As filed with the Securities and Exchange Commission on July 16, 2002
Registration Statement No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ENOVA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
California 3711
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(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
95-3056150
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(I.R.S. Employer
Identification Number)
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19850 South Magellan Drive
Torrance, California 90502
(310) 527-2800
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
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Carl D. Perry
Chief Executive Officer
Enova Systems, Inc.
19850 South Magellan Drive
Torrance, California 90502
(310) 527-2800
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
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Copies to:
Donald C. Reinke, Esq.
Deborah L. Gunny, Esq.
Crosby, Heafey, Roach & May
1999 Harrison Street, Suite 2200
Oakland, California 94612
(510) 763-2000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant under Rule 415 of the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities To Amount to be Offering Price Aggregate Registration
Be Registered Registered (1) Per Share(2) Offering Price Fee
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common
Stock, no par
value 42,100,000 $ .1375 $ 5,788,750 $ 532.57
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
(1) Includes an indeterminate number of additional shares of common stock as may
from time to time become issuable by reason of stock splits, stock dividends and
other similar transactions, which shares are registered hereunder pursuant to
Rule 416 under the Securities Act.
(2) The price of $0.1375 per share, which was the average of the bid and asked
prices for the common stock on July 12, 2002, as reported on the Electronic
Bulletin Board of the National Association of Securities Dealers, Inc. by Pink
Sheets, LLC, is set forth solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) of the Securities Act.
=====================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED July 16, 2002
Prospectus
42,100,000 Shares
Common Stock
This is a public offering of up to 42,100,000 shares of common stock of Enova
Systems, Inc. and an indeterminate number of shares that may become available by
reason of stock splits, stock dividends and other similar transactions. These
shares are being offered by the selling shareholders listed in this prospectus.
We will not receive any of the proceeds from the sale of shares. The selling
shareholders may sell the shares offered by this prospectus from time to time in
the national over-the-counter market at their prevailing prices, or in
negotiated transactions.
Our common stock is traded on the National Association of Securities Dealers,
Inc. Electronic Bulletin Board ("OTC Bulletin Board") under the symbol "ENVA".
On July 12, 2002, the OTC Electronic Bulletin Board of the National Association
of Securities Dealers, Inc. reported that the bid price per share was $0.135 and
the asked price per share was $0.14.
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Investing in the common stock involves risks.
See "Risk Factors" beginning on page 7.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock offered by this prospectus have not been registered
under the blue sky or securities laws of any jurisdiction, and any broker or
dealer should assure itself of the existence of an exemption from registration
or the effect of such registration in connection with the offer and sale of such
shares.
The date of this prospectus is July 16, 2002
-1-
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all the information you should
consider before buying shares in this offering. You should read the entire
prospectus carefully, including the risk factors and consolidated financial
statements and related notes appearing elsewhere in this prospectus. The
prospectus contains forward-looking statements, which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those described under "Risk Factors" and elsewhere in this prospectus. See
"Cautionary Note on Forward-Looking Statements."
Our Company
Enova Systems 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. Our business activities focus 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 for government and commercial enterprises. 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 outside 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.
For the quarter ended March 31, 2002, our unaudited financial statements reflect
revenues of $941,000. Our net loss from operations for the three months ended
March 31, 2002 was $704,000. For the year ended December 31, 2001, our audited
financial statements reflect revenues of $3,780,000. Our net loss from
operations was $3,782,000.
We are 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. A stationary application would be similar to a gas-powered
generator and would utilize a fuel cell or a microturbine generator as its power
source to provide electricity in remote locations or where back-up or standby
power is a requirement.
Our development and production program with Ballard Power, formerly Ecostar
Electric Drive Systems, for low voltage electric drive system components for use
in Ford's Global Th!nk City is progressing as planned. Ford has announced that
an all-electric vehicle is scheduled to be introduced in the 2nd half of 2002
for markets in North America. We are designing and manufacturing the electronics
for the drive system as well as certain auxiliary components. The final
prototype systems are currently undergoing pre-production testing and validation
in the Ford Th!nk vehicle. We anticipate that we will begin to deliver
production systems to Ballard in
-2-
the fourth quarter of 2002. The low voltage inverter for the drive system will
be priced around $2,000 per unit and will be delivered to Ballard based on their
projected annual requirements.
We continue to expand our alliances with Hyundai, Ford, other Original Equipment
Manufacturers and Tier-One suppliers for sales of its automotive products. We
offer our modular drive systems to Original Equipment Manufacturers and other
customers. These suppliers are described in detail below and also in the
Management's Discussion and Analysis section of this prospectus. Our drive
systems have been successfully installed and operated in various passenger
vehicles and buses operating in North America, Europe and Asia.
We have successfully integrated our newest hybrid electric Panther(TM) 120kW
drive system (utilizing a microturbine produced by Capstone Microturbine
Corporation as its power source) into vehicles manufactured by Wrights
Environment, a division of Wrights Bus, one of the largest low-floor bus
manufacturers in the United Kingdom. This is the initial delivery to Wrights as
part of our agreement to 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. We have additionally delivered a pure
electric Panther(TM) 120kW drive system to Wrights for integration into their
Crusader II bus. The microturbine functions as a power source in this hybrid
drive system similar to an internal combustion gas or diesel engine.
We have also delivered twenty-three 120kW hybrid drive systems to Eco Power
Technology in Italy along with three 40kW Fast Charger system. Eco Power is an
integrator of medium size transit buses for the European shuttle bus market with
key contacts in Rome and Genoa. Eco Power is integrating our systems into its
midsize shuttle buses and we anticipate that they will purchase twenty to thirty
additional systems during 2002. We can make no assurance that Eco Power will
actually purchase any additional systems.
Our stationary power programs continue to attract new potential partners and
customers from both fuel cell manufacturers and petroleum companies. It is
management's belief that utilizing our power management systems for stationary
applications for fuel cells will open new markets for our company. We are
currently developing applications for our products in the telecommunications and
distributed generation markets. Discussions are progressing well and we
anticipate an initial development contract within the third quarter of 2002,
although we can make no assurance that a development contract will materialize
during this time period or at all.
Our company continues to attract new development and integration contracts with
the U. S. Government's Department of Transportation, or "DOT". Enova, Hyundai
Motor Company and the State of Hawaii introduced 15 Hyundai Santa Fe electric
vehicles in Honolulu, Hawaii for test and evaluation prior to their entry into
the U.S. markets. This program will utilize Hawaii's rapid charging stations,
manufactured by AeroVironment, now being installed.
Additionally, in conjunction with the DOT and the State of Hawaii, we are
integrating our drive systems into several vehicles. We have already completed
the manufacture and integration of our Panther(TM) 120kW drive system into a
trolley owned by E Noa Corporation for evaluation in the Hawaii tourist market.
E Noa operates in the Hawaii tourist industry, providing scenic transportation
services to the islands. We will also be upgrading eight
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Chevrolet S-10 trucks owned by the City of Honolulu to our Panther(TM) 60kW
drive system, including our BCU II battery care unit which will incorporate
fast-charge capability for these vehicles. In addition, we are converting an
Eldorado 30-foot bus utilizing our Panther(TM) 120kW drive system for the Hickam
Air Force base in Honolulu. All of these programs are funded in conjunction with
the Hawaii Electric Vehicle Development Project, the DOT and the State of
Hawaii.
Our contract with the DOT to design and test a three-car tram utilizing the
Panther(TM) 120kW drive system is nearing completion. This tram, capable of
carrying 100 passengers, was delivered in January 2002 to the Honolulu
International Airport for test and evaluation. If successful, we intend to
market this tram system to international markets for application to other
airports, national and recreational parks and other high capacity transit
applications.
The development of our 240kW drive system continues to progress. We are working
in conjunction with other motor and gear manufacturers to develop a robust,
efficient and powerful drive system for heavy-duty applications including
transit buses, heavy-duty trucks and other applications.
We have had many technology advances with Hyundai Motor Company of Korea, the
world's seventh largest automobile manufacturer, with engineering contracts to
design, develop and test electric and hybrid electric drive systems and related
products. These advances include the development of a parallel and series hybrid
drive system for automobiles and medium duty truck and buses as well as power
management systems for vehicle applications. A hybrid drive system utilizes both
an electric motor and an internal combustion engine to maximize performance and
fuel efficiency while reducing emissions. Earlier developments included our 60kW
all electric drive system and our BCU II battery care unit which monitors and
reports on up to 28 automotive batteries in a pack. Having successfully
completed our hybrid drive system and fuel cell electric vehicle program, we are
working with Hyundai to earn the production contract for their upcoming parallel
hybrid drive system program. Hyundai has also produced four fuel cell driven
sports utility vehicles for test and evaluation utilizing our Panther(TM) 90kW
drive systems.
The industries and markets in which we compete are in their early stages, and we
have not yet been able to achieve profitability in these areas, although we have
established several important business alliances. We believe these alliances
will enable us to gain market penetration which will allow us to become
profitable in the future. In the past, the nature of our operations has been
primarily research and development. We are now concentrating on production and
sales, which we anticipate will increase our profitability. We can make no
assurance that our efforts to increase sales or become profitable will be
successful.
Our principal executive offices are located at 19850 South Magellan Drive,
Torrance, California, 90502, and our telephone number is (310) 527-2800.
-4-
The Offering
Common stock offered by the selling
shareholders 42,100,000 shares
Securities to be outstanding after this
offering (1): 345,177,095 shares of common stock
2,844,336 shares of Series A
Convertible Preferred Stock
(convertible into an aggregate of
2,844,336 shares of common stock)
("Series A Stock")
1,217,196 shares of Series B
Convertible Preferred Stock
(convertible into an aggregate of
2,434,392 shares of common
stock)("Series B Stock")
Voting Rights:
Common Stock: 345,177,095 votes
Series A Stock: 2,844,336 votes
Series B Stock: 2,434,392 votes
Use of proceeds from this offering: We will not receive any of the
proceeds from the shares of common
stock sold by the selling
shareholders. See "Selling
Shareholders".
OTC Bulletin Board symbol: "ENVA"
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(1) Securities outstanding on June 30, 2002. Excludes (A) 27,919,702 shares of
common stock issuable upon exercise of outstanding options granted under our
stock option plans plus an additional 17,080,298 shares reserved for issuance
under our stock option plans, and (B) 15,000,000 shares issuable upon exercise
of outstanding warrants.
-5-
Summary Financial Data
As of and For the For the Year ended Five Months Fiscal Years ending
(in thousands, except per share data) Quarter ended December 31, ended Dec 31 July 31,
March 31,
2002 2001 2000 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
NET SALES $941 $ 3,780 $ 2,883 $ 629 $ 2,774 $1,938 $4,484
COST OF SALES 702 2,783 2,013 377 1,460 2,765 2,042
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GROSS MARGIN 239 997 870 252 1,314 (827) 2,442
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OTHER COSTS AND EXPENSES
Research and Development 275 879 626 262 499 445 1,218
Selling, general and administrative 615 2,894 1,999 796 1,141 1,697 3,116
Interest and financing fees 55 113 174 724 724 665 792
Other expense (income) (7) (7) 6 (41) (67) 274
Acquisition of research and
Development 1,630
Gain on Warranty Reevaluations (474)
Legal Settlements 900 755 125
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Total other costs and expenses 943 4,779 2,880 1,427 1,849 2,740 7,030
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LOSS FROM CONTINUING OPERATIONS (704) (3,782) (2,010) (1,175) (535) (3,567) (4,588)
GAIN ON DEBT RESTRUCTURING 0 354 1,551 214 140 42 53
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NET LOSS $( 704) $( 3,428) $( 459) $( 961) $( 395) $(3,525) $(4,535)
=========================================================================================
PER COMMON SHARE:
Loss from continuing operations $(0.01) $(0.01) $(0.01) $(0.01) $(0.01) $(0.02) $(0.03)
Gain on debt restructuring $ 0.01
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Net loss per common share $(0.01) $(0.01) $0.00 $(0.01) $(0.01) $(0.02) $(0.03)
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 302,532 275,189 235,199 251,994 152,077 151,265 133,806
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Total Assets $ 4,121 $ 4,340 $ 3,094 $ 2,697 $ 3,940 $1,658 $4,513
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Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $3,332 $ 3,332 $ 3,639
=========================================================================================
Shareholders' equity (deficit) $( 933) $( 232) $( 1,648) $( 5,015) $( 7,316) $(12,615) $ (9,095)
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-6-
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before you decide to buy our common stock. We have
included a discussion of each material risk that we have identified as of the
date of this prospectus. If any of the following risks actually occur, our
business, financial condition or operating results could suffer. If this occurs,
the trading price of our common stock could decline, and you could lose all or
part of the money you paid to buy our common stock.
Risks Relating to this Offering
Economic conditions beyond our control may keep the price of our stock low.
Numerous factors, many of which are beyond our control, may cause the market
price of our common stock to fluctuate significantly. These factors include, but
are not limited to, the following:
o continued losses;
o announcements concerning us, our competitors or our customers;
o market conditions in the electric vehicle and the hybrid
electric vehicle industry and the general state of the
securities markets.
General economic, political and market conditions, including recession,
international instability or military tension or conflicts may adversely affect
the market price of our common stock. If we are named as a defendant in any
securities-related litigation as a result of decreases in the market price of
our shares, we may incur substantial costs, and our management's attention may
be diverted, for lengthy periods of time. The market price of our common stock
may not increase above the offering price or maintain its price at or above any
particular level.
Securities traded on the OTC Bulletin Board are generally thinly traded and an
active market may never develop.
Our common stock trades on the OTC Bulletin Board. Shares traded in the OTC
market are generally bought and sold in small amounts, highly volatile and not
usually followed by analysts. You may therefore have difficulty selling your
shares in the resale market.
"Penny stock" regulations may impose restrictions on marketability of our stock.
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that is not traded on a national
securities exchange or NASDAQ and that has a market price of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Since our securities that are currently included on the OTC Bulletin
Board are trading at less than $5.00 per share at any time, our stock may become
subject to rules that impose
-7-
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors.
Accredited investors generally include investors that have assets in excess of
$1,000,000 or an individual annual income exceeding $200,000, or together with
the investor's spouse, a joint income of $300,000. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of the securities and must receive the purchaser's written consent
to the transaction prior to the purchase. Additionally, for any transaction
involving penny stock, unless exempt, the rules require, among other things, the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market and the risks associated therewith.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the penny stock rules may restrict
the ability of broker-dealers to sell our securities and may affect your ability
to sell your shares in the secondary market.
We do not expect to pay dividends in the foreseeable future.
We have not declared or paid any cash dividends in the past and do not expect to
pay cash dividends in the foreseeable future. We intend to retain our future
earnings, if any, to finance the development of our business. We are required to
pay dividends on our Series A Stock and our Series B Stock before we may pay
dividends on our common stock. At March 31, 2002, we had an accumulated deficit
of approximately $90,997,000 and, until this deficit is eliminated, we are
prohibited from paying dividends on any class of our stock except out of net
profits unless we can meet certain assets and other tests under Sections 500
through 511 of the California Corporations Code. Our board of directors will
determine any future dividend policy in light of the all of the foregoing
information and then existing conditions, including our earnings, financial
condition and financial requirements. You may never receive dividend payments
from us.
As of the date of this prospectus, we have outstanding 345,177,095 shares of
common stock, 2,844,336 shares of Series A Stock, each of which is convertible
into one share of common stock, and 1,217,196 shares of Series B Stock, each of
which is convertible into two shares of common stock. Sales of a substantial
number of shares of our common stock in the public market following this
offering could cause our stock price to decline. All the shares sold in this
offering will be freely tradable. Currently, approximately 303,227,000 shares of
common stock are freely tradable and an additional 5,278,728 shares of Series A
Stock or Series B Stock would be freely tradable upon conversion to common
stock. An additional 103,49,475 shares of common stock are eligible for sale in
the public market subject to volume restrictions of Rule 144, shares of common
stock issuable upon exercise of outstanding options will become freely tradable
upon issuance. In addition, the sale of these shares could impair our ability to
raise capital through the sale of additional stock. See "Shares Eligible for
Future Sale."
-8-
Our principal shareholders, executive officers and directors have substantial
control over most matters submitted to a vote of the shareholders, thereby
limiting your power to influence corporate action.
Our officers, directors and principal shareholders beneficially own
approximately 60% of our common stock (including in that percentage shares of
our Series A Stock and Series B Stock). As a result, these shareholders have the
power to control the outcome of most matters submitted to a vote of
shareholders, including the election of members of our board, and the approval
of significant corporate transactions. The shareholders purchasing shares in
this offering will have little influence on these matters. This concentration of
ownership may also have the effect of making it more difficult to obtain the
needed approval for some types of transactions that these shareholders oppose,
and may result in delaying, deferring or preventing a change in control of our
company.
The effects of anti-takeover provisions in our charter and bylaws could inhibit
the acquisition of us by others.
Several provisions of our articles of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of our company.
Risks Related to Our Business
Our industry is new and is subject to technological changes.
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.
There are substantial risks involved in the development of unproven products.
-9-
In order to remain competitive, we must adapt existing products as well as
develop new products and technologies. In fiscal years 2000 and 2001 we spent in
excess of $1.5 million on research and development of new products and
technology. Despite our best efforts a new product or technology may prove to be
unworkable, not cost effective, or otherwise unmarketable. We can give you no
assurance that any new product or technology we may develop will be successful
or that an adequate market for such product or technology will ever develop.
We may be unable to effectively compete with other companies who have
significantly greater resources than we have.
Many of our competitors, in the automotive, electronic and other industries, are
larger, more established companies that have substantially greater financial,
personnel, and other resources than we do. These companies may be actively
engaged in the research and development of power management and conversion
systems. Because of their greater resources, some of our competitors may be able
to adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sales of their
products than we can. We believe that developing and maintaining a competitive
advantage will require continued investment in product development,
manufacturing capability and sales and marketing. We cannot assure you that we
will have sufficient resources to make the necessary investments to do so. In
addition, current and potential competitors may establish collaborative
relationships among themselves or with third parties, including third parties
with whom we have relationships. Accordingly, new competitors or alliances may
emerge and rapidly acquire significant market share.
We have continued losses.
Our company was founded in 1976 as Clover Solar Corporation, but initial sales
were very limited and were unprofitable as a manufacturer of solar powered toys.
The name was then changed to Solar Electric Engineering in 1978. In 1992, we
became known as U. S. Electricar, Inc. In July 2000, we changed our name to
Enova Systems, Inc.
We have been profitable in only one year, fiscal 1986. For the three months
ended March 31, 2002, we lost an additional $704,000 on sales of $941,000. There
can be no assurance that we will achieve profitability in the near or
foreseeable future.
If we do not raise significant additional capital, we will be unable to fund
continuing operations and will likely be forced to reduce or even cease
operations.
We need substantial working capital to fund our operations. As of March 31,
2002, we had cash, cash equivalents and short-term investment balances of
approximately $793,000. Our projections show that cash on hand as of March 31,
2002 will be sufficient to fund operations at the current level through December
2002. We have received additional capital from the selling shareholders listed
in this Prospectus in the amount of $4,210,000.
-10-
We are currently negotiating to correct a payment default with respect to a
$120,000 unsecured note to Jeann Schulz. Unless we are successful in our efforts
to raise additional funds, our cash resources will be used to satisfy our
existing liabilities, such as that of Ms. Schulz, and we will be unable to fund
our current operations, which may result in the reduction or cessation of
operations. Even if we are successful in these efforts to raise funds, such
funds may not be adequate to fund our operations on a long-term basis.
Future equity financings may dilute your holdings in our company.
We need to obtain additional funding through public or private equity or debt
financing, collaborative agreements or from other sources. If we raise
additional funds by issuing equity securities, current shareholders may
experience significant dilution of their holdings. We may be unable to obtain
adequate financing on acceptable terms, if at all. If we are unable to obtain
adequate funds, we may be required to reduce significantly our spending and
delay, scale back or eliminate research, development or marketing programs, or
cease operations altogether.
Potential intellectual property, shareholder or other litigation could adversely
impact our business.
Because of the nature of our business, we may face litigation relating to
intellectual property matters, labor matters, product liability or shareholder
disputes. Any litigation could be costly, divert management attention or result
in increased costs of doing business. Although we intend to vigorously defend
any future lawsuits, we cannot assure you that we would ultimately prevail in
these efforts. An adverse judgment could negatively impact the price of our
common stock and our ability to obtain future financing on favorable terms or at
all.
We may be exposed to product liability or tort claims if our products fail,
which could adversely impact our results of operations.
