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 September 30, 2000
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or
(___) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From To .
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Commission File No. 0-25184
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ENOVA SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
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(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
19850 South Magellan Drive Torrance, CA 90502
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(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 (___)
As of November 10, 2000, there were 230,950,317 shares of Common Stock, no par
value, outstanding.
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<TABLE>
INDEX
ENOVA SYSTEMS, INC.
<CAPTION>
Page No.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).........................................3
Balance Sheets:
September 30, 2000 and December 31, 1999.................................3
Statements of Operations:
Three and Nine months ended September 30, 2000 and 1999..................4
Statements of Cash Flows:
Nine months ended September 30, 2000 and 1999............................5
Notes to Financial Statements:
for the Nine months ended September 30, 2000 and 1999....................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...............13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................................14
Item 2. Changes in Securities and Use of Proceeds...............................14
Item 3. Defaults upon Senior Securities.........................................14
Item 4. Submission of Matters to a Vote of Security Holders.....................15
Item 5. Other Information.......................................................15
Item 6. Exhibits and Reports on Form 8-K........................................15
SIGNATURE ........................................................................16
EXHIBIT INDEX ........................................................................17
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PART 1. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
Enova Systems, Inc.
BALANCE SHEETS
(In thousands, except for share and per share data)
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As of As of
Septmber 30, 2000 December 31, 1999
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(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,819 $ 1,465
Accounts receivable 729 566
Inventory 314 256
Stockholder receivable 0 38
Prepaids and other current assets 85 71
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Total Current Assets 2,947 2,396
PROPERTY, PLANT AND EQUIPMENT - NET 219 226
OTHER ASSETS 75 75
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TOTAL ASSETS $ 3,241 $ 2,697
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LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 189 $ 202
Accrued payroll and related expense 255 229
Other accrued expenses 65 156
Bonds and notes payable 1,445 1,420
Customer deposits 0 102
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Total Current Liabilities 1,954 2,109
ACCRUED INTEREST PAYABLE 486 439
LONG TERM PAYABLES 1,053 1,832
LONG TERM DEBT 3,332 3,332
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
2,999,337 and 3,259,000 shares issued and outstanding
at 9/30/00 and 12/31/99 respectively 1,979 2,166
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,217,196 and 1,242,000 shares issued and outstanding
at 9/30/00 and 12/31/99 respectively 2,434 2,486
Stock notes receivable (1,149) (1,149)
Common Stock - No par value; 500,000,000 shares authorized; 230,826,664
and 252,012,000 shares issued and outstanding at 9/30/00 and 12/31/99 75,489 71,526
Common stock subscribed 20 1,445
Additional paid-in capital 4,956 4,917
Accumulated deficit (87,313) (86,406)
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Total Shareholders' (Deficit) (3,584) (5,015)
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TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 3,241 $ 2,697
======== ========
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date.
See notes to consolidated financial statements.
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Enova Systems, Inc.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
NET SALES $ 951 $ 950 $ 1,911 $ 2,167
COST OF SALES 683 387 1,571 1,080
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GROSS MARGIN 268 563 340 1,087
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OTHER COSTS AND EXPENSES:
Research & development 186 46 396 193
Selling, general & administrative 577 494 1,450 1,120
Interest and financing fees 30 218 127 533
Other (income)/expense (2) (333) (11) (468)
Interest income (22) (16) (67) (22)
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Total other costs and expenses 769 409 1,895 1,356
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LOSS FROM CONTINUING OPERATIONS $ (501) $ 154 $ (1,555) $ (269)
------------- ------------- ------------- -------------
GAIN ON DEBT RESTRUCTURING 371 140 648 140
NET LOSS $ (130) $ 294 $ (907) $ (129)
NET LOSS PER COMMON SHARE: $ (0.01) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 230,826,664 252,076,615 230,826,664 252,076,615
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Enova Systems, Inc.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<CAPTION>
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Nine Months Ended September 30
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2000 1999
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<S> <C> <C>
OPERATIONS
Net loss $ (907) $ (138)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 116 88
Change in operating assets and liabilities:
Accounts Receivable (163) (207)
Inventory (58) 211
Stockholder receivable 38 0
Prepaids and other assets (14) (11)
Accounts payable and accrued expenses (830) (305)
Customer deposits and deferred revenue (102) (358)
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Net cash used by operating activities (1,920) (720)
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INVESTING:
Purchases of property, plant and equipment, net of disposals (109) (76)
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Net cash provided (used) by investing activities (109) (76)
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FINANCING:
Issuance of notes payable 25 400
Re-purchase of common stock (100) 0
Proceeds from issuance of common stock 2,458 2,600
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Net cash provided (used) by financing activities 2,383 3,000
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 354 2,204
CASH AND EQUIVALENTS:
Beginning of period 1,465 6
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End of period $ 1,819 $ 2,210
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Enova Systems, Inc.
STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
(UNAUDITED)
(In thousands)
<CAPTION>
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Nine Months Ended September 30,
------------------------------------------
2000 1999
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<S> <C> <C>
Cash paid for interest $ 38 $ -
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock $ 187 $ 43
Conversion of Series B preferred stock to common stock $ 52 $ 97
Conversion of debt to common stock $ 14 $ -
Conversion of debt to equity $ - $ 1,300
Conversion of accrued interest to equity $ 39 $ 860
Issuance of common stock for services $ 62 $ -
</TABLE>
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ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended September 30, 2000 and 1999
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit and have been prepared in accordance with
generally accepted accounting principles 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
generally accepted accounting principles 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 September 30, 2000 and the interim results of operations and cash flows for
the three and nine months ended September 30, 2000 have been included. The
balance sheet at December 31, 1999, presented herein, has been prepared from the
audited financial statements of the Company for the fiscal year then ended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. The December 31, 1999
and September 30, 2000 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 the Company are described in Note 1 to the
audited financial statements for the fiscal year ended December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
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, 1999, which are included in the Company's 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.
The loss per common share is based on the weighted average of common shares
outstanding. Potential dilution exists in earnings per share for the nine months
ended September 30, 2000 if common stock equivalents, consisting of unexercised
stock options and warrants, were included in the calculation. The resulting
dilution in the net loss per share, when compared to the loss of $0.01 currently
reflected in the financial statements for the nine months ended September 30,
2000, would be insignificant and, therefore, has not been calculated.
The results of operations for the three and nine months ended September 30, 2000
and 1999 presented herein are not necessarily indicative of the results to be
expected for the full year.
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NOTE 2 - Inventories
Inventories are comprised of the following (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Raw materials 314 256
$314 $256
====== ======
NOTE 3 - Notes and Bonds Payable, Long-Term Debt and Other Financing
Notes and bonds payable and long-term debt are comprised of the following (in
thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Secured subordinated promissory note -
CMAC as exclusive agent for
Non-Qualified Creditors; interest at 3%
for the first 5 years, 6% for years 6
and 7, and then at prime plus 3% through
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 balance of
four thousand dollars as of December 31,
1999 and September 30, 2000. The sinking
fund escrow requires the Company to fund
the account with 10% of future equity
financing, including convertible debt
converted to equity. 3,332 3,332
Convertible secured promissory note
payable to ITOCHU Corporation; interest
at 12%; principal and interest were due
in December 1997; convertible into
common stock at $0.30 per share. The
debt is secured by the Company's
personal property, and was acquired by
the Company's President during 1999. 1,300 1,300
Other 120 120
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4,752 4,752
Less current maturities 1,420 1,420
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$3,332 $3,332
===== =====
NOTE 4 - Extraordinary Items
The Company has begun to recapture certain antecedent trade payables which have
had no activity for over four years and have therefore become uncollectible
pursuant to state statute of limitations. For the quarter ended September 30,
2000, the Company has recaptured $371,000.
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ENOVA SYSTEMS, INC.
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NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1999. 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 herein
and in the report under the heading "Certain Factors That May Affect Future
Results" following this Management's Discussion and Analysis section, and
elsewhere in this report.
GENERAL
In July 2000, the Company changed its name to Enova Systems, Inc. The Company,
previously U.S. Electricar, Inc., a California Corporation (the "Company"), was
incorporated on July 30, 1976.
The Company's fiscal year ends December 31. All year references refer to fiscal
years.
Enova Systems believes it is a leader in the development and production of
commercial digital power management systems. The Company is now building, under
contract with global vehicle and technology companies, efficient, robust, cost
effective digital power processing and energy management enabling technologies
for electric, hybrid electric and fuel cell powered vehicles. These power
management technologies are now being applied to commercialization of fuel cell
power generation for stationary non-automotive applications.
The Company's business activities continue to be focused on the development of
electric and hybrid electric drive systems and related components, fuel cell
power management systems for both mobile and stationary power applications,
vehicle systems integration and the performance of various engineering
contracts.
