW, THEREFORE, in consideration of the mutual covenants and representations, and subject to the conditions herein contained, the parties hereto agree as follows: 1. Engagement as Finder. The Company hereby engages Finder and the Finder hereby accepts the engagement with the Company, on the terms and subject to the conditions hereinafter set forth, to act non-exclusively as a finder of qualified individuals and entities from whom the Company may solicit subscriptions to purchase Securities in the Offering. Finder's engagement shall commence upon the date first written above and for an initial period through April 30, 2004 (the "Term"). 2. The Offering. Finder agrees to identify and introduce to the Company individuals and entities that are "accredited" as defined under Regulation D who reside outside of the United States and who are capable of bearing the risk of investment in the Securities ("Qualified Investors"). 3. Fee. In consideration for Finder's performance of the services hereunder, the Company agrees to pay Finder a fee of 5% of the purchase price of the securities purchased from the Company by Qualified Investors. Such fee shall be paid in the form of restricted shares of Common Stock of the Company with a deemed value of $0.15 per share, which is equal to or in excess of the "ask" price of the Company's Common Stock as of the date hereof (the "Finders Fee"). Finder likewise makes the warranties and representations set forth on Exhibit A hereto with respect to the receipt of such Finders Fee. 4. Engagement as Finder Only. The parties hereto acknowledge that Finder is not registered as a broker, dealer, agent or investment advisor under applicable federal or state securities laws. Accordingly, in performing the services contemplated hereunder, Finder shall not effect transactions in securities, and shall act as a finder only and shall not act, either directly or indirectly, as a broker, dealer, agent or investment advisor (as such terms are defined under applicable federal and state securities laws and regulations). Without limiting the generality of the foregoing, Finder shall have no authority to, and shall not, (i) offer for sale or solicit offers to buy any securities of the Company to or from any person, (ii) provide any advisory or valuation services to any person regarding any of the securities offerings contemplated hereunder or the merits or risks of an investment in any such securities, (iii) provide any information to any person, other than such information reasonably necessary to introduce such person to the Company, regarding the Company, its proposed business or any such securities or offerings, (iv) make any 22 representations or warranties in connection with any such offerings or (v) otherwise effect any transactions with respect to, or induce or attempt to induce the purchase or sale of, any such securities. 5. Company Discretion. Subject to the above limitations, the Company has the right in its sole and absolute discretion whether and on what terms it will conduct a sale of Securities and whether to accept or reject a subscription from an investor during the Term of this Agreement. 6. Confidential Information. All information that is identified in writing by the Company as confidential shall remain the property of the Company and shall not be used by Finder or its affiliates in any way except in connection with the services performed or to be performed by Finder under this Agreement. Finder shall not disclose such information to third parties without the express written approval of the Company. The foregoing shall not apply to any information that is or becomes publicly available without breach of this Agreement, which is rightfully received by Finder from a third party without such restrictions, which is made available by the Company to third parties without such restrictions, or which is released in writing from such restrictions by the Company. 7. Relationship Between Parties. In performing the services under this Agreement, Finder shall operate as an independent contractor and shall not act as, or be, an agent, employee, partner or joint venturer of the Company. Finder shall in no way have authority to bind or obligate the Company in any respect. 8. Compliance With All Laws. Finder shall perform the services provided herein in compliance with all applicable laws, rules, and regulations. 9. Entire Agreement. This Agreement constitutes the entire agreement between the Company and Finder relating to the Offering, and supersedes all prior agreements between the parties, whether oral or written, and may only be amended by a writing signed by both parties. 10. Governing Law. This Agreement shall be governed by and construed under the laws of the State of California without regard to its conflict of law rules. Venue for all disputes arising out of this Agreement shall be Los Angeles, State of California. 11. Notices. Any notice or other communication required or permitted to be given by either party shall be given in writing either personally or by U.S. first class mail, postage prepaid, addressed to the other party at the address shown below such party's signature hereto or to such other address as either party shall indicate by proper notice to the other in the same manner as provided above. All notices will be deemed effective either upon receipt or five (5) business days after mailing in accordance with the above provisions. 12. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13. Amendments and Waivers. This Agreement may be amended only by a writing executed by the parties hereto and the observance of any term of this Agreement by a party hereto may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the other party hereto. Any amendment or waiver effected in accordance with this paragraph shall be binding upon Company and Finder. 14. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision, or such portion of such provision as may be necessary, shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be thereafter enforceable in accordance with its terms. 15. Attorneys Fees; Reimbursement. In the event of any claim, dispute, litigation, arbitration or action concerning or related to this Agreement, or any alleged breach of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees, costs of suit and disbursements in addition to any other remedies or damages which may be properly awarded or awardable. 16. Further Assurances. Each of the parties hereto shall perform such further acts and execute such documents as may reasonably be required to effectuate the transactions contemplated hereby. 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Enova Systems, Inc. By: -------------------------- (Signature) - ------------------------------ (Print Name & Title) The Global Value Investment Portfolio Management Pte Ltd By: -------------------------- (Signature) - ------------------------------ (Print Name & Title) 24 EXHIBIT A Finder represents and warrants to the Corporation as to itself that: Investment. The Finder is acquiring the Finders Fee for investment purposes only 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 such securities. Finder understands that the Finders Fee has not been registered under 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. All such securities are hereinafter collectively referred to as the "Securities". Rule 144. The Finder acknowledges that because the Securities have not been registered under the Securities Act, the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of shares purchased in a private placement under certain circumstances. No Public Market. The Finder understands that no public market now exists for any of the securities issued by the Corporation and that it is uncertain whether a public market will ever exist for any such securities. Access to Data. The Finder has had an opportunity to discuss the Corporation's business, management and financial affairs with its management and to obtain any additional information necessary or appropriate for deciding whether or not to purchase the Securities. Knowledge And Experience. Finder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Securities, and it is able to bear the economic risk of such investment. Further, the individual executing this Agreement has such knowledge and experience in financial and business matters that he or she is capable of utilizing the information made available to him or her in connection with the offering of the Securities, of evaluating the merits and risks of an investment in the Securities and of making an informed investment decision with respect to the Securities. Requisite Power. The Finder has all requisite power and authority necessary to enter into and to carry out the provisions of this Agreement and the transactions contemplated hereby. Accredited Investor. Finder is an "accredited investor" as that term is defined in Regulation D promulgated by the Securities and Exchange Commission. 25 EX-31 3 p18832-ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 EXHIBIT 31.1 - ------------ 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 16, 2004 /s/ CARL D. PERRY - -------------------------------------------------------- By: Carl D. Perry, President and Chief Executive Officer 26 EX-31 4 p18832-ex31_2.txt EXHIBIT 31.2 Exhibit 31.2 EXHIBIT 31.2 - ------------ CERTIFICATIONS I, Larry B. Lombard, 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 16, 2004 /s/ LARRY B. LOMBARD - ---------------------------------------------------- By: Larry B. Lombard, Acting Chief Financial Officer 27 EX-32 5 p18832-ex32_1.txt EXHIBIT 32.1 Exhibit 32.1 EXHIBIT 32.1 - ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned President and Chief Executive Officer of Enova Systems, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ CARL D. PERRY - ----------------------------------------------------- Carl D. Perry President and Chief Executive Officer August 16, 2004 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. 28 EX-32 6 p18832-ex32_2.txt EXHIBIT 32.2 Exhibit 32.2 EXHIBIT 32.2 - ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Acting Chief Financial Officer of Enova Systems, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ LARRY B. LOMBARD - ------------------------------ Larry B. Lombard Acting Chief Financial Officer August 16, 2004 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. 29 -----END PRIVACY-ENHANCED MESSAGE-----