A malfunction or the inadequate design of our products could result in product
liability or other tort claims. Accidents involving our products could lead to
personal injury or physical damage. Any liability for damages resulting from
malfunctions could be substantial and could materially adversely affect our
business and results of operations. In addition, a well-publicized actual or
perceived problem could adversely affect the market's perception of our
products. This could result in a decline in demand for our products, which would
materially adversely affect our financial condition and results of operations.
We are highly subject to general economic conditions.
The financial success of our company is sensitive to adverse changes in general
economic conditions, such as inflation, unemployment, and consumer demand for
our products. These changes could cause the cost of supplies, labor, and other
expenses to rise faster than we can raise prices. Such changing conditions also
could significantly
-11-
reduce demand in the marketplace for our products. We have no control over any
of these changes.
We are an early growth stage company.
Although our company was originally founded in 1976, many aspects of our
business are still in the early growth stage development, and our proposed
operations are subject to all of the risks inherent in a start-up or growing
business enterprise, including the likelihood of continued operating losses. The
likelihood of our success must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with the growth of an existing business, the development of new products and
channels of distribution, and current and future development in several key
technical fields, as well as the competitive and regulatory environment in which
we operate.
We operate in a highly regulated business environment and changes in regulation
could impose costs on us or make our products less economical.
Our products are subject to federal, state, local and foreign laws and
regulations, governing, among other things, emissions as well as laws relating
to occupational health and safety. Regulatory agencies may impose special
requirements for implementation and operation of our products or may
significantly impact or even eliminate some of our target markets. We may incur
material costs or liabilities in complying with government regulations. In
addition, potentially significant expenditures could be required in order to
comply with evolving environmental and health and safety laws, regulations and
requirements that may be adopted or imposed in the future.
We are highly dependent on a few key personnel and will need to retain and
attract such personnel in a labor competitive market.
Our success is largely dependent on the performance of our key management and
technical personnel, including Carl Perry, our Chief Executive Officer, Abas
Goodarzi, our Chief of Technology, Don Kang, our Vice President of Engineering
and Larry Lombard, Finance and Administration, the loss of one or more of whom
could adversely affect our business. Additionally, in order to successfully
implement our anticipated growth, we will be dependent on our ability to hire
additional qualified personnel. There can be no assurance that we will be able
to retain or hire other necessary personnel. We do not maintain key man life
insurance on any of our key personnel. We believe that our future success will
depend in part upon our continued ability to attract, retain, and motivate
additional highly skilled personnel in an increasingly competitive market.
There are minimal barriers to entry in our market.
We presently license or own a limited amount of proprietary technology and,
therefore, have created little or no barrier to entry for competitors other than
the time and significant expense required to assemble and develop similar
production and design
-12-
capabilities. Our competitors may enter into exclusive arrangements with our
current or potential suppliers, thereby giving them a competitive edge which we
may not be able to overcome, and which may exclude us from similar
relationships.
Our industry is affected by political and legislative changes.
In recent years there has been significant public pressure to enact legislation
in the United States and abroad to reduce or eliminate automobile pollution.
Although states such as California have enacted such legislation, we cannot
assure you that there will not be further legislation enacted changing current
requirements or that current legislation or state mandates will not be repealed
or amended, or that a different form of zero emission or low emission vehicle
will not be invented, developed and produced, and achieve greater market
acceptance than electric or hybrid electric vehicles. Extensions, modifications
or reductions of current federal and state legislation, mandates and potential
tax incentives could also adversely affect our business prospects if
implemented.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus, and,
except as required under applicable securities law, we assume no obligation to
update them or to explain the reasons why actual results may differ.
-13-
USE OF PROCEEDS
All proceeds from any sale of shares of common stock offered by the selling
shareholders will be received by the selling shareholders and not by us.
PRICE RANGE OF COMMON STOCK
Our common stock is traded in the National Association of Securities Dealers,
Inc. Electronic Bulletin Board ("OTC Bulletin Board") under the symbol "ENVA".
The following table sets forth, for the fiscal quarters indicated, the high and
low prices for our common stock as reported on the Electronic Bulletin Board of
the National Association of Securities Dealers, Inc. by Pink Sheets, LLC. The
following over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission, and may not necessarily
represent actual transactions.
Common Stock Average Daily
High Price Low Price Volume
---------- --------- ------
Fiscal 2000
First Quarter $ 0.77 $ 0.31 1,337,885
Second Quarter $ 0.47 $ 0.23 476,538
Third Quarter $ 0.44 $ 0.20 476,523
Fourth Quarter $ 0.42 $ 0.16 332,731
Fiscal 2001
First Quarter $ 0.31 $ 0.17 237,760
Second Quarter $ 0.31 $ 0.15 245,504
Third Quarter $ 0.26 $ 0.13 116,110
Fourth Quarter $ 0.31 $ 0.13 197,554
Fiscal 2002
First Quarter $ 0.23 $ 0.14 265,875
Second Quarter $ 0.18 $ 0.12 111,600
-14-
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
retain any future earnings to fund our business. Additionally, we are required
to pay dividends on our Series A Stock and our Series B Stock before we may pay
dividends on our common stock. Therefore, we do not anticipate paying cash
dividends on our common stock in the foreseeable future. At March 31, 2002, we
had an accumulated deficit of approximately $90,997,000. Until this deficit is
eliminated, we are prohibited from paying dividends on any class of our stock
except out of net profits unless we can meet certain assets and other tests
under Sections 500 through 511 of the California Corporations Code. Our board of
directors will determine any future dividend policy in light of the all of the
foregoing information and then existing conditions, including our earnings,
financial condition and financial requirements.
CAPITALIZATION
The following table summarizes our balance sheet data as of March 31, 2002,
December 31, 2001 and December 31, 2000:
As of As of As of
03/31/2002 12/31/2001 12/31/2000
DEBT:
Long Term Debt - CMAC Note 3,332 3,332 3,332
SHAREHOLDERS DEFICIT:
Series A preferred stock - No par value; 30,000,000 shares authorized;
2,844,000 shares issued and outstanding at 03/31/02, 12/30/01 and 12/31/00,
respectively 1,867 1,867 1,867
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,217,000 shares issued and outstanding at 03/31/02, 12/30/01 and 12/31/00,
respectively 2,434 2,434 2,434
Stock notes receivable (1,208) (1,208) (1,149)
Common Stock - No par value; 500,000,000 shares authorized; 302,732,000
issued and outstanding at 03/31/02, 302,702,000
and 244,249,000 shares issued and outstanding at 12/31/01 and 12/31/00,
respectively 79,862 79,859 75,680
Common stock subscribed 160 160 13
Additional paid-in capital 6,949 6,949 6,372
Accumulated deficit (90,997) (90,293) (86,865)
----------- ----------- ---------
Total Shareholders Deficit (933) (232) (1,648)
----------- ----------- ---------
----------- ----------- ---------
TOTAL CAPITALIZATION $ 2,399 $ 3,100 $ 1,684
=========== =========== =========
This information should be read together with our Financial Statements and the
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus.
-15-
SELECTED FINANCIAL DATA
The following selected financial data tables set forth selected financial data
for three months ended March 31, 2002, the year ended December 31, 2001 and
2000, the five month period ended December 31, 1999 and the fiscal years ended
July 31, 1999, 1998 and 1997. The five-month period is related to a change in
the fiscal year end which was effective December 31, 1999. The statement of
income data and balance sheet data for the three months ended March 31, 2002 are
unaudited. The statement of income data and balance sheet data for and as of the
end of the year ended December 31, 2001 and 2000, the five month period ended
December 31, 1999 and the three years ended July 31, 1999 are derived from the
audited Financial Statements of Enova. The following selected financial data
should be read in conjunction with, and are qualified in their entirety by, our
financial statements, including the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
following pages of this prospectus.
As of and For the For the Year ended Five Months Fiscal Years ending
(in thousands, except per share data) Quarter ended December 31, ended Dec July 31,
March 31, 31
2002 2001 2000 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
NET SALES $941 $ 3,780 $ 2,883 $ 629 $ 2,774 $1,938 $4,484
COST OF SALES 702 2,783 2,013 377 1,460 2,765 2,042
-----------------------------------------------------------------------------------------
GROSS MARGIN 239 997 870 252 1,314 (827) 2,442
-----------------------------------------------------------------------------------------
OTHER COSTS AND EXPENSES
Research and Development 275 879 626 262 499 445 1,218
Selling, general and administrative 615 2,894 1,999 796 1,141 1,697 3,116
Interest and financing fees 55 113 174 724 724 665 792
Other expense (income) (7) (7) 6 (41) (67) 274
Acquisition of research and
Development 1,630
Gain on Warranty Reevaluations (474)
Legal Settlements 900 755 125
-----------------------------------------------------------------------------------------
Total other costs and expenses 943 4,779 2,880 1,427 1,849 2,740 7,030
-----------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (704) (3,782) (2,010) (1,175) (535) (3,567) (4,588)
GAIN ON DEBT RESTRUCTURING 0 354 1,551 214 140 42 53
-----------------------------------------------------------------------------------------
NET LOSS $( 704) $( 3,428) $( 459) $( 961) $( 395) $ (3,525) $ (4,535)
=========================================================================================
PER COMMON SHARE:
Loss from continuing operations $(0.01) $ (0.01) $ (0.01) $ (0.01) $(0.01) $ (0.02) $ (0.03)
Gain on debt restructuring $ 0.01
-----------------------------------------------------------------------------------------
Net loss per common share $(0.01) $ (0.01) $0.00 $ (0.01) $(0.01) $ (0.02) $ (0.03)
=========================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 302,532 275,189 235,199 251,994 152,077 151,265 133,806
=========================================================================================
Total Assets $ 4,121 $ 4,340 $ 3,094 $ 2,697 $ 3,940 $ 1,658 $ 4,513
=========================================================================================
Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,639
=========================================================================================
Shareholders' equity (deficit) $( 933) $( 232) $( 1,648) $( 5,015) $( 7,316) $(12,615) $ (9,095)
=========================================================================================
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read this Management's Discussion and Analysis of Financial Condition
and Results of Operations in conjunction with our 2002 and 2001 Financial
Statements and Notes thereto. The matters addressed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, with
the exception of the historical information presented contains certain
forward-looking statements involving risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under the
heading "Risk Factors."
Overview
Enova develops and produces advanced software, firmware and hardware for
applications in the alternative power industry. Our focus is digital power
conversion, power management, and system integration, for two broad market
applications - vehicle power generation and stationary power generation.
Specifically, we develop, design and produce drive systems and related
components for electric, hybrid-electric, fuel cell and microturbine-powered
vehicles. We also develop, design and produce power management and power
conversion components for stationary power generation - both on-site distributed
power and on-site telecommunications back-up power applications. These
stationary applications also employ fuel cells, microturbines and advanced
batteries for power storage and generation. Additionally, we perform research
and development to augment and support others' and our own related product
development efforts.
Our products and systems are the enabling technologies for power systems.
Without these types of enabling technologies, power cannot be converted into the
appropriate form required by the vehicle or device; nor is power properly
managed to protect the battery, vehicle or device, and user.
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 2001, we expanded our sales and development efforts to capture additional
global market share for our product line and our technical expertise. We
expanded into European and Asian markets with our heavy duty drive systems and
continued to progress on our development programs with Ford, Ballard, Hyundai
and the DOT. Our
-17-
balance sheet strengthened, we are now focusing on building our product line,
increasing our market share and developing the next generation of advanced power
management and conversion systems.
Our operations during the year ended December 31, 2001 were financed by
development contracts and product sales, as well as an additional equity
infusion of $3,000,000 from Jagen Pty, Ltd and Anthony Rawlinson for the
purchase of 50,000,000 shares of common stock, as previously reported.
We have completed the restructuring of our prior liabilities and debt. This
reduction of liabilities and debt was accomplished through various financial
transactions including conversion of approximately $1.2 million of debt being
converted to common stock in 1999, The remainder of the debt and liabilities
were eliminated via debt forgiveness and recapture by legal statute as
previously discussed in our From 10-K and 10-Q filings. It is our intention to
continue to seek additional financing through private placements and other means
to increase research and development spending, procure inventory and seek
additional alliances to market our products. As of June 30, 2002, we have
received $4,210,000 of equity through a private placement from accredited
investors which are the subject of this Prospectus. In the ordinary course of
business, we have made a number of estimates and assumptions relating to the
reporting of results of operations and financial condition in the preparation of
its financial statements in conformity with accounting principles generally
accepted in the United States. Actual results could differ significantly from
those estimates under different assumptions and conditions. We believe that the
following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and
results. We constantly re-evaluate 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. We have
also chosen certain accounting policies when options were available, including:
o The first-in, first-out (FIFO) method to value our
inventories;
o The intrinsic value method, or APB Opinion No. 25, to account
for our stock options;
o Review of customers' receivable to determine the need for an
allowance for credit losses based on estimates of customers'
ability to pay. If the financial condition of our customers
were to deteriorate, additional allowances may be required.
These accounting policies are applied consistently for all years presented. Our
operating results would be affected if other alternatives were used. Information
about the impact on our operating results is included in the footnotes to our
consolidated financial statements.
The financial statements present our financial condition as of March 31, 2002,
December 31, 2001 and 2000, the results of operations and cash flows for the
three months ended March 31, 2002, the year ended December 31, 2001 and 2000 and
the five month period ended December 31, 1999, as well as the three preceding
fiscal years ended July 31, 1999, 1998
-18-
and 1997. All references to the 1999 fiscal year denote the twelve months ended
July 31, 1999.
During 2002, we continued to develop and produce electric and hybrid electric
drive systems and components for Ford Motor Company, Hyundai Motor Company and
several domestic and international vehicle and bus manufacturers. We also are
continuing on our current research and development programs with Hyundai Motor
Company and the U.S. Department of Transportation as well as developing new
programs with Hyundai and the federal government.
Ford Motor Company
Our program with Ford Motor Company to develop and manufacture a high power,
high voltage conversion module for their fuel cell vehicle is progressing well.
The High Voltage Energy Converter was a key component in Ford's Focus FCV, which
was featured at the New York International Auto Show in February 2002. The high
voltage conversion module converts high voltage power from the fuel cell into a
lower voltage. We are currently in the second phase of this program and the
units are meeting expectations in performance and reliability. In the three
months ended March 31, 2002, we billed approximately $70,000 from this Ford
program.
Ballard Power
Our development and production program with Ballard Power for low voltage
electric drive system components for use in Ford's Global Th!nk city has moved
into its production phase. Ford has announced that the all-electric vehicle is
scheduled to be introduced in 2002 for markets in North America and Europe. We
have designed and are commencing high-volume manufacturing of the electronics
for the drive system including the power inverter, charger and controller. In
conjunction with Hyundai Autonet of Korea, we are finalizing production planning
for initial production systems to be delivered in late 2002. Gross revenues for
the three months ended March 31, 2002 from this Ballard program were
approximately $69,000. Additional revenues for non-recurring engineering have
been realized in the second quarter and production revenues should commence in
the fourth quarter of 2002 based on projections we have received from Ford and
Ballard. We anticipate that sales of these systems will provide additional
revenues in the upcoming years, however, we cannot assure that there will be any
such future revenues.
Hyundai Motor Company Programs
Hyundai continues to contract with our company for the development of advanced
hybrid and fuel cell powered drive systems. In regards to passenger vehicle
programs, we have developed a commercially viable parallel hybrid motor and
controller for Hyundai's new hybrid vehicle to be introduced in 2004. We have
teamed with SL Montevideo of Minnesota and Hyundai Heavy Industries of Korea to
build this new motor and controller. The prototype drive system for this program
was delivered to Hyundai Motor Company in February 2002. We expect to learn the
results of Hyundai's evaluation of the prototype during the third or fourth
quarter of 2002.
Additionally, Hyundai Motor is procuring a number of our High Energy Converter
modules for use in their hybrid fuel cell programs. Hyundai has indicated that
they will purchase additional systems for other programs during 2002.
-19-
Development programs with Hyundai generated approximately $470,000 in sales for
the quarter ended March 31, 2002. We anticipate additional contracts for both
development and purchase of our components during 2002 for Hyundai's alternative
vehicle applications, however we cannot assure that such additional contracts
will be realized.
Light-Duty Drive Systems
In addition to the 30kW motor controller, charger and DC-DC converter that we,
in alliance with Hyundai Autonet, are manufacturing for Ballard Power, we are
also marketing and manufacturing our Panther(TM) 90kW drive systems. Our 90kW
controller, motor and gear unit provide outstanding performance for light duty
vehicles such as midsize automobiles and delivery vehicles. Our outsource
manufacturer for the Panther(TM) 90kW drive system is Hyundai Heavy Industries.
We have received a purchase order for over 200 Panther(TM) 90kW drive systems
for delivery in 2002 and 2003 from Voltage Vehicles of California, an integrator
of specialty vehicles. We have begun delivery of these systems and anticipate
producing approximately 100 systems representing approximately $1,000,000 in
gross revenues this year. Additionally, we are discussing further sales of this
system configuration to other domestic and international customers; however, we
can give no assurance at this time that such discussions will result in any
further sales.
Heavy-Duty Drive Systems
Sales of our Panther(TM) 120kW drive systems continue to provide increased
revenues for our company. We are selling drive systems to manufacturers in
Europe and Japan as well as domestically. Hyundai Heavy Industries is also our
outsource manufacturer for the Panther(TM) 120kW as well as the motor and
controller for our Panther(TM) 240kW drive systems.
Eco Power Technology of Italy has purchased an additional 27 Panther(TM) 120kW
electric and hybrid electric drive systems which are being delivered in 2002.
The hybrid electric drive systems include the Capstone 30kW microturbine as
their power source. Eco Power is one of the largest integrators of medium size
transit buses for the European shuttle bus market with key customers in Rome and
Genoa. Total sales for the quarter ended March 31, 2002 from Eco Power were
$152,000 which does not include the new systems sales.
Wrights Environment, a division of Wrights Bus, one of the largest low-floor bus
manufacturers in the United Kingdom, has integrated our hybrid electric
Panther(TM) 120kW drive system, which utilizes a microturbine from Capstone
Turbine Corporation as its power source. The bus is currently performing to
specifications and has been tested at the Milford Test facility, a highly
renowned European bus test location. Wrights has purchased additional pure
electric drive systems for their midsize buses for sale in the United Kingdom
and the European Continent. Further, we are in negotiations with them to
purchase our new 240kW drive system. We anticipate additional orders for both
electric and hybrid-electric P120 drive systems during 2002; however, we cannot
assure at this time that such additional contracts will be realized.
Tomoe Electro-Mechanical Engineering and Manufacturing, Inc. and Moria
Corporation of Japan have both received our 120kW drive systems and have begun
integrating them into their
-20-
bus platforms. We are working closely with these companies to ensure a
successful integration and future sales. We anticipate that both companies will
purchase additional systems during 2002, however we can make no assurance that
any purchases will occur.
The development of a utility vehicle for Southern California Edison, in
partnership with the South Coast Air Quality Management District, utilizing our
120kW drive system and a Capstone Turbine Corporation 30kW microturbine
continues on schedule. We are completed the development and production of our
additional power management accessories for this vehicle so that it can run
power applications such as drills and motors used by the Southern California
Edison technicians. The purpose of this project is to demonstrate and evaluate
this unique hybrid power drive system. Our system will be able to power the
vehicle as well as the auxiliary utility accessories which will eliminate the
need for a separate diesel generator normally trailered behind the vehicle.
These systems have been delivered and are being integrated into the vehicle.
This line service truck will be a demonstration vehicle, which we anticipate
will lead to sales to utility companies throughout the U.S. We cannot assure at
this time that such sales will occur.
In the high performance heavy-duty drive system area, our 240kW drive system has
been successfully integrated into a heavy-duty application and its performance
is exceeding expectations. We have currently produced five initial systems and
have begun on the next order for twelve systems. Advanced Vehicle Systems "AVS"
of Tennessee purchased one electric 240kW system initially, has successfully
integrated it into a freight carrier and has issued a purchase order for an
additional six units for transit bus applications. The 240kW drive system is
designed for heavy-duty applications such as transit buses and heavy-duty
trucks. We are in negotiations with Hyundai for the purchase of this 240kW
system for their heavy-duty vehicle applications which will be combined with a
fuel cell for urban and transit bus applications. Additionally, we are in
discussions with Wrights of the United Kingdom and other bus manufacturers
regarding the purchase of these drive systems in 2002. We can make no assurance
that these discussions will result in any sales of the Panther(TM) 240kW drive
system.
Research and Development Programs
Our research and development programs with the U.S. department of Transportation
and the State of Hawaii continue to provide us with new insights and innovations
in the development and integration of our electric vehicle programs.