The Company is working with Ecostar Electric Drive Systems, a joint venture of
Ford, Daimler Chrysler and Ballard Power to develop and manufacture low voltage
electric drive system components for use in Ford's Global Th!nk City. Ecostar
has announced that an all electric vehicle is scheduled to be introduced in late
2001 for markets in North America. Enova is designing and manufacturing the
electronics for the drive system as well as certain auxiliary components. The
prototype systems are currently undergoing pre-production testing and validation
in the Ford Th!nk vehicle. Enova continues to develop its relationship with
Hyundai, Ecostar and other OEMs and Tier-One suppliers for sales of its
automotive products. The Company offers its modular drive systems to Original
Equipment Manufacturers or OEMs and other customers. These drive systems have
been installed in various vehicles operating in North America, Europe and Asia.
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Enova is effecting a marketing strategy to penetrate global alternative markets
for its drive system and its electric power management components. Through these
efforts, the Company has successfully demonstrated a drive system powered by a
fuel cell with Hyundai Motor Company and International Fuel Cells or IFC, a
subsidiary of United Technologies at the California Fuel Cell Partnership in
Sacramento, California on November 1, 2000. The Company is pursuing, with fuel
cell manufacturers, the development of power management systems for stationary
power fuel cell applications. It is the Company's belief that utilizing its
power management systems for stationary applications for fuel cells will open
new markets for Enova. Additionally, the Company is working with Avestor, a
subsidiary of HydroQuebec and has integrated Avestor's Lithium Polymer batteries
into a Ford Th!nk vehicle at EVS-17, a major industry trade show held in October
2000. The Company has entered into a marketing and development agreement with
Gillig Bus, one of the top bus manufacturers in the U.S., to develop and
manufacture a series hybrid electric transit bus. The Company anticipates
delivery of the first of these buses to Gillig in late 2001. Additionally, Enova
has entered into a development, manufacturing and marketing agreement with
Wrights Environment, a division of Wrights Bus, one of the largest low-floor bus
manufacturers in the United Kingdom, to develop, manufacture and integrate pure
electric and hybrid electric drive systems into Wrights' low floor, mid-size
buses for sale in the United Kingdom and the European Continent.
Enova Systems continues to expand its markets by creating alliances with other
component suppliers. Capstone Turbine has recently teamed with Enova Systems to
jointly develop and market hybrid electric drive systems using Capstone's
microturbine in conjunction with Enova's power management and drive systems.
Enova currently utilizes Capstone's microturbine in its drive systems for Eco
Power Technology (EPT) in Italy. The Company is teamed with Capstone to use
their microturbines in Enova's drive systems for Wrights Bus and future
customers.
The Company engineering contracts with the U. S. Government's Defense Advanced
Research Project Agency, or DARPA, and the Department of Transportation, or DOT,
continue to progress on schedule. These programs include the development of an
airport electric passenger tram system for the Honolulu Airport and an EV
commercialization program for the State of Hawaii. The Company's contract with
the U.S. Department of Transportation to design and test this tram system
utilizes the Panther 120kW drive system. The tram is being developed in
conjunction with APS, an electric bus manufacturer in Oxnard, California. This
tram, capable of carrying 100 passengers, is anticipated to be delivered in the
first quarter of 2001 to the Honolulu, Hawaii Airport for test and evaluation.
The Company intends to market this tram system to international markets for
application to other airports, national and recreational parks and other high
capacity transit applications. The commercialization program has been enhanced
to include the testing of 15 Hyundai Santa Fe electric vehicles in Honolulu
Hawaii prior to their entry into the U.S. markets.
The Company continues to further its relationship with Hyundai Motor Company of
Korea, or HMC, the world's seventh largest automobile manufacturer, with
engineering contracts to design, develop and test electric and hybrid electric
drive systems and related products. Hyundai Motor Company has contracted with
the Company for the development of a parallel hybrid production vehicle and a
series hybrid electric drive system, as well as continuing to produce the family
of Panthertm drive system for their electric vehicles. These hybrid systems are
slated to be integrated into HMC's new Santa Fe sport utility vehicle. HMC has
adapted a customized version of the PantherTM 60 for their production electric
vehicle and intends to utilize Enova's hybrid drive system and battery
management for their next generation alternative fuel vehicles. The Company has
also developed a high power fast charger for use with its drive systems in
conjunction with HMC.
The Company intends to offer other power management components such as air
conditioning, heat pump units, electro-hydraulic power steering units and
battery management units to Original Equipment Manufacturers or OEMs, both
domestic and international.