The Hyundai Santa Fe electric vehicle program has provided us with valuable data
regarding performance, battery life and vehicle maintenance. The program
utilizes Hawaii's rapid charging stations, manufactured by AeroVironment, and
has enabled us to fine tune our power management systems to the specifications
of numerous battery manufacturers. The contract has two elements, one for
integration of our BCU II battery care unit, which allows the vehicles to accept
fast charging, and a second contract for maintenance of the vehicles over the
two-year program. The participants in the program include state and local
offices as well as Hickam Air Force base. The vehicles are performing well and
reports on their performance and handling continue to be positive.
Our contract with the DOT to design and test a three-car tram utilizing the
Panther(TM) 120kW drive system has been completed and has been delivered to the
High Technology Development Corporation's facility in Honolulu. This tram,
capable of carrying 100 passengers, will now be
-21-
delivered to the Honolulu International Airport for further test and evaluation.
If successful, we intend to market this tram system to international markets for
application to other airports, national and recreational parks and other high
capacity transit applications.
The Eldorado 30-foot bus conversion utilizing our Panther(TM) 120kW drive system
for the Hickam Air Force base is nearing completion. The success of this program
is leading to a potential new contract with Hickam to integrate a hybrid drive
system into a second 30-foot bus for the Air Force base. We cannot assure at
this time that such a contract will be finalized.
All of these programs are funded in conjunction with the Hawaii Electric Vehicle
Development Project, the DOT and the State of Hawaii.
We will continue to establish new development programs with the Hawaii High
Technology Development Corporation as well as other state and federal government
agencies as funding becomes available.
Stationary Power Applications
Our stationary power programs continue to attract new potential partners and
customers from both fuel cell manufacturers and petroleum companies. It is our
belief that utilizing our power management systems for stationary applications
for fuel cells will open new markets for our company. We are also developing
applications for these products in the telecommunications and distributed
generation markets. We can make no assurance
-22-
that we will successfully develop such applications or that any such
applications will find acceptance in the marketplace.
Our fuel cell care units are being delivered to UTC Fuel Cells, a division of
United Technologies Corp., for use in their stationary fuel cell systems. To
date, UTC Fuel Cells and Hamilton Sundstrand, an aerospace division of United
Technologies, have ordered approximately 30 fuel cell care units. The Hyundai
companies have also expressed interest in working with us on the development of
advanced fuel cell management technologies and we are currently in negotiations
with a domestic energy company for stationary applications of our fuel cell
management system. We believe this market will play a key role in our future and
we continue to pursue alliances with leading manufacturers in this area,
however, we can make no assurance 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
the our 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 our obligations as they came due. We
have therefore had to raise funds through several financial transactions. At
least until we reach breakeven volume in sales and develop and/or acquire the
capability to manufacture and sell its products profitably, we will need to
continue to rely on cash from external financing. We anticipate that it will
require additional outside financing to meet research and development
expenditures through 2003.
We have completed the restructuring of our prior liabilities and debt. This
reduction of liabilities and debt was accomplished through various financial
transactions including conversion of approximately $1.2 million of debt into
common stock in 1999. The remainder of the debt and liabilities were eliminated
via debt forgiveness and recapture by legal statute as previously discussed in
our Form 10-K and 10-Q filings. It is our intention to continue to seek
additional financing through private placements and other means to increase
research and development spending, procure inventory and seek additional
alliances to market our products. As of June 30, 2002, we have received
$4,210,000 in cash for the purchase of shares of our common stock which are the
subject of this Prospectus.
During the three months ended March 31, 2002, we spent $387,000 in cash on
operating activities to fund the net loss of $704,000 resulting from factors
explained in the following section of this discussion and analysis. Accounts
receivable decreased by $359,000 due to aggressive collection of receivables.
Inventory increased by $420,000 from December 31, 2001 as we continue to build
up our raw materials and work in progress inventories for the Ballard production
commencing in second quarter 2002 and other programs such as our 120kW drive
system sales to EcoPower, Wrights and other bus manufacturers.
Current liabilities increased by a net of $434,000 due to purchases made in
connection with various on-going development programs. As we expand our customer
base and produce higher inventories for sales, we have negotiated extended terms
with several of our suppliers, which allows us improved cash flows. Interest
accruing on notes payable increased by $27,000 for the three months ended March
31, 2002 compared with the similar period in 2001
-23-
due to an increase in the interest rate on the $3.3 million CMAC note per the
terms of that agreement.
RESULTS OF OPERATIONS for the Three Months Ended March 31, 2002
Net sales in the three months ending March 31, 2002 decreased by $174,000 from
the corresponding quarter in 2001. The decrease as compared with the prior year
was primarily due to carry forward of the Ballard billings which would have
increased sales over the prior year had they been included in this quarter. Due
to milestone restrictions set forth by Ballard, these revenues will not be
earned until the final hardware is proven. These revenues will be booked during
the second quarter of 2002.
Development contracts with Hyundai Motor Company, Ballard Power Systems (for the
Ford Th!nk city Car) and Eco Power Technology account for a majority of our
sales in the first half of 2002.
Cost of sales in the quarter ended March 31, 2002 increased to $702,000 compared
to cost of sales of $658,000 for the same three-month period in 2001. Costs
incurred with respect to the Ballard development program have been recorded to
cost of sales prior to the booking of the revenues associated with that program
due to certain contract limitations set forth by Ballard. The revenues
associated with these costs are being recorded in the second quarter of 2002.
Research and development expense increased in the first quarter of 2002 to
$275,000 as compared with $267,000 in the first quarter of 2001. We intend to
utilize internal research and development as well as seek partners in the mobile
and stationary alternative energy fields to develop new and enhanced products
for drive system and distributed generation markets.
Selling, general and administrative expense increased $167,000 to $615,000 for
the three months ended March 31, 2002 from the previous year's comparable
period. We incurred additional professional fees in the amount of approximately
$100,000 in connection with the filing of a Form S-1 Registration Statement
during the first and second quarter of 2002. Additionally, we incurred
additional marketing and travel expenses in our efforts to attract new customers
and partners for the sale and distribution of our products.
Interest and financing fees increased to $55,000 in the first quarter of 2002
from $28,000 in the first quarter of 2001. Interest costs have increased due to
a change in interest accrual for our $3.3 million CMAC note in accordance with
the original terms of that note.
We incurred a net loss from continuing operations of $704,000 in the first
quarter of 2002 compared to a net loss of $270,000 in the first quarter of 2001.
As discussed above, the net loss for the first quarter was significantly
affected by the exclusion of the Ballard revenues, which could not be included.
Three Years Ended December 31, 2001
Our fiscal year ends December 31. All year references refer to fiscal years.
During 1999, we concentrated on creating new business in the mobile power
management and conversion markets as well as reducing operating costs and
outstanding debt. Our business
-24-
activities focused on the development of electric and hybrid electric drive
trains and related components, fuel cell systems, vehicle systems integration
and the performance of various engineering contracts. Enova completed several
key contracts with the U.S. Government's Defense Advanced Research Project
Agency or "DARPA" and the DOT, including the analysis of a new plastic lithium
ion vehicle battery concept, testing of advanced vehicle batteries and
development of an airport electric passenger tram system. We have enhanced our
relationship with Hyundai, the world's seventh largest automobile manufacturer,
with several engineering contracts to design, develop and test electric and
hybrid electric drive systems and related products. We completed development of
an advanced battery charging unit and a parallel hybrid production vehicle, and
continue to produce the family of Panther(TM) drive systems for their electric
vehicles. We also developed a high power charger for use with our drive systems.
Hyundai has adapted a customized version of the Panther(TM) 60 for their
production electric vehicle, the Santa Fe sports utility vehicle.
Beginning in 2000, we started working with Ecostar Electric Drive Systems, now
known as Ballard Power, to develop and manufacture low voltage electric drive
system components for use in Ford's Global Th!nk City. Ballard has announced
that an all-electric vehicle is scheduled to be introduced in late 2002 for
markets in North America. We are designing and manufacturing the electronics for
the drive system in this vehicle as well as certain auxiliary components. The
final prototype systems are currently undergoing pre-production testing and
validation in the Ford Th!nk vehicle. We continue to develop our relationships
with Hyundai, Ballard and other Original Equipment Manufacturers and Tier-One
suppliers for sales of our automotive products. We offer modular drive systems
to such manufacturers and other customers. These drive systems have been
installed in various vehicles currently operating in North America, Europe and
Asia.
In 2001, we entered into several supplier agreements and commenced new
development programs with automotive and transit manufacturers both domestically
and internationally. Additionally, we completed various research and development
programs sponsored by the U.S. Government and private corporations.
Ford Motor Company Programs
In July 2001, we entered into a strategic relationship with Ford Motor Company
under which we were selected by Ford's Th!nk brand to develop and manufacture a
high power, high voltage conversion module for their upcoming fuel cell vehicle.
The high voltage conversion module will convert high voltage power from the fuel
cell into a lower voltage. We are currently in the second phase of this program
having successfully designed and tested the proof of concept prototype. To date,
we have received approximately $500,000 from this Ford program.
This strategic relationship also grants Ford warrants to purchase up to 4.6% of
our outstanding common stock over the life of the relationship. The vesting of
these warrants is dependent upon Ford contracting with us for additional new
production programs. The relationship will last for five years during which time
Ford will evaluate our company for future programs. Ford's warrants will vest at
the rate of 2,500,000 warrants for every $2,000,000 in new production business
between Ford and Enova. The agreement between Ford and ourselves is referenced
as Exhibit 10.18 to the Form S-1 Registration Statement of which in this
Prospectus forms a part. The SEC granted confidential treatment of portions of
this exhibit.
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Our development and production program with Ballard Power for low voltage
electric drive system components for use in Ford's Global Th!nk City has moved
into its production phase. Ford has announced that the all-electric vehicle is
scheduled to be introduced in 2002 for markets in North America and Europe. We
are designing and manufacturing the electronics for the drive system including
the power inverter, charger and controller. In conjunction with Hyundai Autonet
of Korea, we are finalizing production planning for initial production systems
to be delivered in late 2002. Gross revenues for the year ended December 31,
2001 from this Ballard program were approximately $950,000. Based on projections
we have received from Ford and Ballard, we anticipate that sales of these
systems will provide additional revenues in the upcoming years, however, we
cannot assure that there will by any such future revenues.
Hyundai Motor Company Programs
We continue to develop hybrid and fuel cell based systems with Hyundai Motor
Company, the world's seventh largest automobile manufacturer. Having
successfully completed our hybrid drive system and fuel cell electric vehicle
program, we are working with Hyundai on advanced hybrid and fuel cell
applications. We delivered four series-hybrid drive systems for use in Hyundai's
county bus at the World Cup Soccer in Seoul, Korea in June 2002.
Hyundai continues to contract with our company for the development of advanced
hybrid and fuel cell powered drive systems. In regards to passenger vehicle
programs, we continue in our efforts to develop a commercially viable parallel
hybrid motor and controller for Hyundai's new hybrid vehicle to be introduced in
2004. The prototype drive system for this program was delivered to Hyundai in
February 2002. We expect to learn the results of Hyundai's evaluation of the
prototype during the second half of 2002.
Development programs with Hyundai generated approximately $450,000 in sales in
the year ended December 31, 2001. We anticipate additional contracts for both
development and purchase of our components during 2002 for Hyundai's alternative
vehicle applications, however we cannot assure that such additional contracts
will be realized.
Light-Duty Drive Systems
In addition to the 30kW motor controller, charger and DC-DC converter which we,
in alliance with Hyundai Autonet, are manufacturing for Ballard Power, we are
also marketing our Panther(TM) 90kW drive systems. Our 90kW controller, motor
and gear unit provide outstanding performance for light duty vehicles such as
midsize automobiles and delivery vehicles. We have received a purchase order for
over 200 Panther(TM) 90kW drive systems for delivery in 2002 and 2003 from
Voltage Vehicles of California, an integrator of specialty vehicles
Additionally, we are discussing further sales of this system configuration to
other domestic and international customers, however, we can give no assurance at
this time that such discussions will result in any further sales.
Heavy-Duty Drive Systems
Sales of our Panther(TM) 120kW drive systems continue to provide increased
revenues for our company. We have entered into supplier agreements with
manufacturers in Europe and Japan as well as domestically. Hyundai Heavy
Industries is also our outsource manufacturer for the Panther 120kW as well as
the motor and controller for our Panther 240kW drive systems.
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Eco Power Technology of Italy purchased 15 Panther(TM) 120kW electric drive
systems, which were delivered during 2001, as well as three of our Fast
Chargers. Under the terms of our supplier agreement, Eco Power has given notice
of their production requirements for 2002, which range from 25 to 30 Panther(TM)
120kW systems and additional Fast Chargers. Eco Power is one of the largest
integrators of medium size transit buses for the European shuttle bus market
with key customers in Rome and Genoa. Total sales for the year ended December
31, 2001 from Eco Power were $360,000.
Wrights Environment, a division of Wrights Bus, one of the largest low-floor bus
manufacturers in the United Kingdom, has integrated our hybrid electric
Panther(TM) 120kW drive system, which utilizes a microturbine from Capstone
Turbine Corporation as its power source. Wrights has purchased additional pure
electric drive systems for their midsize buses for sale in the United Kingdom
and the European Continent. Further, Wrights has begun discussions to purchase
both our new 240kW drive system and our Fast Charger system. We anticipate
additional orders for both electric and hybrid-electric P120 drive systems
during 2002, however, we cannot assure at this time that such additional
contracts will be realized.
We have entered the Japanese bus market with two new customers, Tomoe
Electro-Mechanical Engineering and Manufacturing, Inc. and Moriah Corporation.
Both of these companies have entered into supplier agreements with us and we
have already delivered our first Panther 120kW system to Tomoe. We anticipate
that both companies will purchase additional systems during 2002, however we can
make no assurance that any purchases will occur.
The development of a utility vehicle for Southern California Edison utilizing
our 120kW drive system and a Capstone Turbine Corporation 30kW microturbine
continues on schedule. We are developing additional power management accessories
for this vehicle so that it can run power applications such as drills and motors
used by the Southern California Edison technicians. This line service truck will
be a demonstration vehicle, which we anticipate will lead to sales to utility
companies throughout the U.S. We cannot assure at this time that such sales will
occur.
In the high performance heavy-duty drive system area; we have completed the
first prototype of our Panther(TM) 240kW drive system. In conjunction with
Hyundai Heavy Industries and Ricardo, Inc, of Michigan, a developer and
manufacturer of advanced transmissions, we have produced a robust, efficient and
powerful drive system for heavy-duty applications including transit buses,
heavy-duty trucks and other applications. We have been in discussions with
Wrights, Hyundai and a major alternative transit bus manufacturer in the U.S.
regarding the purchase of these drive systems in 2002. We can make no assurance
that these discussions will result in any sales of the Panther(TM) 240kW drive
system.
Research and Development Programs
Our development and integration contracts with the DOT and the State of Hawaii
continue to create new opportunities for our drive systems.
During 2001, Enova, Hyundai and the State of Hawaii introduced 15 Hyundai Santa
Fe electric vehicles in Honolulu, Hawaii for test and evaluation prior to their
entry into the U.S. markets.
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The program will utilize Hawaii's rapid charging stations, manufactured by
AeroVironment. The contract has two elements, one for integration of our BCU II
battery care unit, which allows the vehicles to accept fast charging, and a
second contract for maintenance of the vehicles over the two-year program. The
participants in the program include state and local offices as well as Hickam
Air Force base. The vehicles are performing well and initial reactions to their
performance and handling are positive.
Our contract with the DOT to design and test a three-car tram utilizing the
Panther(TM) 120kW drive system has been completed and has been delivered to the
High Technology Development Corporation's facility in Honolulu. This tram,
capable of carrying 100 passengers, will now be delivered to the Honolulu
International Airport for further test and evaluation. If successful, we intend
to market this tram system to international markets for application to other
airports, national and recreational parks and other high capacity transit
applications.
We completed the integration of our drive systems into several State of Hawaii
and DOT vehicles. We upgraded eight Chevrolet S-10 trucks owned by the City of
Honolulu to our Panther(TM) 60kW drive system, including our BCU-II battery care
unit for fast-charge capability. Also, we are converting an Eldorado 30-foot bus
utilizing our Panther(TM) 120kW drive system for the Hickam Air Force base. All
of these programs are funded in conjunction with the Hawaii Electric Vehicle
Development Project, the DOT and the State of Hawaii.
Development programs with the Department of Transportation and the State of
Hawaii accounted for approximately $1,180,000 of total revenues for the year
ended December 31, 2001. We will continue to establish new development programs
with the Hawaii High Technology Development Corporation as well as other state
and federal government agencies as funding becomes available.
Stationary Power Applications
Our stationary power programs continue to attract new potential partners and
customers from both fuel cell manufacturers and petroleum companies. It is our
belief that utilizing our power management systems for stationary applications
for fuel cells will open new markets for our company. We are also developing
applications for these products in the telecommunications and distributed
generation markets. We can make no assurance that we will successfully develop
such applications or that any such applications will find acceptance in the
marketplace.
Our fuel cell care unit is being delivered to UTC Fuel Cells, a division of
United Technologies Corp., for use in their stationary fuel cell systems. To
date, we have delivered approximately 20 fuel cell care units to UTC Fuel Cells
and to Hamilton Sundstrand, an aerospace division of United Technologies. The
Hyundai companies have also expressed interest in working with us on the
development of advanced fuel cell management technologies, as have certain
domestic energy companies. We believe this market will play a key role in our
future and we continue to pursue alliances with leading manufacturers in this
area, however, we can make no assurance that this market will develop as
anticipated or that such alliances will occur.
We view stationary power applications of our power management systems as an
important new area of product development. In the stationary power management
field, we are developing applications for our products in the telecommunications
and distributed generation markets. We believe our approach of providing the
enabling technology in power management and
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conversion to power generation companies is key to early access to these
markets. Our joint marketing and development efforts with Capstone Turbine
Corporation, Avestor and UTC Fuel Cells have the potential to assist us in
penetrating these markets. As discussed earlier, we are now producing and
selling an advanced version of our BCU II battery care unit and fuel cell care
unit for use with fuel cells in both stationary and mobile systems, starting
with UTC Fuel Cells and the Institute for a Sustainable Environment Research
Lab.
Investment Funding
We are seeking new investment capital to fund research and development and
create new market opportunities. In order to fuel our growth in the stationary
power market, we will need additional capital in order to create additional
intellectual property.
In June 2002, several accredited investors purchased 42,100,000 shares common
stock through a private placement offering at $0.10 per share for a total cash
purchase of $4,210,000. 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.
In May 2001, Jagen Pty, Ltd exercised warrants to purchase 41,666,666 shares of
common stock at $0.06 per share for a total of $2,500,000. In July 2001, Anthony
Rawlinson, our chairman, exercised warrants to purchase 8,333,334 shares of
common stock at $0.06 per share for a total of $500,000. Jagen and Mr. Rawlinson
represented that they were accredited investors. We relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the
exemption from registration of the sale of such shares.
In June 2001, we issued warrants to purchase 15,000,000 shares of common stock
of Enova Systems to Ford Motor Company with respect to a participation program.
We relied on Rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933, as amended, for the exemption from registration of the sale of such
shares.
In early 2001, we retained Merrill Lynch as our investment advisor to pursue
equity financing options and other strategic alternatives. We intend to
vigorously pursue additional equity capital in order to fund new product
development.
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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 to become an international manufacturer and supplier of
electric propulsion and power management systems and components. Due to
increased research and development spending, cash flows from operations have not
been sufficient. We therefore have to raise funds through private financial
transactions. At least until we reach breakeven volume in sales and develop
and/or acquire the capability to manufacture and sell our products profitably,
we will need to continue to rely on cash from external financing. We anticipate
that we will require additional outside financing to fund planned operations and
development programs through the end of 2003 at which time we believe we will
begin to be profitable from ongoing operations. We can make no assurances that
we will receive this amount of funding or that after receiving such, that our
company will become profitable.
During the year ended December 31, 2001, our operations required $3,023,000 more
in cash then was generated. We continue to increase research and development
spending, as well as increased sales, marketing and administrative expenses
necessary for expansion to meet customer demand. Accounts receivable increased
by $233,000 from $1,004,000, or 23% from the balance at December 31, 2000, as we
continued to expand our customer base and increased sales. Inventory increased
by $520,000 from $406,000 or 128% from December 31, 2000 balances. As we
continue to enter into additional production contracts with companies such as
Eco Power, Ford, Ballard and others, we will continue to require additional raw
materials and finished goods to meet demand.
Fixed assets increased by $219,000 or 28% before depreciation for the year ended
December 31, 2001 from the prior year balance of $784,220 as we increased both
the number of engineers and the complexity of our programs. Increases in test
equipment, production machinery and both technical hardware and software
attributed to the increase.
Other assets increased by $668,000 during 2001 from $68,000 in 2000 primarily
due to the booking of an asset in relation to the Ford Value Participation
Agreement. We determined, utilizing the Black Scholes method, the value of the
initial tranche of the vested warrants under this program is $577,000. As
additional warrants become vested in the coming years, they will be valued under
the same methodology and booked as an expense and into stockholders equity.
Additionally, increases were due to intellectual property expenses being applied
as they relate to several new patents on our technology.
As of December 31, 2001, we completed our restructuring of the remainder of our
antecedent payables, reducing those accounts to zero from $210,000 in 2000.
Long term debt includes a secured promissory note to Credit Managers Association
of California in the amount of $3,332,000, with interest at 3% for the first
five years beginning June 1996, 6% for years six and seven, and then at prime
plus 3% through maturity; interest payments are made upon payment of principal,
which is due no later than April 2016; a sinking fund escrow is required to be
funded with 10% of future equity financing, as defined in the agreement. The
note is secured with a UCC1 filing for all the assets of our company. We also
have an unsecured promissory note for $120,000 to Jeann Schulz with interest at
10%. This note is past due, however we are currently renegotiating terms to
bring the note current.
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Due to the nature of our industry and the amount of research and development
which has been necessary to begin to produce commercially viable products, we
have experienced the need for cash for operations from outside sources. We
changed our business strategy in 1997 to focus on the development of drive
systems and components for electric, hybrid-electric and fuel cell mobile and
stationary applications. Invested capital from 1997 to the present has been used
for the development and advancement of these systems which are now being sold as
discussed elsewhere in this prospectus. We may, from time to time, require
additional invested capital to fund development of new or advanced technologies
for our products.
The future unavailability or inadequacy of financing to meet future needs could
force us to delay, modify, suspend or cease some or all aspects of our planned
operations.
RESULTS OF OPERATIONS
Year Ended December 31, 2001 and 2000
Net sales of $3,780,000 for the twelve months ended December 31, 2001 increased
$897,000 or 31% from $2,883,000 during the same period in 2000. Our further
expansion into production programs of our Panther(TM) 120kw systems as well as
new contracts with Ford and the DOT accounted for the increase in sales. We
changed our fiscal year end from July 31 to December 31 effective December 31,
1999. All comparisons of year-to-year financial data for 2000 to 1999 are for
the twelve months ended December 31, 2000 and the twelve months ended July 31,
1999. Net sales of $2,883,000 for the twelve months ended December 31, 2000
increased $109,000 or 4% from $2,774,000 during the same period in 1999.Cost of
sales of $2,783,000 for the year ended December 31, 2001 reflect an increase of
$770,000, or 38%, from $2,013,000 for the year ended December 31, 2000.
Cost of sales as a percentage of sales remained at approximately 70% in 2001
which is consistent with 2000. As our sales mix changes from primarily
development contract revenues to more product sales, we believe this gross
margin will remain the same or improve on a year-to-year basis. Cost of sales of
$2,013,000 for the year ended December 31, 2000 increased $553,000, or 37%, from
$1,460,000 during the same period ending July 31, 1999. During the fiscal year
ended July 31, 1999, we sold a technology license to Hyundai Heavy Industries
which did not have associated costs of sales which accounted for the lesser
amount in 1999.
Product development costs incurred in the performance of engineering development
contracts for the U.S. Government and private companies are charged to cost of
sales for this contract revenue. Non-funded development costs are reported as
research and development expense. Research and development expense increased in
2001 to $879,000 from $626,000 for the same period in 2000, an increase of
$253,000, or 40%. Research and development expense increased in 2000 to $626,000
from $499,000 in fiscal 1999, an increase of $127,000 or 25%. As part of our
long-term strategic plan, we will continue to expend funds for research and
development for new technologies to enhance existing products as well as develop
new products in the areas of mobile and stationary power management and
conversion. Examples of these internally funded development programs include the
240kW drive system and our advanced power management systems for fuel cells and
turbines.
-31-
Selling, general and administrative expense increased in the year ended December
31, 2001 to $2,894,000 from $1,999,000 for the similar period in 2000. Increased
legal and accounting fees for the Fontal matter of approximately $400,000, as
well as increased regulatory requirements, account for the majority of the rise
in expense. We do not anticipate this level of professional fees to continue.
Additionally, we continue to increase sales, marketing and travel expenses in
relation to acquiring new business, creating alliances and servicing current
customers, which has resulted in additional sales for 2001 and will facilitate
in increasing sales for 2002. During 2001 and 2000, we continued to add
employees to accommodate our increased sales and customer services.
For the year ended December 31, 2001, interest and financing fees decreased by
$61,000 to $113,000, a decrease of 35%. The reduction was due to restructuring
of our long-term debt by forgiveness or conversion into equity. In 2000,
interest and financing fees decreased to $174,000 from $724,000 in 1999, a
decrease of 76%, due to the forgiveness of $4,300,000 of debt, formerly the
Itochu debt, and the conversion of $1,000,000 of debt into common stock.
In 2001, we completed our restructuring of the remainder of our antecedent
payables, reducing those accounts to zero from $210,000 in 2000, which resulted
in contributing to an extraordinary gain of $354,000 for the year. Our
liabilities and long-term debt are now current. During the year ended December
31, 2000, several unsecured creditors agreed to settle their trade debt claims
for amounts less than the original debt owed to them. Additionally, other trade
debt, which has had no activity for over four years and has now become
uncollectible pursuant to state statute of limitations, was recaptured. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $1,551,000 during the year ended December 31,
2000. Additional settlements resulted in a gain on debt restructuring of
$140,000 in fiscal 1999.
During 2001, we settled a lawsuit brought against us by Fontal International
Ltd. The settlement required us to issue, and register by March 31, 2002,
6,000,000 shares of common stock at a cost of $900,000, non-cash, exclusive of
our legal fees. This expense is recorded as legal settlements for 2001. Legal
settlements for 2000 and 1999 were $75,000 and $125,000, respectively, and
related to matters involving claims made in 1996 and 1998 respectively. In the
first half of 2002, we issued an additional 300,000 shares of common stock to
Fontal based on the timing of the effectiveness of our Form S-1 Registration
Statement filed with the Securities and Exchange Commission.
During 2001, we incurred several non-recurring professional expenses of $400,000
and the legal settlement of $900,000 with respect to the Fontal International
lawsuit for an increase in operating expense of approximately $1,300,000.
Without these charges, our net loss from operations would be $2,382,000, an
increase of $372,000 or 18% from our $2,010,000 loss from operations for the
same period in 2000. We do not believe these types of expenses will occur in
2002. The increase in net loss is attributable to a number of factors as
discussed previously in this Prospectus including the increased legal and
accounting fees, the legal settlement with respect to Fontal matter, increased
research and development expenses and increased marketing and administrative
expenses relating to further establishing ourselves as a key player in the
mobile power conversion and management markets and to develop new systems for
the stationary markets. We anticipate continued increases in engineering,
production, and support personnel as we deem necessary to meet our current and
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prospective customer needs. The loss from operations for 2000 of $2,010,000
represented an increase of $1,001,000 or 99% from the $1,009,000 loss in fiscal
1999, which excludes the recapture of approximately $474,000 of prior warranty
reserves.
Fiscal Year Ended December 31, 2000 v. Fiscal Year Ended July 31, 1999
Effective December 31, 1999 we changed our fiscal year end from July 31 to
December 31. Because we do not experience seasonal fluctuations in revenues and
expenses, all comparisons of year-to-year financial data are for the twelve
months ended December 31, 2000 and the twelve months ended July 31,1999.
During the year ended December 31, 2000, operations required $2,358,000 more in
cash then were generated. We continued to encounter increased research and
development costs, as well as increased sales and marketing and administrative
expenses necessary for expansion. Accounts receivable increased by $432,000 from
$572,000 as we continued to expand our product and customer bases and to
increase sales. Customer Deposits decreased by $102,000 from $102,000 as we
applied an advance payment from one of our customers for engineering services
performed. Inventory increased by $151,000 from $256,000. The increase was due
the purchase of raw materials for current development and production contracts.
Results of Operations
Net sales of $2,883,000 for the twelve months ended December 31, 2000 increased
$109,000 or 4% from $2,774,000 during the same period in 1999. Of total sales
for the year ended December 31, 2000, $2,662,900, or 92% were revenues realized
on engineering contracts with Ecostar, the DOT, the Hyundai Group of Korea and
other customers.
Cost of sales of $2,013,000 for the year ended December 31, 2000 reflect an
increase of $553,000, or 37%, from $1,460,000 during the same period ending July
31, 1999. During the fiscal year ended July 31, 1999, we sold a technology
license to Hyundai Heavy Industries that did not have associated costs of sales
and thus accounted for the lesser amount in 1999.
Cost of sales as a percentage of sales increased to 70% in fiscal 2000 from 53%
in fiscal 1999. As stated, sales revenue for fiscal 1999 included a sale of a
technology license of $600,000. Excluding the sale of the technology license,
cost of sales for fiscal 1999 was 67% of sales.
Research and development expense increased in the year ended December 31, 2000
to $626,000 from $499,000 in the year ended July 31, 1999. Product development
costs incurred in the performance of engineering development contracts are
charged to cost of sales for this contract revenue. Non-funded development costs
are reported as research and development expense. Research and development
expense increased in 2000 to $626,000 from $499,000 in fiscal 1999, an increase
of $127,000, or 25%.
Selling, general and administrative expense increased in the year ended December
31, 2000 to $1,999,000 from $1,141,000 for the similar period in 1999. The
increase was due to increased sales, marketing, legal and travel expenses in
relation to acquiring new business and creating alliances with several key
manufacturers during 2000, including Gillig Bus, Capstone Turbine, Wright Bus of
Ireland and EPT of Italy. Selling, general and administrative
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expense was $1,141,000 in fiscal 1999, which declined by $1,697,000, or 33%,
from fiscal 1998, as we reduced spending and consolidated operations. During
1999 and 2000, we began to increase operations as we began to move from a pure
research and development company to a more diversified development and
production business.
For the year ended December 31, 2000, interest and financing fees decreased by
$550,000 to $174,000, a decrease of 76%. The reduction was due to continued
restructuring of long-term debt by forgiveness or conversion into equity. In
fiscal 1999, interest and financing fees increased to $724,000 from $665,000 in
1998, an increase of 9%, due mainly to default interest rates becoming effective
on certain notes payable. The forgiveness of $4,300,000 of debt, formerly the
Itochu debt, and the conversion of $1,000,000 of Fontal debt, reduced interest
expense significantly during 2000.
During the year ended December 31, 2000, several unsecured creditors agreed to
settle their trade debt claims for amounts less than the original debt owed to
them. Additionally, other trade debt, which has had no activity for over four
years and has now become uncollectible pursuant to state statute of limitations,
was recaptured. The reductions from the original amounts owed and the settlement
amounts resulted in a gain on debt restructuring of $1,551,000 during the year
ended December 31, 2000. Additional settlements resulted in a gain on debt
restructuring of $140,000 in fiscal 1999 and $42,000 in 1998.
As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses and gain on debt restructuring, the net loss of $459,000 increased
16% from the $395,000 loss during the similar period in 1999. As noted
previously, the increase in net loss is attributed primarily to efforts to
establish our company as a key player in the mobile power conversion and
management markets and to develop new systems for the stationary markets. The
net loss for fiscal 1999 of $395,000 decreased $3,130,000 or 89% from the
$3,525,000 loss in 1998. These results reflect the successful shift from an
electric vehicle conversion business to a mobile and stationary power
electronics components developer and producer.
Fiscal Year Ended July 31, 1999 v. Fiscal year Ended July 31, 1998
During 1999, we continued to concentrate on the reduction of operating costs and
outstanding debt. Our business activities focus primarily on the development of
electric and hybrid electric drive-trains and related components, fuel cell
systems, vehicle systems integration and the performance of various engineering
contracts.
We received capital investments from Jagen, Pty, Ltd. in the amount of
$2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of $500,000
on July 30, 1999, which enabled us to further develop our hybrid drive systems
as well as embark on other in-house funded research and development.
During 1999, we spent $798,000 in cash on operating activities to fund the net
loss of $395,000, resulting from the factors explained in the following section
of this discussion and analysis. Accounts receivable increased by $560,000 as we
increased the number of engineering contracts from Hyundai Motor Corporation and
Hyundai Heavy Industries. Customer Deposits decreased by $387,000 as we
completed various contracts started in 1998 and moved toward a milestone based
billing procedure. Inventory decreased by $329,000, net of write-downs of
$36,000. The decrease was primarily caused by our
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reclassification of certain finished goods inventory to fixed assets to reflect
the assets current usage. These items will now be depreciated over their useful
lives.
Our operations during 1999 were financed primarily by the funds received on
engineering contracts and partly on funds received from the sale of a technology
license to Hyundai Heavy Industries. In June and July 1999, we received
$3,000,000 from two investors, Jagen. Pty., Ltd. Of Australia and Anthony
Rawlinson
Results of Operations
Net sales of $2,774,000 for 1999 increased $836,000 or 43% from $1,938,000 in
1998. Two primary factors caused the increase. In 1999, we sold a technology
license to Hyundai Heavy Industries for $600,000. Second, we increased
engineering, development and testing of electric and hybrid drive trains and
related components in conjunction with Hyundai Motor Company and the U.S.
Government through United States Postal Service, Defense Advance Research
Project Agency and DOT programs. Of our total sales for 1999, $1,954,000, or 70%
were revenues realized on engineering contracts with the Defense Advance
Research Project Agency, the Hyundai Group and other customers.
Cost of sales as a percentage of sales decreased to 53% in 1999 from 143% in
1998. Sales revenue for 1999 included a sale of a technology license of
$600,000. Excluding the sale of the technology license, cost of sales for 1999
was 67% of sales.
Research and development expense increased in 1999 to $499,000 from $445,000 in
1998, an increase of $54,000, or 12%. While we reduced staff and cut costs in
all areas, our focus continues to be centered on research and development. The
product development cost incurred in the performance of engineering development
contracts is charged to cost of sales for this contract revenue. Non-funded
development costs are reported as research and development expense.
Selling, general and administrative expense of $1,141,000 in 1999 continued to
decline from $1,697,000, or 33% from 1998, as we continued to reduce spending
and consolidated operations.
In 1999, interest and financing fees increased slightly to $724,000 from
$665,000 in 1998, an increase of 9% due mainly to a default interest rate on
certain notes payable becoming effective.
During 1999, several unsecured creditors agreed to settle their trade debt
claims for amounts less than the original debt owed to them. The reductions from
the original amounts owed and the settlement amounts resulted in a gain on debt
restructuring of $140,000 in 1999. Additional settlements resulted in a gain on
debt restructuring of $42,000 in 1998.
As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses and gain on debt restructuring, the 1999 net loss of $395,000
decreased $3,130,000 or 89% from the $3,525,000 loss in 1998. These results
reflect a significant change in our operating condition. Our cost structure and
operating conditions are now more in line with the sales volume and the scope of
business.
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Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued the following
Financial Accounting Standards (FAS):
FAS No. 140, " Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This Statement replaces FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001.
FAS No. 141, "Business Combinations", addresses financial accounting and
reporting for business combinations and supersedes Accounting Principles Board
Opinion No. 16. This Statement requires that all business combinations are to be
accounted for using the purchase method of accounting. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001.
FAS No. 142, "Goodwill and Other Intangible Assets", addresses financial
accounting and reporting for acquired goodwill and other intangible assets. It
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. This Statement
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements.
FAS No. 143, " Accounting for Asset Retirement Obligations", addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002.
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001.
Implementation of the above financial accounting pronouncements are not expected
to have a material effect on our financial position or results of operations.
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BUSINESS
General
In July 2000, we changed our name to Enova Systems, Inc. from U.S. Electricar,
Inc. We were incorporated in California on July 30, 1976.
We believe that we are a leader in the development and production of commercial
digital power management systems. We are now producing, under contract with
global vehicle and technology companies, digital power processing and energy
management enabling technologies for electric, hybrid electric, and fuel cell
powered vehicles. These power management technologies are now being applied to
commercialization of fuel cell power generation for stationary non-automotive
applications. Our business activities continue to be focused on the development
of electric and hybrid electric drive systems and related components, fuel cell
power management systems for both mobile and stationary power applications,
vehicle systems integration and the performance of various engineering
contracts.
Our fiscal year ends December 31. All year references refer to fiscal years.
Products
Our focus is digital power management, power conversion, and system integration.
Our software, firmware and hardware manage and control the power that drives a
vehicle or device. They convert the power into the appropriate forms required by
the vehicle or device, whether DC to AC, AC to DC or DC to DC, and they manage
the flow of this energy to protect the battery, the vehicle or device, and the
driver or operator. Our systems work "from drive train to drive wheel" for both
vehicle and stationary applications.
The latest state-of-the-art technologies such as hybrid vehicles, fuel cell and
microturbine based systems, and stationary power generation all require some
type of power management and conversion mechanism. We supply these essential
components. Our drive train systems work with any kind of fuel/power source,
from electric to hybrid to fuel cell to turbine, and they are essential
components for any vehicle, system or device that uses power.
We are moving to expand our product base into new markets outside of the
traditional electric and hybrid-electric automotive fields. Key areas in which
we have begun to penetrate include energy management in the telecommunications
industry, distributed generation in the utility industry, and stand-by/backup
power generation in the commercial electronics industry. All three of these
markets can be served with our existing energy management and power control
products. We have entered into agreements or begun discussions with various
alternative power generation manufacturers such as Capstone Turbine Corporation
and UTC Fuel Cells, as well as others. We currently have a joint marketing
agreement with Capstone for sales of our combined systems. UTC Fuel Cell
purchases components on a purchase order basis. Other companies such as
Pentadyne Power Corporation and Maxwell Technologies have entered into
Memorandums of Understanding with us which define, in general terms, systems and
market segments in which our companies could potentially produce and sell
components. We believe our enabling technologies will prove beneficial to these
types of companies in their strategies to bring these new power systems to
commercialization, however, we can make no assurance that such agreements, if
made, will
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result in a successful expansion of our product base in these new markets.
We have embraced fuel cell technology and we have begun to develop various power
management and control systems to enable fuel cell manufacturers and their
ancillary industries to achieve greater efficiencies from their systems. These
systems will also provide added reliability and safety by monitoring, adjusting
and reporting on operation of the unit.
Panther(TM) Electric and Hybrid-Electric Drive Systems
The Panther(TM) electric drive system provides all the functionality one would
find under the hood of an internal combustion gas or diesel engine powered
vehicle. The Panther(TM) system consists of an enhanced electric motor and the
electronic controls that regulate the flow of electricity to and from the
batteries at various voltages and power to propel the vehicle. In addition to
the motor and controller, the system includes a gear reduction/differential
unit. The system is designed to be installed in a "drop in," fully integrated
turnkey fashion, or on a modular, "as-needed" basis.
Our family of light-duty drive systems includes 30kW, 60kW, 90kW all-electric
drives, 90kW fuel cell powered series-hybrid drive, and a 10kW parallel-hybrid
drive unit. Our family of heavy-duty electric drive systems includes a 120kW
all-electric drive, a 120kW turbine powered series-hybrid drive, and a new 240kW
turbine powered series-hybrid drive system.
We currently market these systems to automobile and bus manufacturers as
discussed in detail elsewhere in this prospectus. Prices for electric and hybrid
electric drive systems vary based on the configuration of the system and the
number of units purchased, however, on average our systems list for $12,000 to
$25,000 for light duty systems and $20,000 to $75,000 per unit for heavy duty
drive systems.
Electric Drive Motors
The electric drive unit is essentially an electric motor with additional
features and functionality. The motor is liquid-cooled, environmentally sealed,
designed to handle automotive shock and vibration, and includes parking pawl,
which stops the vehicle when the driver parks the car. It also permits
regenerative braking to provide power recovery, in which the mechanical energy
of momentum is converted into electrical energy as the motor slows during
braking or deceleration. The optional gear reduction unit takes the electric
motor's high rpm and gears it down to the lower rpm required by the vehicle's
conventional drive shaft. As the rpm goes down, the torque of the electric motor
increases.
The Panther(TM) drive system exclusively utilizes induction AC motors for their
high performance, power density, robustness and low cost. The AC drive system is
scaleable and can be customized for different applications. Due to the large
operating range that the propulsion systems offer, all parameters can be
optimized; the user will not have to choose between acceleration, torque or
vehicle speed.