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The Company views stationary power applications of its power management systems
as a n important new strategy for product development. In the stationary power
management field, Enova is developing applications for its products in the
telecommunications and distributed generation markets. The Company's joint
marketing and development efforts with Capstone Turbine, Avestor and IFC have
the potential to assist Enova in penetrating these markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced cash flow shortages due to operating losses
primarily attributable to research, development, marketing and other costs
associated with the Company's strategic plan to become an international
manufacturer and supplier of electric propulsion and power management systems
and components. Cash flows from operations have not been sufficient to meet the
Company's obligations as they came due. The Company has therefore had to raise
funds through several financial transactions. At least until the Company reaches
breakeven volume in sales and develops and/or acquires the capability to
manufacture and sell its products profitably, it will need to continue to rely
on cash from external financing. The Company anticipates that it will require
additional outside financing for at least the next twelve months.
During the nine months ended September 30, 2000, the Company spent $1,920,000 in
cash on operating activities to fund the net loss of $907,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable increased by $163,000 due to increased activity pertaining
to the Ecostar program, the Company having completed the second phase of the
prototype development. Inventory increased by $58,000 from December 31, 1999 for
the Ecostar program as well as the Hawaii airport tram program and other
programs.
Current liabilities were reduced by a net of $155,000 due to recapture of
certain accrued expenses and payments of the same. The Company also applied a
payment of $102,000 which had been held pending the completion of a contract
from Hyundai. Interest accruing on notes payable increased by $47,000 for the
nine months ended September 30, 2000 due to Carl D. Perry forgiving interest in
the amount of $117,000 during that period.
During the nine months ending September 30, 2000, the Company has reduced
antecedent accounts payable by approximately $780,000. The Company has begun to
recapture those trade payables which have had no activity for over four years
and have now become uncollectible pursuant to state statute of limitations. The
Company shall continue to pursue a strategy of negotiating settlements on these
outstanding payables.
In September 2000, the Company received an additional equity infusion of
$1,000,000 from Perla Blanca Investments, Ltd. for the purchase of 3,333,333
shares of common stock.
The operations of the Company during the first three quarters of fiscal 2000
were financed primarily by the funds received on engineering contracts and sales
of drive system components, as well as an additional equity infusion of
$1,000,000 each from Perla Blanca Investments and Kafig Pty, Ltd for the
purchase of 3,333,333 shares of common stock each, as previously reported.
The Company has restructured a significant portion of its prior liabilities and
debt and intends to further reduce these accounts. It is management's intention
to continue its debt restructuring, support current operations through sales of
products and technology consulting, as well as seek additional financing through
private placements and other means to increase research and development. As of
November 1, 2000, the Company has no firm commitments for additional financing.
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.
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RESULTS OF OPERATIONS
Net sales in the three months ending September 30, 2000 did not vary from the
corresponding quarter in 1999, and decreased $256,000 in the first nine months
as compared to the corresponding period of 1999. The reduction as compared with
the prior year was due to the non-recurring sale of a technology license to
Hyundai Heavy Industries. Development contracts with Hyundai Motor Company,
Ecostar Electric Drive Systems (for the Ford Th!nk vehicle) and the U.S.
Government account for almost all of the Company's sales for 2000.
Cost of sales in the quarter ended September 30, 2000 increased to $683,000
compared to cost of sales of $387,000 for the same three month period last
fiscal year. Again, this increase was due to the sale of the technology licenses
to Hyundai Heavy Industries last year, which did not have associated costs of
sales.
Research and development expense increased in the third quarter of 2000 by
$140,000, from the third quarter of 1999. The Company continues to increase its
technical staff for new contracts and the development of the 240kW drive system,
hybrid and fuel cell systems during 2000. The efforts expended by the technical
staff are directed primarily toward completion of engineering contracts, such as
the contracts for the Hyundai Group and federal and state government agencies,
as well as toward performing in-house research and development on new and next
generation products.
Selling, general and administrative expense increased $330,000 for the nine
months ended September 30, 2000 from the previous year's comparable period. The
Company is increasing its sales and marketing efforts to attract new customers
and partners in the sale and distribution of its products. The Company displayed
at the World Electric Vehicle Show (EVS-17) in Montreal, Canada in October to
showcase its latest technology and products to global markets. The increase in
expenses was due to actions by the Company to begin to expand its operations.
Interest and financing fees decreased significantly to $30,000 in the third
quarter of 2000 from $218,000 in the third quarter of 1999. Interest costs have
decreased due to the reduction of outstanding debt.
The Company incurred a net loss of $130,000 in the third quarter of 2000
compared to a net profit of $294,000 in the third quarter of 1999. The
overriding factor causing the difference was the recapture of certain warranty
reserves and other liabilities in the third quarter of 1999. Increased research
and development spending in third quarter 2000 also attributed to this
difference.