Electric Motor Controllers
The controller houses all the components necessary to control the powering of a
vehicle, in one easy-to-install package. Our main component is an inverter,
which converts DC electricity to AC electricity. We also offer optional
controllers for the air conditioning, power steering and heat pump, 12VDC/24VDC
DC-to-DC converter for vehicle auxiliary loads such
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as cell phones, radio, lights, and a 6.6kW AC-to-DC on-board conductive charger
which allows for direct 110 VAC or 220 VAC battery charging. These are located
in the same housing as the controller, thus extra interconnects are not
required. This approach simplifies the vehicle wiring harness and increases
system reliability.
Using our proprietary Windows(TM) based software package, vehicle interfaces and
control parameters can be programmed in-vehicle. Real-time vehicle performance
parameters can be monitored and collected.
Hybrid Drive Systems
Our Panther(TM) hybrid-electric drive systems are based on the component
building blocks of the electric drive family, including the motor, controller
and optional components. As an example, the 120/30kW series hybrid system uses
the 120kW electric drive components to propel the vehicle, and uses a 30kW
microturbine to generate power while the vehicle is in operation. This synergy
of design reduces the development cost of our hybrid systems by taking advantage
of existing designs. Accessories for these drives include battery management,
chargers and 12-volt power supplies, as with the all electric drive family.
Our hybrid systems are designed to work with a variety of hybrid power
generation technologies. In our 120/60kW hybrid system, an internal combustion
gas or diesel engine connected to a motor and motor controller performs the
power generation. Other power options include liquid fueled turbines, such as
the Capstone system, fuel cells, such as the UTC Fuel Cells system, or many
others. In all of these examples, our battery management system provides the
power management to allow for proper power control.
Power Management and Accessory Products
We currently sell a number of power management and power conversion components
which may or may not be used in conjunction with our drive systems. These
components vary in price based upon systems configuration and quantities
purchased, but on average range in price from $2,000 to $5,000 per unit based on
our current pricing.
Battery Care Unit
We place a great amount of focus on our power management systems. Our BCU II
battery care unit monitors, manages, protects, and reports. It controls and
manages battery performance, temperature, voltage and current to avoid harm to
the batteries, to the entire system, and to the driver, operator and passengers.
It also allows for monitoring for service to the battery and drive system. This
battery management system is capable of providing communication to both
inductive and conductive chargers simultaneously and managing the on-board and
off-board charging systems with multiple technologies. The versatility of this
system allows us to adapt the hardware and software for a variety of power
sources such as batteries, turbines and fuel cells.
Our BCU II monitors, manages, protects, and reports on the condition of the
vehicles battery pack. It controls and manages battery performance, temperature,
voltage and current to avoid harm to the batteries, to the entire system, and to
the driver, operator and passengers. It also allows for monitoring for service
to the battery and drive system and also reports state-of-charge, amp hours and
kilowatt-hours.
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The BCU II monitors the battery pack voltage and 28 additional individual
voltages with a range of 0 to 18vDC. Optional expansion modules allow 28
additional inputs per module, with up to 16 modules permitted. The BCU II has
eight user-programmable outputs and four user-programmable inputs to allow full
integration into the vehicle. These can be used to customize input and output
parameters, and to provide for other custom monitoring and battery pack control.
The BCU II directly interfaces with our Panther(TM) and other drive systems, and
also controls the safety disconnect unit. It is capable of supporting any
battery technology, and provides each type with optimized charging and
protection algorithms. An internal real-time clock allows the BCU II to wake up
at user-specified times to initiate battery charging or pack monitoring. A
precision shunt allows it to offer a wide dynamic range for monitoring charging
and motoring current, without errors commonly associated with other types of
sensors.
The non-volatile built-in memory allows the BCU II to update, store and report
key battery pack parameters such as amp hours, kilowatt-hours and state of
change. Using our proprietary Windows(TM)-based diagnostic software, the BCU II
control parameters can be programmed in-vehicle. Additionally, battery
performance can be monitored in real-time. Reports can be output to a laptop
computer.
Hybrid Control Unit
We have reconfigured our BCU II to perform the critical role of hybrid
controller. Our hybrid control unit continuously monitors the condition of the
battery pack through communications with the BCU II battery care unit, monitors
the driver commands through communications with the motor controller, and the
state of the hybrid generator. Based upon the data received, the hybrid control
unit provides continuous updates to the hybrid generator with instructions on
mode of operation and power level. This innovative control loop ensures that the
entire system is optimized to provide quick response to driver commands while
providing the best possible system efficiency.
Safety Disconnect Unit
The safety disconnect unit is under the control of the BCU II battery care unit,
and allows vehicle systems to gracefully connect and disconnect from the battery
pack when necessary to prevent damage or harm. It also disconnects the battery
pack during charging, protects it from surges, and constantly verifies that the
battery pack is isolated from the vehicle chassis. In the event a ground
isolation fault is detected, the BCU II commands the safety disconnect unit to
break the battery connection. The safety disconnect unit is available in two
configurations to match the requirements of the drive systems.
Fast Charger
We have also developed a 40kW rapid charger for electric vehicles, which reduces
charging time from six to eight hours to 20 to 30 minutes. The charger was
initially developed in conjunction with Hyundai for their electric vehicles. The
Fast Charger is also ideal for small or shuttle buses, trams and trucks. We are
currently selling rapid chargers to Eco Power Technology of Italy. This unit
lists for $40,000 to $55,000 per unit based on volumes.
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Fuel Cell Power Conditioning Unit
We have developed and are now producing a 30kW bi-directional fuel cell power
conditioning system. This system has been designed to meet the demands of an
automotive fuel cell propulsion system. This unique unit, not much larger than a
conventional briefcase, provides a transparent interface between the fuel cell
or microturbine, the battery pack, accessory loads, and the output load. Fast
response time allows the output load to be serviced without interruption while
the fuel cell or turbine ramps up.
This unit is designed to interface directly with the master controller of the
vehicle over a CAN bus. Other communications protocols supported are SAE J-1850,
RS-232, and RS-485. This proprietary package allows all key parameters of the
Power Conditioner to be monitored and control boundaries to be adjusted.
50kW ICE Generator Unit
We provide a complete 50kW internal combustion engine generator set. This unit
is powered by a 4-cylinder direct injection diesel engine and is controlled over
the common CAN bus shared with the rest of the Panther(TM) product line. The
same hybrid control unit that controls the Capstone microturbine in our other
series hybrid configurations provides power command, start command, and stop
commands.
Fuel Cell Management Unit
We have added a fuel cell control unit to broaden our market in the power
management field. This unit is designed to manage fuel cell powered systems
whether stationary or mobile, such as in vehicles. The fuel cell control unit
can be adapted to regulate the input and output to and from the fuel cell as
well as regulate temperature and communications. We continue to develop our
current systems for new products and markets.
We have also reconfigured our battery management unit to perform the functions
required to monitor, manage, and report on the status of a fuel cell stack. This
new units currently being used by UTC Fuel Cells as a management systems in
their fuel stack products.
An internal real-time clock allows the fuel cell control unit to wake up at
user-specified times to initiate battery charging or pack monitoring. A
precision shunt allows it to offer a wide dynamic range for monitoring charging
and motoring current, without errors commonly associated with other types of
sensors. The non-volatile RAM allows the unit to update, store and report key
battery pack parameters such as amp hours, kilowatt-hours and state of charge.
With our proprietary Windows(TM)-based diagnostic software, the fuel cell
control unit control parameters can be programmed in-system. Additionally, fuel
cell performance can be monitored in real-time and output to a laptop computer.
Distributed Power Generation for Industrial / Commercial / Residential
Applications
Our distributed generation products are virtually identical in system
configuration to that of a series hybrid vehicle, including a controller and
battery management. For this market segment, we will provide DC-DC and DC-AC
power conversion components to convert power supplied by batteries, fuel cells,
generators and turbines to AC power that will be used by the end customer.
Additionally, our BCU II battery care unit will provide power management
functions to control the entire system. The main difference is that the 3-phase
AC power typically supplied to the motor for propulsion power is, in this case,
sent to the customer to
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supply power for their household or business.
These products are custom designed for the customer's specific application
requirements. Currently, we are finalizing a development and production program
with a major petroleum company for process control. Other systems are available
for sale requiring minimal reconfiguration for customer requirements.
Back-Up Power for Telecommunications
As in the distributed generation market, telecommunications products are
virtually identical in system configuration to a series hybrid vehicle,
including a controller and battery management unit. For this market segment, we
intend to provide DC-DC and DC-AC power conversion components to convert power
supplied by batteries, fuel cells, generators, and turbines to AC power that
will be used by the communications link. The BCU II battery care unit will
provide power management functions to control the entire system. When the grid
goes down, the AC power typically supplied to the motor for propulsion power is,
in this case, sent to the communications link (or router) to supply power as a
backup. We are currently seeking customers in the telecommunication equipment
and battery manufacturing industries for these products. We anticipate that this
market will open to our products in 2003 based upon current industry trends,
however, we can make no assurance that this will occur.
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Company Operations
In 1998, we restructured our top management, realigned our product base and
concentrated on the reduction of overall company operating costs. We closed
facilities, streamlined operations, and developed new product lines. During 2000
and 2001, we increased our product line and began to penetrate new markets for
our products.
During 1999, we concentrated on creating new business in the mobile power
management and conversion markets as well as reducing operating costs and
outstanding debt. Our business activities focused on the development of electric
and hybrid electric drive trains and related components, fuel cell systems,
vehicle systems integration and the performance of various engineering
contracts. We completed several key contracts with the U.S. Government's Defense
Advanced Research Project Agency and the Department of Transportation, including
the analysis of a new plastic lithium ion vehicle battery concept, testing of
advanced vehicle batteries and development of an airport electric passenger tram
system. We have enhanced our relationship with Hyundai, the world's seventh
largest automobile manufacturer, with several engineering contracts to design,
develop and test electric and hybrid electric drive systems and related
products. We completed development of an advanced charging unit and a parallel
hybrid production vehicle, and continue to produce the family of Panther(TM)
drive systems for their electric vehicles. Our Company has also developed a high
power charger for use with our drive systems. Hyundai has adapted a customized
version of the Panther(TM) 60 for their production electric vehicle, the Santa
Fe sports utility vehicle.
Beginning in 2000, we started working with Ecostar Electric Drive Systems, 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 early 2002 for markets in North America. We are
designing and manufacturing the electronics for the drive system as well as
certain auxiliary components. The final prototype systems are currently
undergoing pre-production testing and validation in the Ford Th!nk vehicle. We
continue to develop our relationship with Hyundai, Ecostar and other Original
Equipment Manufacturers and Tier-One suppliers for sales of our automotive
products. We offer our modular drive systems to such manufacturers and other
customers. These drive systems have been installed in various vehicles operating
in North America, Europe and Asia.
In 2001, we began supplying drive systems to manufacturers such as Eco Power
Technology, Tomoe and Moria as discussed below and in other sections of this
Prospectus. We also commenced new development programs with automotive and
transit OEMs both domestically and internationally, as well as completing
various research and development programs sponsored by the U.S. Government and
private corporations such as Hyundai Motor Company. These programs are discussed
more fully below.
For marketing our larger drive systems, we are discussing sales of the system to
various transit bus manufacturers in the U.S. and Europe, to develop and
manufacture series hybrid electric transit buses utilizing our 240kW hybrid
drive system. Additionally, We have 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.
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In January 2001, we received an order for a Panther(TM) 120kW hybrid drive
system from Wrights which utilizes the Capstone Turbine Corporation microturbine
as the primary power source.
We continue to expand our markets by creating alliances with other component
suppliers. Capstone Turbine Corporation has recently teamed with us to develop
and market hybrid electric drive systems using Capstone's microturbine in
conjunction with our power management and drive systems. We currently utilize
Capstone's microturbine in our drive systems for Eco Power Technology of Italy,
as well as for Wright's Bus in the United Kingdom.
Our engineering contracts with DARPA and the 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. Our contract with the U.S. Department of
Transportation to design and test this tram system utilizes the Panther(TM)
120kW drive system. The tram was developed in conjunction with APS, an electric
bus manufacturer in Oxnard, California. This tram, capable of carrying 100
passengers, was delivered in the 1st quarter of 2002 to the Honolulu, Hawaii
Airport for test and evaluation. We intend to market this tram system to
international markets for application to other airports, national and
recreational parks and other high capacity transit applications. Another joint
DOT program, the Hawaii/Hyundai commercialization program, which we established,
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. We have
also begun work on a electric trolley for the Hawaii market in conjunction with
the DOT and E Noa, a manufacturer and operator of stand-alone trolleys in
Hawaii. Our Hawaii operations in Honolulu are both a development and maintenance
installation for various DARPA/DOT programs. The facility also maintains the
electric vehicle fleets for different state and local government agencies as
well as private institutions.
We continue to further our relationship with Hyundai through engineering
contracts to design, develop and test electric and hybrid electric drive systems
and related products. We have completed development work on Hyundai's parallel
hybrid production vehicle and a series hybrid electric drive system. These
hybrid systems are slated to be integrated into Hyundai's new Santa Fe sport
utility vehicle. Hyundai has adapted a customized version of the Panther(TM)
60kW for their production electric vehicle and intends to utilize our hybrid
drive system and battery management for their next generation alternative fuel
vehicles. We have also developed a high power fast charger for use with our
drive systems in conjunction with Hyundai.
We view stationary power applications of our power management systems as an
important new area for product development. In the stationary power management
field, we are developing applications for our products in the telecommunications
and distributed generation markets. We believe our approach of providing the
enabling technology in power management and conversion to power generation
companies is key to early access to these markets. Our joint marketing and
development efforts with Capstone Turbine Corporation, Avestor and UTC Fuel
Cells have the potential to assist us in penetrating these markets. As discussed
earlier, we are now producing and selling an advanced version of our BCU-II
battery care unit and fuel cell care unit for use with fuel cells in both
stationary and mobile systems, starting with UTC Fuel Cells and the Institute
for a Sustainable Environment Research Lab.
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We continue to seek new investment capital to fund research and development and
create new market opportunities. We received capital investments 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 during the twelve months ended December
31, 2000. In early 2001, we retained Merrill Lynch as our investment advisor to
pursue equity financing options and other strategic alternatives. We intend to
vigorously pursue additional equity capital in order to fund new product
development. In July 2001, Anthony Rawlinson exercised warrants to purchase
8,333,334 shares of our common stock at $0.06 per share for a total of $500,000.
Debt Restructuring
We completed our balance sheet restructuring during 2001. Overall, we have
reduced outstanding indebtedness and liabilities by approximately $10,000,000
since we began our restructuring program in 1999. We have also been reducing our
outstanding past due accounts payable and other accrued liabilities. At December
31, 2001, we have eliminated all of our antecedent accounts payable and
non-current accrued liabilities. This reduction of liabilities and debt was
accomplished through various financial transactions including conversion of
approximately $1.2 million of debt into common stock in 1999. The remainder of
the debt and liabilities were eliminated via debt forgiveness and recapture by
legal statute as previously discussed in our Form 10-K and 10-Q filings.
Environmental Initiatives and Legislation
Federal legislation was enacted to promote the use of alternative fuel vehicles,
including electric vehicles. Several states have also adopted legislation that
sets deadlines for the introduction of zero emission vehicles. The State of
California delayed the mandated introduction of zero emission vehicles from 1998
to 2003 and established a required percentage of zero emission vehicles and new
hybrid-electric vehicles for 2003 at 10% of total new vehicle sales in
California from the six major automobile manufacturers. The State of California
estimates that a combination of approximately 100,000 electric and hybrid
electric vehicles will be required to meet the State's 2003 mandate. The
California Air Resources Board recently confirmed their commitment to these
percentages, adding that hybrid-electric vehicles may offset a portion of the
required percentage. We have taken an aggressive position in diversifying our
product base to include various hybrid-electric platforms in our product mix.
The U.S. Department of Energy also modified their rules governing how state
fleets and utility fleets must comply with the Energy Policy Act of 1992 on
alternative fuel transportation programs.
Strategic Alliances, Partnering and Technology Developments
We continue to adapt to the ever-changing environment of alternative power
markets for both stationary and mobile applications. Originally focusing on pure
electric drive systems, we are now positioned as a global supplier of drive
systems for electric, hybrid and fuel cell applications. We are now entering
stationary power markets with our power management systems and intend to develop
other systems to monitor and control the complex fuel cell and ancillary device
systems being developed for distributed generation and mobile applications.
We also continue to seek and establish alliances with major players in the
automotive, stationary power and telecommunication fields. For instance, we are
partnering with the Hyundai Group of Korea in the development of advanced
drive-train technology and related
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systems. Additionally, we have begun to partner with Ford and Ballard Power on
other automotive programs and are looking to further develop these
relationships. We continue our strategy as a "systems integrator" by
establishing relationships to utilize other independently developed technologies
such as those provided by UTC Fuel Cells and Capstone Turbine Corporation. We
have implemented our plans to outsource manufacturing of our components to
companies such as Hyundai Heavy Industries, Ricardo, Hyundai Autonet and other
Asian manufacturers. We believe that our competitive advantage is our ability to
identify, attract and integrate the latest technology available to produce state
of the art products at competitive prices.
Our products are "production-engineered," meaning they are designed so they can
be commercially produced: all formats and files are designed with
manufacturability in mind, from the start. For the automotive market, we design
our products to QS9000 manufacturing and quality standards. Our redundancy of
systems, robustness of design, and rigorous quality standards result in high
performance and reduced risk. For every component and piece of hardware, there
are detailed performance specifications. Each piece is tested and evaluated
against these specifications, which enhances the value of the systems to
original equipment manufacturing customers.
We perform low-volume production and assembly and out source mass production.
Outsourcing enables us to keep our capital investment to a minimum, reducing
expenditures for hardware, installation and training, and it allows us to avoid
the problems of manufacturing equipment obsolescence. Outsourcing also enables
us to search out and work with a number of the best QS 9000-certified
manufacturers worldwide. This strategy ensures that our manufacturing customers
have the highest confidence in our products, and receive the highest-quality
products.
Competitive Conditions
The competition to develop and market electric, hybrid and fuel cell powered
vehicles has increased during the last year and we expect this trend to
continue. The competition consists of development stage companies as well as
major U.S. and international companies. Our future prospects will be highly
dependent upon the successful development and introduction of new products that
are responsive to market needs and can be manufactured and sold at a profit.
There can be no assurance that we will be able to successfully develop or market
any such products.
The development of hybrid-electric and alternative fuel vehicles, such as
compressed natural gas, fuel cells and hybrid cars poses a competitive threat to
our markets for low emission vehicles but not in markets where government
mandates call for zero emission vehicles. We are involved in the development of
hybrid vehicles and fuel cell systems in order to meet future requirements and
applications.
Various providers of electric vehicles have proposed products or offer products
for sale in this emerging market. These products encompass a wide variety of
technologies aimed at both consumer and commercial markets. The critical role of
technology in this market is demonstrated through several product offerings. As
the industry matures, key technologies and capabilities are expected to play
critical competitive roles. Our goal is to position itself as a long term
competitor in this industry by focusing on electric, hybrid and fuel cell
powered drive systems and related sub systems, component integration, technology
application and
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strategic alliances. The addition of new strategies to penetrate stationary
power markets with current technologies will assist in creating a more
diversified product mix. We believe that this strategy will enhance our position
as a power management and conversion components supplier to both the mobile and
stationary power markets.
Research and Development
We believe that timely development and introduction of new technology and
products is essential to maintaining a competitive advantage. We are currently
focusing our development efforts primarily in the following areas:
*Power control and drive systems and related technologies for vehicle
applications;
*Stationary power management and conversion and related technologies;
*Heavy duty drive system development for shuttle and transit buses;
*Systems integration of these technologies;
*Technical and product development under DARPA/DOT and Hyundai Group
Contracts; and
*Original Equipment Manufacture technical and product development.
For the year ended December 31, 2001 and 2000, we spent $879,000 and $626,000,
respectively, on internal research and development activities. For the five
months ending December 31, 1999 and the fiscal years ended July 31, 1999 and
1998, we spent $262,000, $499,000 and $445,000, respectively, on internal
research and development activities. We are continually evaluating and updating
the technology and equipment used in developing each of our products. The power
management and conversion industry utilizes rapidly changing technology and we
will endeavor to modernize our current products as well as continue to develop
new leading edge technologies to maintain our competitive edge in the market.
Intellectual Property
We currently hold one patent for crash management safety, which was originally
issued in 1997, and we have submitted applications for four additional patents
and several trademarks or service marks in the United States. Our patent for
crash management safety expires in October 2017. We continually review and
append our protection of proprietary technology. The status of patents involves
complex legal and factual questions, and the breadth of claims allowed is
uncertain. Accordingly, we can make no assurance that any patent applications we
file will result in patents being issued. Moreover, can make no assurance that
third parties will not assert claims against us with respect to existing and
future products. Although we intend to vigorously protect our rights, we can
make no assurance that these measures will be successful. In the event of
litigation to determine the validity of any third party claims such litigation
could result in significant expense. Additionally, the laws of certain countries
in which our products are or may be developed, manufactured or sold may not
protect our products and intellectual property rights to the same extent as the
laws of the United States.
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Employees
As of June 30, 2002, we had 42 employees, of whom 41 are full-time and 1
part-time. Additionally, we employ six individuals as independent contractors,
engaged on an hourly basis, two of whom are domiciled in South Korea. The
departmental breakdown of these individuals includes 3 in administration, 1 in
sales, 33 in engineering and research and development, and 11 in production.
Facilities
Our corporate offices are located in Torrance, California, in leased office
space of approximately 20,000 square feet. This facility houses our various
departments, including engineering, operations, executive, finance, planning,
purchasing, investor relations and human resources. This lease terminates in
February 2003. The monthly lease expense is $13,500. We also have a leased
office in Hawaii, which is rented on a month to month basis at $1,500 per month.
Legal Proceedings
We may from time to time become a party to various legal proceedings arising in
the ordinary course of business. However, we are not currently a party to any
material legal proceedings.
We have settled a lawsuit brought against us by Fontal International, Ltd. in
June 2000, which was filed in the United States District Court, Central District
of California as previously disclosed in our March 31, 2000 Form 10Q. The suit
alleged breach of contract with respect to certain warrants to purchase
10,833,332 shares of our common stock. The settlement agreement required us to
issue 6,000,000 shares of common stock which were to be registered and freely
tradable on, or before, March 31, 2002. We entered into an agreement with Fontal
granting them additional shares of our common stock based upon the date upon
which the Form S-1 covering the sales of such shares was declared effective. As
result of that agreement, we issued Fontal an additional 300,000 shares of
common stock.
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MANAGEMENT
The following table sets forth certain information regarding our directors and
executive officers as of June 30, 2002.
Name Age Position
---- --- --------
Anthony N. Rawlinson 47 Chairman of the Board
Carl D. Perry 69 President, Chief Executive Officer, Chief
Financial Officer and Secretary
Malcolm R. Currie, Ph.D. (1) 72 Director
Donald H. Dreyer (2) 64 Director
John J. Micek III (2) 49 Director
Edwin O. Riddell (1) 59 Director
James M. Strock 46 Director
(1) Member of Compensation Committee
(2) Member of Audit Committee
Anthony N. Rawlinson, Chairman of the Board
Mr. Rawlinson was appointed Chairman in July 1999. Since 1996, Mr. Rawlinson has
been Managing Director of The Global Value Investment Portfolio Management Pte.
Ltd., a Singapore based international fund management company managing
discretionary equity portfolios for institutions, pension funds and clients
globally. Mr. Rawlinson has more than twenty years experience in international
fund management. Mr. Rawlinson is a specialist in analysis and investment in
high technology companies. Mr. Rawlinson is currently Chairman of Matrix Oil NL,
an Australian publicly listed company with Indonesian oil and gas interests. He
is also a director of Cardsoft Inc., a software company with secure Java based
solutions for mobile phones and handheld devices.
Carl D. Perry, Director, Chief Executive Officer, President
Mr. Perry was elected Chairman, Chief Executive Officer, Acting Chief Financial
Officer and Secretary in November 1997. Mr. Perry served as a director and as an
Executive Vice President from 1993 until 1997. In 1997, Mr. Perry was elected as
Chairman and Chief Executive, and was elected President in June 1999. In July
1999, Mr. Perry resigned his position as Chairman to allow Mr. Anthony Rawlinson
to become Chairman. Previously, he was Executive Vice President of Canadair
Ltd., Canada's largest aerospace corporation responsible for all worldwide joint
ventures, strategic planning and global operations. He was also Executive Vice
President of Howard Hughes Helicopter Company, now known as Boeing Helicopter
Company, where he was responsible for all general management and worldwide
operations. Mr. Perry has a B.S. in Political Science from the University of
California at Los Angeles.
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Malcolm R. Currie, Ph.D., Director
Dr. Currie was re-elected to our board of directors in 1999. Dr. Currie had
served as a director from 1995 through 1997. Since 1994, he has served as
Chairman of Currie Technologies, a developer of electric transportation. From
1986 until 1992, Dr. Currie served as Chairman and Chief Executive Officer of
Hughes Aircraft Co., and from 1985 until 1988, he was the Chief Executive
Officer of Delco Electronics. His career in electronics and management has
included research with many patents and pap s in microwave and millimeter wave
electronics, laser, space systems, and related fields. He has led major programs
in radar, commercial satellites, communication systems, and defense electronics.
He served as Undersecretary of Defense for Research and Engineering, the Defense
Science Board, and currently serves on the boards of Inamed Corporation ,
Investment Company of America, and LSI Logic. He is President of the American
Institute of Aeronautics and Astronautics, and is a Member (former Chairman) of
the Board of Trustees of the University of Southern California.
John J. Micek III, Director
Mr. Micek was elected to our board of directors in 1999. Mr. Micek served as our
Vice President, General Counsel, and Secretary from March 1994 to March 1997.
From 1997 to the present, he has been Managing Director of Silicon Prairie
Partners, L.P., a venture fund. From 1987 to 1994, Mr. Micek held several
positions with Armanino Foods of Distinction, Inc., including General Counsel
and Chief Financial Officer from 1987 to 1988, Vice President from 1989 to 1994,
and director from 1988 to 1989. Mr. Micek is also a practicing attorney
specializing in corporate finance and business development in Palo Alto,
California. He is a board member of Universal Warranty and sits on the boards
Burst.com, Inc. and Pelion Systems, Inc.
Donald H. Dreyer, Director
Mr. Dreyer was elected a director in 1997. Mr. Dreyer is President and CEO of
Dreyer & Company, Inc., a consultancy in credit, accounts receivable and
insolvency services which was established in 1990. Mr. Dreyer has served as
Chairman of the Board of Credit Managers Association of California during the
1994 and 1995 term, and continues to serve as a member of the Advisory Committee
of that organization. Mr. Dreyer is currently the co-Chair of the Creditors
Committees' Subcommittee of the American Bankruptcy Institute and is a member of
the Western Advisory Committee of Dun & Bradstreet, Inc. He is also a member of
the Board of the National Association of Credit Management.
Edwin O. Riddell, Director
Mr. Riddell has been one of our directors since 1995. From March 1999 to the
present, Mr. Riddell has been President of CR Transportation Services, a
consultant to the electric vehicle industry. From January 1991 to March 1999,
Mr. Riddell served as Manager of the Transportation Business Unit at the
Electric Power Research Institute in Palo Alto, California, and from 1985 until
November 1990, he served with the Transportation Group, Inc. as Vice President,
Engineering, working on electric public transportation systems. From 1979 to
1985, he was Vice President and General Manager of Lift-U, Inc., the leading
manufacturer of handicapped wheelchair lifts for the transit industry. Mr.
Riddell has also worked with Ford, Chrysler, and General Motors in the area of
auto design (styling), and has worked as a member of senior management for a
number of public transit vehicle manufacturers. Mr.
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Riddell has been a member of the American Public Transportation Association's
(APTA) Member Board of Governors for over 15 years, and has served on APTA's
board of directors. Mr. Riddell was also Managing Partner of the U.S. Advanced
Battery Consortium.
James M. Strock, Director
Mr. Strock was elected a Director of Enova in June, 2000. From 1991-1997, Mr.
Strock served in Governor Pete Wilson's cabinet as California's first Secretary
for Environmental Protection. He led an organization with an annual budget of
more than $800 million with 4,000 employees. The Agency includes many of the
world's leading environmental improvement programs relating to air and water
quality, toxics and pesticide regulation, and solid waste. From 1989 until 1991,
Mr. Strock served in President Bush's subcabinet as Assistant Administrator for
Enforcement (chief law enforcement officer) of the U.S. Environmental Protection
Agency. Currently, he is principal of jamesstrock.com, inc., a San Francisco
firm providing consulting, communications and mediation services. Mr. Strock is
a graduate of Harvard College and Harvard Law School, and is a member of the
Council on Foreign Relations. He is the author of Reagan on Leadership:
Executive Lessons from the Great Communicator, and Theodore Roosevelt: Executive
Lessons from the Bully Pulpit.
There are no family relationships among any of the directors or executive
officers of our company.
Board of Directors, Committees and Compensation
Each of the directors is elected to serve a one-year term and until his
successor if duly elected and qualified. The authorized number of directors is
currently fixed at seven. The holders of the Series B Stock, voting as a
separate class, are entitled to elect two directors. The holders of the Series A
Stock and the common stock, voting together as a single class, are entitled to
elect the balance of the directors. See "Description of Capital Stock."
The Board currently has two committees: the Compensation Committee and the Audit
Committee. The Compensation Committee currently consists of Mr. Edwin Riddell
and Dr. Malcolm Currie. Its functions are to establish and apply our
compensation policies with respect to our executive officers, and to administer
our stock option plans. The Audit Committee currently consists of Messrs. Donald
Dreyer and John Micek. The Audit Committee recommends engagement of the
independent auditors and is primarily responsible for approving the services
performed by the independent auditors and for reviewing and evaluating the our
accounting principles and system of internal accounting controls.
In September 1999, our board of directors unanimously approved a compensation
package for outside directors consisting of the following: for each meeting
attended in person, each outside director is to receive $1,000 in cash and
$2,000 of stock valued on the date of the meeting at the average of the closing
ask and bid prices; for each telephonic board meeting, each outside director is
to receive $250 in cash and $250 of stock valued on the date of the meeting at
the average of the closing ask and bid prices; for each meeting of a board
committee attended in person, the committee chairman is to receive $500 in cash
and $500 of stock valued on the date of the meeting at the average of the
closing ask and bid prices. All directors are reimbursed for expenses incurred
in connection with attending board and committee meetings.
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Executive Compensation
The following table sets forth all compensation earned by our company's Chief
Executive Officer and each of the other most highly compensated executive
officers whose annual salary and bonus exceeded $100,000 for the years ended
December 31, 2001, 2000 and 1999 (collectively, the "Named Executive Officers").
Mr. Carl D. Perry is the sole executive officer of Enova whose salary currently
exceeds $100,000.
Long Term Compensation Awards
-----------------------------
Salary Bonus Securities Underlying Options/SARs
Year ($) ($) (#)
---- --- --- ---
Carl D. Perry, Chief 2001 $136.118 $30,000 0
Executive Officer, Chief 2000 $128,170 $ 0 0
Financial Officer, 1999 $ 75,000 $ 0 0
President and Secretary
Option/SAR Grants
No grants of stock options or stock appreciation rights ("SARs") were made
during fiscal 2001 to the Named Executive Officers.
Option Exercises and Option Values
The following table sets forth information concerning option exercises during
2001, and the aggregate value of unexercised options as of December 31, 2001,
held by each of the Named Executive Officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value Of Unexercised
Underlying Unexercised In-The-Money
Options/SARs At Fiscal Options/SARs At Fiscal
Shares Acquired Year-End Exercisable/ Year-End Exercisable/
Name On Exercise (#) Value Realized ($) Unexercisable (#) Unexercisable ($)
---- --------------- ------------------ ----------------- -----------------
Carl D. Perry 1,200,000/0 $ 72,000
------------------------
(1) Calculated on the basis of the average of the high bid and low ask prices of
the Common Stock on December 31, 2001 of $0.16 per share, minus the exercise
price.
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Stock Option Plans
A general description of the principal terms of the 1996 Plan are set forth
below. This description is qualified in its entirety by the terms of the 1996
Plan. A copy of the actual 1996 Plan document has been previously filed with the
Securities and Exchange Commission.
Our board of directors adopted the 1996 Plan in October 1996. A total of
15,000,000 shares were reserved for issuance under the 1996 Plan. Options
granted under the 1996 Plan may be either incentive stock options, as defined in
Section 422 of the Internal Revenue Code of 1986, or nonstatutory stock options.
In 1999, our board of directors and shareholders approved an amendment to the
1996 Plan to increase the number of shares of common stock reserved for issuance
thereunder by 30,000,000 shares, bringing the total number of shares issuable
under the 1996 Plan to 45,000,000. The share increase to the 1996 Plan assured
that a sufficient reserve of common stock are available to provide us with the
continuing opportunity to utilize equity incentives to attract and retain the
services of employees essential to our long-term growth and financial success.
With respect to the grant of options to directors or employees who are also
officers or directors, the 1996 Plan is administered by (i) our board of
directors, or (ii) a committee designated by the board and constituted in such a
manner as to comply with applicable laws to permit such grants and related
transactions to be exempt from Section 16(b) of the Exchange Act in accordance
with Rule 16b-3. With respect to grants to employees or consultants who are
neither officers nor directors of Enova, the 1996 Plan is administered by the
board or by a committee of the board.
The administrators of the 1996 Plan have full power to select, from among our
employees, directors and consultants eligible for grants, the individuals to
whom options will be granted, to determine the specific terms and conditions of
each grant, including the number of shares subject to each option, to amend the
terms of outstanding options granted under the 1996 Plan (except that any
amendments that would adversely affect an optionee's rights under an outstanding
option may not be made without the optionee's written consent), and to interpret
and construe the terms of the 1996 Plan and options granted thereunder, all
subject to the provisions of the 1996 Plan. The interpretation and construction
of any provision of the 1996 Plan by the administrators shall be final and
conclusive. Members of the board receive no additional compensation for their
services in connection with the administration of the 1996 Plan.
The 1996 Plan provides that options may be granted to employees (including
officers and directors who are also employees), directors and consultants.
Incentive stock options may only be granted to employees.
Each option granted under the 1996 Plan is to be evidenced by a written stock
option agreement between Enova and the optionee and is subject to the following
additional terms and conditions:
The board or its committee determines on the date of grant when options will
become exercisable. An option is exercised by giving written notice of exercise,
specifying the number of full shares of common stock to be purchased and
tendering payment of the purchase price.
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The exercise price of options granted under the 1996 Plan is determined on the
date of grant. The exercise price of incentive stock options must be at least
100% of the fair market value per share of the common stock at the time of
grant. In the case of incentive stock options granted to an employee who at the
time of grant owns more than 10% of the voting power of all classes of stock or
any parent or subsidiary, the exercise price must be at least 110% of the fair
market value per share of the common stock at the time of grant. The exercise
price of nonstatutory stock options must be at least 85% of the fair market
value per share of the common stock at the time of grant. The exercise price of
nonstatutory stock options granted to an employee who at the time of grant owns
more than 10% of the voting power of all classes of our stock including stock of
any parent or subsidiary, the exercise price must be at least 110% of the fair
market value per share of the common stock at the time of grant. In the event of
the grant of a nonstatutory option with an exercise price below the then fair
market value of the common stock, the difference between fair market value on
the date of grant and the exercise price would be treated as a compensation
expense for accounting purposes and would therefore affect the our earnings. For
purposes of the 1996 Plan, fair market value is defined as the closing sale
price of the common stock as reported on the OTC Bulletin Board on last market
trading day prior to the time of grant.
If the optionee's employment, directorship or consulting relationship with us is
terminated for any reason (other than death or disability), options may be
exercised within such period as is determined by the board or its committee (up
to three months in the case of incentive stock options) after such termination
as to all or part of the shares as to which the optionee was entitled to
exercise at the date of such termination, provided that the option is exercised
no later than its expiration date.
At the time an option is granted, the board or its committee determines the
period within which the option may be exercised. In no event may the term of an
incentive stock option be longer than ten (10) years. No option may be exercised
by any person after the expiration of its term. An incentive stock option
granted to an optionee who, at the time such option is granted, owns stock
possessing more than 10% of the voting power of all classes of our stock, may
not have a term of more than five (5) years.
An incentive stock option is not transferable by the optionee, other than by
will or the laws of descent and distribution, and is exercisable during the
optionee's lifetime only by the optionee. A nonstatutory option may be
transferable to the extent determined by the administrator and as provided in an
optionee's option agreement.
The option agreement may contain such other terms, provisions and conditions not
inconsistent with the 1996 Plan as may be determined by the board or its
committee.
In the event any change, such as a stock split, reverse stock split, stock
dividend, or combination or reclassification of the common stock, is made in the
our capitalization without receipt of consideration, which results in an
increase or decrease in the number of outstanding shares of common stock, an
appropriate adjustment shall be made in the number of shares under the 1996 Plan
and the price per share covered by each outstanding option.
In the event we merge or consolidate with another entity and we are not the
surviving corporation, or a proposed sale, transfer or other disposition of all
or substantially all of our assets in connection with complete liquidation or
dissolution, or a reverse merger in which we
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are the surviving entity but in which securities possessing more than 50% of the
total combined voting power of our outstanding securities are transferred to a
person or persons different from those who held such securities immediately
prior to such merger, each outstanding option shall automatically become fully
vested and exercisable and released from any restrictions on transfer and
repurchase or forfeiture rights, unless the option is assumed or substituted by
the successor corporation or replaced with a comparable option with respect to
shares in the surviving corporation, or the option is replaced with a comparable
cash incentive program of the successor corporation, or unless the vesting,
exercisability and release of the option is subject to other limitations imposed
by the 1996 Plan administrators at the time of granting the options.
The board may amend the 1996 Plan at any time or from time to time or may
suspend or terminate the 1996 Plan without approval of the shareholders;
provided, however, that shareholder approval is required for any amendment to
the 1996 Plan for which shareholder approval would be required under applicable
law, as in effect at the time. Any amendment, suspension or termination of the
1996 Plan will not affect options already granted, and such options shall remain
in full force and effect, unless mutually agreed otherwise in writing between
the optionee and the Plan administrators. The board may accelerate any option or
waive any condition or restriction pertaining to such option at any time. The
board may also substitute new stock options for previously granted stock
options, including previously granted stock options having higher option prices,
and may reduce the exercise price of any option to the then current fair market
value, if the fair market value of the common stock covered by such option has
declined since the date the option was granted. In any event, the 1996 Plan
shall terminate in October 2006. Any options outstanding under the 1996 Plan at
the time of its termination will remain outstanding until they expire by their
terms.
During 2001, 7,080,000 stock options were granted to employees under the 1996
Plan.
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee currently consists of Mr. Edwin Riddell, as Chairman,
and Dr. Malcolm Currie. Mr. Riddell was elected Chairman in August 1998. Dr.
Currie was elected to the Compensation Committee in July 1999 and also served on
the Compensation Committee during his prior term as a director until his
resignation in 1998.
Limitation on Liabilities and Indemnification Matters
Our articles of incorporation limit the personal liability of our directors to
our shareholders to the maximum extent permitted by California law. California
law provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except with
respect to liability for:
o acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
o acts or omissions that a director believes to be contrary to
the best interests of the corporation or our shareholders or
that involve the absence of good faith on the part of the
director;
o any transaction from which the director derived an improper
personal benefit.
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o acts or omissions that show a reckless disregard for the
director's duty to the corporation or our shareholders in
circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the corporation or our
shareholders;
o acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's
duty to the corporation or our shareholders;
o contracts or other transactions in which the director has a
material financial interest that are not approved in the
manner set forth under Section 310 of the California General
Corporation Law; or
o certain distributions or the making of certain loans or
guarantees approved by (or deemed to have been approved by)
directors as provided under Section 316 of the California
General Corporations Law.
This provision will have no effect on any non-monetary remedies that may be
available to us or to our shareholders, nor will it relieve us or other officers
or directors from compliance with federal or state securities laws.
Our articles of incorporation and bylaws also generally provide that we will
indemnify, to the fullest extent permitted under the California General
Corporation Law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit, investigation,
administrative hearing or any other proceeding by reason of the fact that he or
she is or was a director or officer of ours, or is or was serving at our request
as a director, officer, employee or agent of another entity, against expenses
incurred by him or her in connection that proceeding. An officer or director
will not be entitled to indemnification by us if:
o the officer or director did not act in good faith and in a
manner reasonably believed to be in our best interests; and
o with respect to any criminal action or proceeding, the officer
or director had no reasonable cause to believe his or her
conduct was unlawful.