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. These forward-looking statements
involve risks and uncertainties and are based on current management's
expectations and we are not obligated to update this information. Many factors
could cause actual results and events to differ significantly from the results
anticipated by us and described in these forward looking statements including,
but not limited to, the following risk factors.
Net Operating Losses. The Company has experienced recurring losses from
operations and had an accumulated deficit of $87,313,000 at September 30, 2000.
There is no assurance, however, that any net operating losses will be available
to the Company in the future as an offset against future profits for income tax
purposes.
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Continued Losses. For the five months ended December 31, 1999 and 1998, the
Company had substantial net losses of $961,000 and $515,000 respectively on
sales of $629,000 and $867,000, respectively. The Company incurred a net loss of
$907,000 for the nine months ended September 30, 2000 on sales of $1,911,000.
Nature of Industry. The electric vehicle ("EV") and Hybrid EV ("HEV") industry
continues to be subject to rapid technological change. There are many large and
small companies, both domestic and foreign, now in, poised to enter, or entering
this industry. Most of the major domestic and foreign automobile manufacturers
(1) have produced electric and hybrid vehicles, and/or (2) have developed
improved electric storage, propulsion and control systems, and/or (3) are now
entering or have entered into production. Various non-automotive companies are
also developing improved electric storage, propulsion and control systems.
Growth of the present limited demand for electric vehicles depends upon (a)
future regulation and legislation requiring more use of non-polluting or
low-emission vehicles, (b) the environmental consciousness of customers and (c)
the ability of electric and hybrid-electric vehicles to successfully compete
with vehicles powered with internal combustion engines on price and performance.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero or low
emission vehicles is necessary to create a significant market for electric
vehicles. The California Air Resources Board (CARB) has recently confirmed its
mandatory limits for zero emission and low emission vehicles. There can be no
assurance, however, that further legislation will be enacted or that current
legislation or state mandates will not be repealed or amended, or that a
different form of zero emission or low emission vehicle will not be invented,
developed and produced, and achieve greater market acceptance than electric
vehicles. Extensions, modifications or reductions of current federal and state
legislation, mandates and potential tax incentives could adversely affect the
Company's business prospects if implemented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company's periodic reports filed with the
Securities and Exchange Commission, the Company restructured approximately $22
million in debt to vendors and lenders. A creditor's committee was formed of
substantially all the vendors and lenders at that time. Nineteen creditors, at
that time, chose not to join the creditor's committee, instead opting to pursue
their legal remedies individually. The total outstanding dollar value of these
lawsuits has been reduced from $650,000 to $125,000 during the nine months ended
September 30, 2000.
In June 2000, a lawsuit, Fontal International, Ltd. versus Enova Systems, Inc.,
a California Corporation, was filed in the United States District Court, Central
District of California. The suit alleges breach of contract with respect to
certain warrants to purchase 10,833,332 shares of Enova Systems's common stock.
The suit seeks to have Enova Systems issue 10,000,000 shares of common stock for
release of said warrants or to have Enova Systems declare that the exercise
period for said warrants is extended for five years from the date of delivery.
The Company maintains that these warrants have expired and therefore the
plaintiff has no claim to them.
Item 2. Changes in Securities and Use of Proceeds
In September 2000, the Company sold 3,333,333 shares of common stock at $0.30
per share for a total of $1,000,000 to Perla Blanca Investmetns, Ltd, which
represented that they were accredited investors. The Company 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. The Agreement for
the purchase of these shares is substantially identical in form and substance to
the agreement by and between the Company and Kafig Pty, Ltd. filed as exhibit
10.1 in the Form 10Q for the quarter ended March 30, 2000.
Item 3. Defaults Upon Senior Securities:
During the period from December 1996 through February 1997, the Company and
Itochu Corporation executed several loan agreements whereby Itochu extended
loans to the Company in the aggregate amount of $1,300,000. The loans were
evidenced by promissory notes which provide for a due date of December 26, 1997,
an interest rate of twelve percent (12%) per annum, and the right to convert
principal and accrued interest at any time into shares of the Company's common
stock at the rate of $0.30 per share. The principal and accrued interest due
under the notes have not been paid, causing an event of default under the terms
of the notes. During 1999, the Company's President acquired this debt and
subsequently forgave all of the accrued interest to September 30, 2000. As of
November 10, 2000, the holder of the notes had not yet exercised any of its
remedies with respect to the notes.
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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:
---------
None
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the quarter
ended September 30, 2000.
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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: November 14, 2000
ENOVA SYSTEMS, INC.
(Registrant)
/s/ Carl D. Perry
--------------------------------------------------------------------------------
By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer and Principal
Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description Page No.
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27 Financial Data Schedule 18
17