At the present time there is no pending litigation or proceeding involving any
of our directors, officers, employees or agents for which indemnification will
be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, there were no transactions or series of similar transactions to
which we were or are to be a party in which the amount involved exceeds $60,000
and in which any of our directors, executive officers or holders of more than 5%
of our common stock, or an immediate family member of any of the foregoing, had
or will have a direct or indirect interest other than:
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o compensation arrangements, which are described where required
under "Management"; and
o the transactions described below.
In May 2001, Jagen Pty, Ltd. exercised warrants to purchase 41,666,666 shares of
common stock at $0.06 per share for a total cash purchase price of $2,500,000.
Jagen represented that it was an accredited investor under the definition set
forth by the Securities and Exchange Commission. We relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act for the exemption from
registration of the sale of such shares.
In July 2001, Anthony Rawlinson exercised warrants to purchase 8,333,334 shares
of common stock at $0.06 per share for a total cash purchase price of $500,000.
Mr. Rawlinson represented that he was an accredited investor under the
definition set forth by the Securities and Exchange Commission. We relied on
Rule 506 of Regulation D and Section 4(2) of the Securities Act for the
exemption from registration of the sale of such shares.
In June 2002, Jagen Pty, Ltd. purchased 20,000,000 shares of common stock at
$0.10 in a private placement for a total cash purchase price of $2,000,000.
Jagen represented that it was an accredited investor under the definition set
forth by the Securities and Exchange Commission. We relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act for the exemption from
registration of the sale of such shares.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our stock as of June 30, 2002, (i) by each person (or group of
affiliated persons) who we know to own beneficially more than 5% of any class of
our voting securities, (ii) by each of our Directors, (iii) by each of our Named
Executive Officers listed in the Summary Compensation Table above, and (v) by
our directors and executive officers as a group. Except as indicated in the
footnotes to this table and subject to applicable community property laws, the
persons named in the table, based on information provided by such persons, have
sole voting and investment power with respect to all shares of stock
beneficially owned by them.
-------------------------------------- ------------------------------ ----------------------------- ------------------
Name Shares Percentage of Shares Voting
Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
-------------------------------------- ------------------------------ ----------------------------- ------------------
Jagen, Pty., Ltd. 145,000,000 36.62% 41.37%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
-------------------------------------- ------------------------------ ----------------------------- ------------------
Carl D. Perry 11,200,500 (4) 2.83% 2.85%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------- ------------------------------ ----------------------------- ------------------
Citibank N.A. 31,405,754 7.93% 8.96%
111 Wall Street, 8th Floor
New York, NY 10043
-------------------------------------- ------------------------------ ----------------------------- ------------------
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-------------------------------------- ------------------------------ ----------------------------- ------------------
Name Shares Percentage of Shares Voting
Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
-------------------------------------- ------------------------------ ----------------------------- ------------------
Anthony N. Rawlinson 25,208,873 6.37% 7.19%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------- ------------------------------ ----------------------------- ------------------
John J. Micek, III 1,252,383(5) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Edwin O. Riddell 447,445 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Dr. Malcolm Currie 325,878 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Donald H. Dreyer 212,646 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
James M. Strock 67,056 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Delphi Delco Electronics 1,278,720(6) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Jean Schulz 1,329,111(7) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
All directors and executive officers 39,214,781 (8) 9.78% 10.87%
as a group (7 persons)
-------------------------------------- ------------------------------ ----------------------------- ------------------
* Indicates less than 1%
(1) Number of Common Stock shares includes Series A Preferred Stock, Series
B Preferred Stock and Common Stock shares issuable pursuant to stock
options, warrants and other securities convertible into Common Stock
beneficially held by the person or class in question which may be
exercised or converted within 60 days after June 30, 2002.
(2) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the Series A Preferred Stock owned by such
shareholder; (iii) the Series B Preferred Stock owned by such
shareholder; and (iv) Common Stock issuable pursuant to warrants,
options and other convertible securities exercisable or convertible by
such shareholder within sixty (60) days after June 30, 2002.
(3) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and/or Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the total Series A Preferred Stock outstanding and
(iii) the total Series B Preferred Stock outstanding. This percentage
calculation has been included to show more accurately the actual voting
power of each of the shareholders, since the calculation takes into
account the fact that the outstanding Series A Preferred Stock and
Series B Preferred Stock are entitled to vote together with the Common
Stock as a single class on certain matters to be voted upon by the
shareholders.
(4) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options issued under an employee stock option plan exercisable at a
price of $0.10 per share. The option exercise price, for Mr. Perry's
and other employees under the 1996 Stock Option Plan, was reset to
$0.10 per share from $0.30 per share on August 19, 1998 at the
direction of the Board of Directors.
(5) Includes 500,000 shares of Common Stock issued to Silicon Prairie
Partners, LP, a limited partnership in which John J. Micek, III is the
general partner.
(6) The number of shares shown represents the ownership of 639,360 shares
of Series B Preferred Stock each of which shares are convertible into
two share of Common Stock. These 639,360 shares represent more than 5%
of the outstanding shares of Series B Preferred Stock.
-58-
(7) The number of shares shown represents the ownership of 1,329,111 shares
of Series A Preferred Stock each of which shares are convertible into
one share of Common Stock. These 1,329,111 shares represent more than
5% of the outstanding shares of Series A Preferred Stock.
(8) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options exercisable at price of $.10 per share and 500,000 shares of
Common Stock issued to Silicon Prairie Partners, LP, a limited
partnership in which John J. Micek, III is the general partner.
-59-
SELLING SHAREHOLDERS
The following table sets forth information, as of June 30, 2002, with respect to
the selling shareholders. We issued the shares of our common stock being offered
by the selling shareholders in a private placement in June 2002. We issued
42,100,000 shares of our common stock for cash at a purchase price of $0.10 per
share. The shares were issued as consideration for funds from the selling
shareholders. The number of shares shown in the following table as being offered
by the selling shareholders does not include such presently indeterminate number
of additional shares of our common stock.
Any and all of the shares of common stock may be offered for sale by the selling
shareholders pursuant to this prospectus from time to time. Accordingly, we can
give no estimate as to the amounts of shares of our common stock that the
selling shareholders will hold upon consummation of any such sales. In addition,
the selling shareholders may have sold, transferred or otherwise disposed of all
or a portion of our shares since the date on which the information regarding the
common stock was provided in transactions exempt from the registration
requirements of the Securities Act of 1933.
Shares of
Shares of Common Percent of
Common Shares of Stock to be Common
Stock owned Common owned after Stock Owned
prior to the Stock Offered the Offering after the
Name Offering (1) (1) Offering
---- -------- --- --- --------
Jagen Pty, Ltd. 145,000,000 20,000,000 125,000,000 36.21%
RAB Europe Fund, Ltd. 10,937,500 10,937,500 0 *
*
RAB Europe Partners L.P. 1,562,500 1,562,500 0
*
Yarandi Investments Pty Limited 2,600,000 2,600,000 0
*
Alpha Securities Pte Ltd 3,000,000 3,000,000 0
*
Meang-Sun Lee 1,000,000 1,000,000 0
*
Woo Tchi Chu 1,000,000 1,000,000 0
*
Ann W. Embrey 1,000,000 1,000,000 0
*
Silicon Prairie Partners, LP (2) 1,252,383 1,000,000 252.383
* - indicates less than 1%
(1) The number of shares listed in these columns include all shares
beneficially owned and all options and warrants to purchase shares
held, whether or not deemed to be beneficially owned, by the selling
shareholders. The ownership percentage listed in these columns
-60-
includes only shares beneficially owned by the selling shareholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the percentage of
shares beneficially owned by the selling shareholders, shares of common
stock subject to options or warrants held by the shareholders that are
exercisable now or within 60 days hereafter are deemed outstanding,
although those shares are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. The ownership
percentage is calculated assuming that 345,177,095 shares of common
stock were outstanding immediately prior to this offering.
(2) Silicon Prairie Partners, LP is a limited partnership of which John J.
Micek, III, one of our directors, is the general partner.
PLAN OF DISTRIBUTION
We are registering all 42,100,000 of the shares of our common stock offered by
this prospectus on behalf of the selling shareholders and will receive no
proceeds from this offering.
The selling shareholders may transfer their shares by gift, or may pledge,
hypothecate or otherwise encumber their shares. The selling shareholders and
their pledgees, donees, transferees or other successors-in-interest selling
shares received from the selling shareholders as a gift, partnership
distribution or other non-sale related transfer after the date of this
prospectus are free to sell the shares from time to time. The selling
shareholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. The sales may be made in the national
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The selling shareholders may effect such transactions by selling
the shares to or through broker-dealers. The shares may be sold or transferred
in one or more transactions and by one or more of, or a combination of, the
following:
o block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of such
exchange;
o a distribution or other transfer to one or more of the equity
holders of the selling shareholders;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o in privately negotiated transactions.
In effecting sales, broker-dealers engaged by the selling shareholders may
arrange for other broker-dealers to participate in the resales.
-61-
The selling shareholders may enter into hedging transactions with broker-dealers
in connection with distributions of the shares or otherwise. In such
transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling shareholders. The
selling shareholders also may sell shares short and redeliver the shares to
close out such short positions. The selling shareholders may enter into option
or other transactions with broker-dealers that require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The selling shareholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may effect sales of the
pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of commissions,
discounts or concessions from the selling shareholders. Broker-dealers or agents
may also receive compensation from the purchasers of the shares for whom they
act as agents or to whom they sell as principals, or both. Compensation as to a
particular broker-dealer might be in excess of customary commissions and will be
in amounts to be negotiated in connection with the sale. Brokers-dealers or
agents and any other participating broker-dealers or the selling shareholders
may be deemed to be underwriters within the meaning of Section 2(11) of the
Securities Act of 1933, in connection with sales of the shares. Accordingly, any
such commission, discount or concession received by them and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
discounts or commissions under the Securities Act. Because the selling
shareholders may be deemed to be an underwriter within the meaning of Section
2(11) of the Securities Act, the selling shareholders will be subject to the
prospectus delivery requirements of the Securities Act and any profit on the
sale of the shares offered hereby by the selling shareholders and any discounts,
commissions or concessions received by them may be deemed to be underwriting
discounts or commissions under the Security Act. In addition, any securities
covered by this prospectus that qualify for sale pursuant to Rule 144
promulgated under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. The selling shareholders have advised us that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of the shares; nor is any
underwriter or coordinating broker acting in connection with the proposed sale
of the shares.
The shares will be sold only through registered or licensed brokers or dealers
if required under applicable state securities laws. In addition, in certain
states the shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirements is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of
1934, any person engaged in the distribution of the shares may not
simultaneously engage in market-making activities with respect to our common
stock for a period of two business days prior to the commencement of such
distribution. In addition, we have informed the selling shareholders that they
will be subject to applicable provisions of the Exchange Act and the associated
rules and regulations under the Exchange Act, including the anti-manipulation
rules under Regulation M promulgated under the Exchange Act, which provisions
may limit the timing of purchases and sales of shares of our common stock by the
selling shareholder. We will make copies of this prospectus available to a
selling shareholder and we have informed them of the need for delivery of copies
of this prospectus to purchasers at or prior to the time of any sale of the
shares.
-62-
We will bear all costs, expenses and fees in connection with the registration of
the shares and will supplement and amend this prospectus from time to time as
may be required under the Securities Act. During any time when a supplement or
amendment is required, the selling shareholders will be required to cease sales
of the shares covered by this prospectus until it has been supplemented or
amended.
The selling shareholders will bear all commissions and discounts, if any,
attributable to the sales of the shares. A selling shareholder may agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of the shares against certain liabilities, including liabilities arising
under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 500,000,000 shares of common stock, no
par value, and 35,000,000 shares of preferred stock. We currently have
345,177,095 shares of common stock outstanding, 2,844,336 shares of Series A
Stock and 1,217,196 shares of Series B Stock outstanding.
Common Stock
Voting Rights. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of our shareholders, including the election of
directors.
Dividends. Subject to the preferential dividend rights of the Series A Stock and
Series B Stock, holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by our board of directors out of
assets legally available for the payment of dividends.
Liquidation. In the event of a liquidation, dissolution or winding up our
affairs, whether voluntary or involuntary, after payment of our debts or other
liabilities and making provisions for the holders of the outstanding shares of
preferred stock as described below, our remaining assets will be distributed
ratably among the holders of shares of common stock.
Rights and Preferences. Our common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, references and privileges
of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we any
designate and issue in the future.
Fully Paid and Nonassessable. All of our outstanding shares of common stock,
including the shares offered by this prospectus, are fully paid and
nonassessable.
Preferred Stock
Voting Rights. Each outstanding share of Series A Stock is entitled to one vote
on all matters submitted to a vote of our shareholders, including the election
of the common/Series A directors. Each outstanding share of Series B Stock is
entitled to two votes on all matters submitted to a vote of our shareholders,
except for directors. The holders of Series B Stock, voting as a separate class,
are entitled to elect two directors.
-63-
Dividends. Holders of preferred stock are entitled to receive dividends in an
amount equal to 6% of $0.60 per share of preferred stock per annum if and when
dividends are declared by our board of directors out of assets legally available
for the payment of dividends.
Liquidation. In the event of any liquidation, dissolution or winding up of the
affairs of the corporation, voluntarily or involuntarily, after payment or
provision for payment of all debts, liabilities and obligations of Enova, but
before any distribution to the holders of common stock, the holders of Series A
Stock shall be paid the amount of $0.60 per share for each share of Series A
Stock held by them, plus all dividends declared but unpaid on such shares of
Series A Stock. After payment to the holders of Series A Stock, the holders of
common stock shall be paid an amount per share equal to the per share Series A
Stock liquidation price paid to the holders of Series A Stock. Any remaining
assets shall be distributed to the holder of shares of stock of all classes and
series which have been converted into common stock as of the date of filing of
the Certificate of Dissolution Enova with the California Secretary of State.
Rights and Preferences.
Conversion Rights. While any Series A Stock remains outstanding:
a. Option to Convert. At the option of the holder, each share of
Series A Stock shall be convertible at any time into fully
paid and non-assessable shares of common stock at the
conversion price then in effect.
b. Automatic Conversion. Each share of Series A Stock will be
converted common stock at the then effective conversion price
upon (a) the consummation of the sale of the common stock in
an underwritten public offering registered under the
Securities Act of 1933, as amended (the "Securities Act"); or
(b) the registration of the underlying common stock of the
holders' Series A Stock under the Securities Act; or (c) a
merger or consolidation with or into another corporation or a
sale of more than fifty percent (50%) of our outstanding
voting securities or a sale of all or substantially all of our
properties and assets.
c. Adjustment to Conversion Price for Diluting Issues. If we
declare or pay any dividend on common stock payable in common
stock or in any right to acquire common stock, or effect a
subdivision of the outstanding shares of common stock into a
greater number of shares of common stock (by stock split,
reclassification or otherwise than by payment of a dividend in
common stock or in any right to acquire common stock), then
and in any such event, appropriate adjustments in the
conversion price will be made.
Except upon the automatic conversion of the Series A Stock if, at any
time, there occurs any capital reorganization, or any reclassification
of our stock (other than a change in par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or
our consolidation or merger with or into another entity (other than a
consolidation or merger in which we are the surviving entity and which
does not result in any change in the rights of the common stock), or
the sale or other disposition of all or substantially all our
properties and assets in entirety to any other person, then each share
of Series A Stock will, after such capital reorganization,
reclassification, consolidation, merger, sale or other disposition, be
converted into the kind and number
-64-
of shares of stock or other securities or property of the corporation
or of the entity resulting in the consolidation or surviving the merger
or to which the properties and assets shall have been sold or otherwise
disposed to which the holder would have been entitled if immediately
prior to the capital reorganization, reclassification, consolidation,
merger, sale or other disposition the holder had converted his or its
shares of Series A Stock into common stock. These provisions similarly
apply to successive capital reorganizations, reclassifications,
consolidations, mergers, sales, or other similar dispositions.
Fully Paid and Nonassessable. All of our outstanding shares of preferred stock
fully paid and nonassessable.
Our board of directors has the authority, without action by our shareholders, to
provide for the issuance of preferred stock in one or more classes or series and
to designate the rights, preferences and privileges of each class or series,
which may be greater than the rights of the common stock. We cannot predict the
effect of the issuance of any shares of preferred stock upon the rights of
holders of the common stock until the board of directors determines the specific
rights of the holders of the preferred stock. However, the effects could include
one or more of the following:
o restricting dividends on the common stock;
o diluting the voting power of the common stock;
o impairing the liquidation rights of the common stock; or
o delaying or preventing a change in control of us without
further action by the shareholders.
We have no present plans to issue any additional shares of preferred stock.
Warrants
As of June 30, 2002, there were outstanding warrants to purchase 15,000,000
shares of common stock at an average exercise price of $0.29 per share (subject
to adjustment for certain anti-dilutive issuances).
Registration Rights
The warrants described above have so called "Piggyback" registration rights. If
we at any time propose to file on our behalf or on behalf of any of our security
holders a registration statement under the Securities Act on any form and other
than a registration statement on Form S-4 or S-8 for any class that is the same
or similar to the warrants, we must give written notice of the proposed offering
to the warrant holders at least thirty (30) days before the initial filing of
such registration statement, and offer to include the warrant holders in the
proposed offering.
Transfer Agent and Registrar
Computershare Investor Services, Inc. serves as our transfer agent and registrar
for our common stock.
-65-
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of our common stock, and the availability of our common stock for
sale, may depress the market price for our common stock. Approximately
303,227,000 shares of our common stock currently are freely tradable, of which
181,000,000 shares are currently subject to the volume limitations of Rule 144
discussed below. All of the shares sold in this offering will be freely tradable
except for any shares purchased by our affiliates. In addition, 25,211,509
shares of our common stock previously issued or upon issuance pursuant to the
exercise of options granted under our stock option plans may be resold in
reliance on Rule 144 and Rule 701, as discussed below. All other shares of
common stock outstanding as of the date hereof are restricted or subject to
lock-up agreements. These other shares will be available for sale in the public
market as follows:
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
o 1% of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
o the average weekly trading volume of the common stock during
the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. No shares of our common stock previously
issued, or when issued, pursuant to our stock option plans may be resold under
the provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell their shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitations or notice provisions of Rule 144.
We filed a Registration Statement on Form S-8 registering shares of common stock
subject to the 1996 Plan (including shares that may be resold under Rule 701,
discussed above). As of June 30, 2002, options to purchase a total of 27,919,700
shares were outstanding and 17,080,300 shares were reserved for future issuance
under our stock option plans. 25,211,509 of these options are vested and
available for immediate resale in the open market.
-66-
LEGAL MATTERS
The validity of the shares of common stock being offered hereby has been passed
upon by Crosby, Heafey, Roach & May Professional Corporation, Oakland,
California.
EXPERTS
The financial statements as of and for the years ended December 31, 2001 and
2000, the five months ended December 31, 1999 and for the years ended July 31,
1999 and 1998 included in this prospectus and in the registration statement have
been audited by Moss Adams LLP, independent certified public accountants, to the
extent and for the periods set forth in their reports appearing elsewhere herein
and in the registration statement.
WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits and
schedules. For further information with respect to us and the common stock being
offered, reference is made to the registration statement and the related
exhibits and schedule. A copy of the registration statement and the related
exhibits and schedule may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 233 Broadway, New York, New York 10279, and copies of all or
any part of the registration statement may be obtained from these offices upon
the payment of the fees prescribed by the Commission. Information on the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-800-SEC-0330. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
We intend to provide our shareholders with annual reports containing financial
statements audited by an independent accounting firm and to file with the
Commission quarterly reports containing unaudited financial data for the first
three quarters of each year.
-67-
INDEX TO FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITOR'S REPORT.................................................F-1
BALANCE SHEETS AT DECEMBER 31, 2001 AND 2000.................................F-2
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000 AND THE FIVE MONTHS
ENDED DECEMBER 31, 1999 AND YEAR ENDED
JULY 31, 1999......................................................F-3
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR
THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
THE FIVE MONTHS ENDED DECEMBER 31, 1999 AND YEAR
ENDED JULY 31, 1999.................................................F-4
STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 2001 AND 2000, AND THE FIVE MONTHS
ENDED DECEMBER 31, 1999 AND YEAR ENDED
JULY 31, 1999......................................................F-5
NOTES TO FINANCIAL STATEMENTS ..............................................F-6
BALANCE SHEET AT MARCH 31, 2002..............................................Q-1
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND 2001.......................................Q-2
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND 2001.......................................Q-3
NOTES TO FINANCIAL STATEMENTS ..............................................Q-5
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors Enova Systems, Inc.
We have audited the accompanying balance sheets of Enova Systems, Inc., formerly
U.S. Electricar, Inc., as of December 31, 2001and 2000, and the statements of
operations, stockholders' deficit, and cash flows for the two years ended
December 31, 2001, the five months ended December 31, 1999, and the year ended
July 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enova Systems, Inc., as of
December 31, 2001 and 2000, and the results of its operations and cash flows for
the two years ended December 31, 2001, the five months ended December 31, 1999,
and the year ended July 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ MOSS ADAMS LLP
-------------------
Santa Rosa, California
February 22, 2002
Page F-1
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
BALANCE SHEETS
December 31, 2001 and 2000
--------------------------------------------------------------------------------
ASSETS
2001 2000
------------ ------------
CURRENT ASSETS
Cash $ 1,179,000 $ 1,310,000
Accounts receivable 1,237,000 1,004,000
Inventories and supplies 926,000 406,000
Related party receivable, current maturities 25,000 25,000
Prepaids and other current assets 87,000 68,000
------------ ------------
Total current assets 3,454,000 2,813,000
PROPERTY AND EQUIPMENT 280,000 214,000
RELATED PARTY RECEIVABLE, less current maturities 32,000 57,000
OTHER ASSETS 574,000 10,000
------------ ------------
Total assets $ 4,340,000 $ 3,094,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 167,000 $ 106,000
Accrued payroll and related expenses 194,000 301,000
Other accrued expenses 53,000 119,000
Current maturities of long-term debt 120,000 120,000
Current maturities of capital lease obligations 9,000 9,000
------------ ------------
Total current liabilities 543,000 655,000
ACCRUED INTEREST PAYABLE 677,000 514,000
LONG-TERM PAYABLES -- 210,000
CAPITAL LEASE OBLIGATIONS, less current maturities 20,000 31,000
LONG-TERM DEBT, less current maturities 3,332,000 3,332,000
------------ ------------
Total liabilities 4,572,000 4,742,000
------------ ------------
STOCKHOLDERS' DEFICIT
Series A convertible preferred stock - no par value; 30,000,000 shares
authorized; 2,844,000 shares issued and outstanding; liquidating
preference at $0.60 per share aggregating $1,706,000 1,867,000 1,867,000
Series B convertible preferred stock - no par value; 5,000,000 shares
authorized; 1,217,000 shares issued and outstanding; liquidating
preference at $2.00 per share aggregating $2,434,000 2,434,000 2,434,000
Common stock - no par value; 500,000,000 shares authorized;
302,502,000 and 244,249,000 shares issued and outstanding 79,859,000 75,680,000
Common stock subscribed 160,000 13,000
Stock notes receivable (1,208,000) (1,149,000)
Additional paid-in capital 6,949,000 6,372,000
Accumulated deficit (90,293,000) (86,865,000)
------------ ------------
Total stockholders' deficit (232,000) (1,648,000)
------------ ------------
Total liabilities and stockholders' deficit $ 4,340,000 $ 3,094,000
============ ============
See accompanying notes.
--------------------------------------------------------------------------------
Page F-2
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
--------------------------------------------------------------------------------
December July
2001 2000 1999 1999
------------- ------------- ------------- -------------
NET REVENUES $ 3,780,000 $ 2,883,000 $ 629,000 $ 2,774,000
COST OF REVENUES 2,783,000 2,013,000 377,000 1,460,000
------------- ------------- ------------- -------------
GROSS PROFIT 997,000 870,000 252,000 1,314,000
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES
Research and development 879,000 626,000 262,000 499,000
Selling, general, and administrative 2,894,000 1,999,000 796,000 1,141,000
Interest and financing fees 113,000 174,000 244,000 724,000
(Gain) loss on disposition of fixed assets (7,000) 6,000 -- --
Legal settlements 900,000 75,000 125,000 --
Gain on warranty accrual reevaluation -- -- -- (474,000)
Other (income)/expense -- -- -- (41,000)
------------- ------------- ------------- -------------
Total other costs and expenses 4,779,000 2,880,000 1,427,000 1,849,000
------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (3,782,000) (2,010,000) (1,175,000) (535,000)
EXTRAORDINARY ITEM - GAIN ON DEBT
RESTRUCTURING 354,000 1,551,000 214,000 140,000
------------- ------------- ------------- -------------
NET LOSS $ (3,428,000) $ (459,000) $ (961,000) $ (395,000)
============= ============= ============= =============
LOSS PER COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Gain on debt restructuring -- 0.01 -- --
------------- ------------- ------------- -------------
$ (0.01) $ -- $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING $ 275,188,979 $ 235,199,406 $ 251,993,533 $ 152,076,615
============= ============= ============= =============
See accompanying notes.
--------------------------------------------------------------------------------
Page F-3
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
--------------------------------------------------------------------------------
Preferred Stock
---------------------------------------------------
Series A Series B Common Stock
------------------------ ----------------------- --------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- --------- ----------- ----------- ------------
Balance, July 31, 1998 3,321,000 $ 2,258,000 1,291,000 $ 2,584,000 151,767,000 $ 68,742,000
Common Stock Transactions
Conversion of Series A preferred stock (62,000) (67,000) -- -- 62,000 67,000
Conversion of Series B preferred stock -- -- (49,000) (98,000) 163,000 98,000
Sale of stock -- -- -- -- 83,333,000 2,375,000
Conversion of debt -- -- -- -- 16,667,000 219,000
Issuance of common stock warrants -- -- -- -- -- --
Debt forgiveness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------- --------- ----------- ----------- ------------
Balance, July 31, 1999 3,259,000 2,191,000 1,242,000 2,486,000 251,992,000 71,501,000
Common Stock Transactions
Conversion of Series A preferred stock (20,000) (25,000) -- -- 20,000 25,000
Stock issued for services -- -- -- -- -- --
Conversion of debt -- -- -- -- -- --
Debt forgivness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 1999 3,239,000 2,166,000 1,242,000 2,486,000 252,012,000 71,526,000
Common Stock Transactions
Conversion of Series A preferred stock (395,000) (299,000) -- -- 395,000 299,000
Conversion of Series B preferred stock -- -- (25,000) (52,000) 71,000 52,000
Stock options exercised -- -- -- -- 3,315,000 392,000
Sale of stock -- -- -- -- 6,667,000 2,000,000
Stock issued for services -- -- -- -- 5,722,000 1,497,000
Conversion of debt -- -- -- -- 37,000 14,000
Repurchase of stock from stockholder -- -- -- -- (23,970,000) (100,000)
Debt forgiveness by stockholder -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 2000 2,844,000 1,867,000 1,217,000 2,434,000 244,249,000 75,680,000
Common Stock Transactions
Stock issued on exercise of warrants -- -- -- -- 50,000,000 3,000,000
Stock options exercised -- -- -- -- 1,805,000 181,000
Stock issued for services -- -- -- -- 448,000 98,000
Stock issued in legal settlement -- -- -- -- 6,000,000 900,000
Warrants issued for value participation agreement -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 2001 2,844,000 $ 1,867,000 1,217,000 $ 2,434,000 302,502,000 $ 79,859,000
========== =========== ========== =========== ============ ============
Common Stock
Subscribed Additional Stock
------------------------ Paid-In Notes Accumulated
Shares Amount Capital Reveivable Deficit Total
---------- ----------- --------- ----------- ----------- ------------
Balance, July 31, 1998 -- $ -- $ -- $(1,149,000) $(85,050,000) $(12,615,000)
Common Stock Transactions
Conversion of Series A preferred stock -- -- -- -- -- --
Conversion of Series B preferred stock -- -- -- -- -- --
Sale of stock -- -- -- -- -- 2,375,000
Conversion of debt -- -- -- -- -- 219,000
Issuance of common stock warrants -- -- 406,000 -- -- 406,000
Debt forgiveness by stockholder -- -- 2,694,000 -- -- 2,694,000
Net loss -- -- -- -- (395,000) (395,000)
---------- ----------- --------- ----------- ----------- ------------
Balance, July 31, 1999 -- -- 3,100,000 (1,149,000) (85,445,000) (7,316,000)
Common Stock Transactions
Conversion of Series A preferred stock -- -- -- -- -- --
Stock issued for services 1,317,000 148,000 -- -- -- 148,000
Conversion of debt 4,246,000 1,297,000 -- -- -- 1,297,000
Debt forgivness by stockholder -- -- 1,817,000 -- -- 1,817,000
Net loss -- -- -- -- (961,000) (961,000)
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 1999 5,563,000 1,445,000 4,917,000 (1,149,000) (86,406,000) (5,015,000)
Common Stock Transactions
Conversion of Series A preferred stock -- -- -- -- -- --
Conversion of Series B preferred stock -- -- -- -- -- --
Stock options exercised -- -- -- -- -- 392,000
Sale of stock -- -- -- -- -- 2,000,000
Stock issued for services (5,518,000) (1,432,000) -- -- -- 65,000
Conversion of debt -- -- -- -- -- 14,000
Repurchase of stock from stockholder -- -- -- -- -- (100,000)
Debt forgiveness by stockholder -- -- 1,455,000 -- -- 1,455,000
Net loss -- -- -- -- (459,000) (459,000)
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 2000 45,000 13,000 6,372,000 (1,149,000) (86,865,000) (1,648,000)
Common Stock Transactions
Stock issued on exercise of warrants -- -- -- -- -- 3,000,000
Stock options exercised -- -- -- (59,000) -- 122,000
Stock issued for services 955,000 147,000 -- -- -- 245,000
Stock issued in legal settlement -- -- -- -- -- 900,000
Warrants issued for value participation agreement -- -- 577,000 -- -- 577,000
Net loss -- -- -- -- (3,428,000) (3,428,000)
---------- ----------- --------- ----------- ----------- ------------
Balance, December 31, 2001 1,000,000 $ 160,000 $6,949,000 $(1,208,000) $(90,293,000) $ (232,000)
========== =========== ========== =========== ============ ============
See accompanying notes.
--------------------------------------------------------------------------------
Page F-4
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000, the Five Months
Ended December 31, 1999, and the Year Ended July 31, 1999
--------------------------------------------------------------------------------
December July
2001 2000 1999 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,428,000) $ (459,000) $ (961,000) $ (395,000)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 205,000 136,000 60,000 179,000
Loss on disposition of fixed assets -- 6,000 -- --
Gain on debt restructuring and extinguishment (210,000) (1,551,000) (214,000) (140,000)
Stock issued for services 245,000 66,000 148,000 --
Stock issued for legal settlement 900,000 -- -- --
Accrued interest forgiven -- 156,000 219,000 --
Change in allowance for doubtful accounts -- -- -- (108,000)
Provision to reduce inventory values -- -- -- (36,000)
Changes in valuation allowances and reserves -- -- -- (640,000)
Change in operating assets and liabilities:
Accounts receivable (233,000) (432,000) 185,000 (560,000)
Inventories (520,000) (151,000) (33,000) 329,000
Related party receivable 25,000 25,000 12,000 --
Note receivable -- -- -- 250,000
Prepaids and other current assets (19,000) (7,000) 21,000 32,000
Other assets (39,000) -- -- --
Accounts payable and accrued expenses (112,000) (120,000) (77,000) 678,000
Accrued interest payable 163,000 75,000 (154,000) --
Customer deposits -- (102,000) 102,000 (387,000)
----------- ----------- ----------- -----------
Net cash from operating activities (3,023,000) (2,358,000) (692,000) (798,000)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment acquisitions (219,000) (88,000) (3,000) (1,000)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable -- -- -- 400,000
Proceeds from exercise of warrants and options 3,122,000 -- -- --
Proceeds from sale of stock -- 2,392,000 -- --
Purchase of common stock -- (100,000) -- 2,600,000
Payments on notes payable and capital lease obligations (11,000) (1,000) (307,000) --
----------- ----------- ----------- -----------
Net cash from financing activities 3,111,000 2,291,000 (307,000) 3,000,000
----------- ----------- ----------- -----------
NET CHANGE IN CASH (131,000) (155,000) (1,002,000) 2,201,000
CASH, beginning of the period 1,310,000 1,465,000 2,467,000 266,000
----------- ----------- ----------- -----------
CASH, end of the period $ 1,179,000 $ 1,310,000 $ 1,465,000 $ 2,467,000
=========== =========== =========== ===========
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ 5,000 $ 40,000 $ 9,000 $ --
Non-cash investing and financing activities:
Conversion of preferred stock to common stock $ -- $ 351,000 $ 25,000 $ 166,000
Conversion of debt and accrued interest to equity $ -- $ 1,470,000 $ 2,894,000 $ 400,000
Issuance of warrants $ -- $ -- $ -- $ 406,000
Equipment acquired under capital lease $ -- $ 41,000 $ -- $ --
See accompanying notes.
--------------------------------------------------------------------------------
Page F-5
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of operations - Enova Systems, Inc., formerly U.S. Electricar, Inc.,
is a California corporation that develops drive trains and related components
for electric, hybrid electric, and fuel cell systems for mobile and stationary
applications. The Company retains development and manufacturing rights to many
of the technologies created, whether such research and development is internally
or externally funded. The change in the Company's name to Enova Systems became
effective January 1, 2000. The Company develops and sells components in the
United States and Asia and sells components in Europe.
Change in fiscal year - Effective December 31, 1999, the Company changed its
fiscal year-end from July 31 to December 31.
Cash equivalents - Highly liquid investments with an original maturity debt of
three months or less are considered cash equivalents. There were no cash
equivalents at December 31, 2001 or 2000.
Inventory - Inventory is comprised of materials used in the design and
development of electric drive systems under ongoing development contracts, and
is stated at the lower of cost (first-in, first-out) or market.
Property and equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the related assets, which range from three to seven years. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate the
sum of expected cash flows from use of the asset is less than its carrying
value. Long-lived assets that management has committed to sell or abandon are
reported at the lower of carrying amount or fair value less cost to sell.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Revenue recognition - The Company is obligated to perform research and
development activities under development and licensing agreements. The
agreements require the Company to design, develop, and test drive systems and
deliver working prototypes. The Company retains all rights to the products
developed and will license their use to the counter-party. Revenue on
engineering and research and development contracts is recognized at the
completion of specified engineering or billing milestones, as set forth in each
agreement. Revenues from sales of components are recognized when shipped and
title passes to the customer. During 1999, revenue from the sale of electric
vehicles was recognized when the vehicle was delivered to the customer.
Loss per common share - Loss per common share is computed using the weighted
average number of common shares outstanding. Since a loss from operations
exists, a diluted earnings per share number is not presented because the
inclusion of common stock equivalents in the computation would be antidilutive.
Common stock equivalents associated with Series A and B preferred stock, stock
options, and warrants, which are exercisable into 37,230,000 shares of common
stock, could potentially dilute earnings per share in future years.
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and trade receivables. Demand deposits are placed with known creditable
financial institutions. A customer, Hyundai, is also a stockholder that holds
less than 5% of the outstanding common stock. For the years ended December 31,
2001 and 2000, Hyundai accounted for approximately 13% and 58% of total
revenues. Revenues associated with Hyundai for the five months ended December
31, 1999, and the twelve months ended July 31, 1999, were 63% and 44%.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires the
Company make estimates and assumptions affecting the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities. The amounts estimated could differ from actual results, and the
difference could have a significant impact on the financial statements.
--------------------------------------------------------------------------------
Page F-6
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Shipping costs - Shipping and handling are included in costs of goods sold.
Warranties - In 1999, electric vehicle warranties were provided by the Company
on vehicles sold when the Company was U.S. Electricar. The warranties generally
extended for one year from the time of sale. Warranties for substantially all
vehicles sold by the Company had elapsed, resulting in a $474,000 gain
concurrent with the reevaluation of the warranty accrual.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with accounting principles generally accepted in
the United States. The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between willing
parties. For certain of the Company's financial instruments, including cash,
accounts receivable and accounts payable, the carrying amount approximates fair
value because of the short maturities. The fair value of the Company's
short-term and long-term debt may be substantially less than the carrying value
since there is no readily ascertainable market for the debt given the financial
position of the Company.
Stock-based compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS No. 123 requires a fair
value method to be used when determining compensation expense for stock options
and similar equity instruments. SFAS No. 123 permits a company to continue to
use the provisions of APB No. 25 when accounting for stock-based compensation to
employees, but proforma disclosures of net income and earnings or loss per share
must be made as if SFAS No. 123 had been adopted in its entirety. Stock options
issued to non-employees are valued under the provisions of SFAS No. 123.
Recent accounting pronouncements - The Financial Accounting Standards Board
(FASB) has issued the following accounting pronouncements:
SFAS No. 141, "Business Combinations." This Statement addresses financial
accounting and reporting for business combinations and supersedes Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001. The adoption of SFAS
No. 141 is not expected to have a material effect on the Company's financial
statements.
SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The provisions of this
Statement are required to be applied starting with fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 142 is not expected to have a
material effect on the Company's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset. The provisions
of this Statement are required to be applied starting with fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to
have a material effect on the Company's financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS 144 replaces SFAS 121 and amends certain
other accounting pronouncements. The provisions of this Statement are effective
for financial statements issued for fiscal years beginning after December 15,
2001. The adoption of SFAS No. 144 is not expected to have a material effect on
the Company's financial statements.
--------------------------------------------------------------------------------
Page F-7
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - MANAGEMENT'S PLANS
The Company has experienced cash flow shortages due to operating losses
primarily attributable to research and development, marketing, and other costs
associated with its strategic plan to become an international manufacturer and
supplier of electric propulsion and power management systems and components.
Additional outside financing is anticipated until the Company reaches a
breakeven volume in sales and develops and/or acquires the capability to
manufacture and sell products profitably. While the Company continues its
efforts to obtain additional equity funding, a major stockholder has committed
up to $2 million to fund operations during 2002.
The future unavailability or inadequacy of financing to meet future needs could
force the Company to delay, modify, suspend, or cease some or all aspects of its
planned operations.
NOTE 3 - PROPERTY AND EQUIPMENT
2001 2000
---------- --------
Computers $ 154,000 $124,000
Machinery and equipment 407,000 285,000
Furniture and office equipment 186,000 126,000
Demonstration vehicles and buses 147,000 142,000
Leasehold improvements 68,000 66,000
Equipment under capital lease 41,000 41,000
---------- --------
1,003,000 784,000
Less accumulated depreciation and amortization 723,000 570,000
---------- --------
$ 280,000 $214,000
========== ========
NOTE 4 - RELATED PARTY RECEIVABLE
Hyundai, a stockholder, acquired certain technology licensing rights from the
Company in 1997. Part of the consideration for these rights included periodic
installment payments of $25,000 per year for six years, with the final payment
expected in February 2003.
NOTE 5 - OTHER ASSETS
The Company is in the process of obtaining patents for several products. The
legal costs associated with the patents, $49,000 to date, have been capitalized
and will be amortized over the life of the patents upon receiving the patent.
In June 2001, the Company entered into a strategic relationship with Ford Motor
Company to develop and manufacture a high power, high voltage conversion module
for Ford's fuel cell vehicle. Warrants were issued to Ford Motor Company in
exchange for Ford's commitment to enter into this five-year agreement. The
issuance of the warrants was recorded as a noncurrent asset (Value Participation
Agreement) at its fair market value of $ 577,000, and is being amortized on a
straight-line basis over the life of the contract. Fair market value was
determined using the Black-Scholes option pricing model.
2001 2000
-------- -------
Patents $ 49,000 $10,000
Valuation Participation Agreement 577,000 --
-------- -------
626,000 10,000
Less accumulated amortization 52,000 --
-------- -------
$574,000 $10,000
======== =======
--------------------------------------------------------------------------------
Page F-8
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT
2001 2000
---------- ----------
Secured promissory note to Credit Managers Association of
California, with interest at 3% for the first five years beginning
June 1996, 6% for years six and seven, and then at prime plus 3%
through maturity; interest payments are made upon payment of
principal, which is due no later than April 2016; a sinking fund
escrow is required to be funded with 10% of future equity financing,
as defined in the agreement $3,332,000 $3,332,000
Unsecured promissory note with interest at 10%, note is past due 120,000 120,000
---------- ----------
3,452,000 3,452,000
Less current maturities 120,000 120,000
---------- ----------
$3,332,000 $3,332,000
========== ==========
NOTE 7 - CAPITAL LEASE OBLIGATIONS
The Company rents manufacturing and office equipment under various capital lease
agreements that expire beginning in 2003. Future minimum lease payments under
these capital lease agreements are as follows:
Year Ending December 31,
------------------------
2002 $ 14,000
2003 16,000
2004 6,000
2005 7,000
--------
43,000
Less amounts representing interest 14,000
--------
Present value of minimum lease payments 29,000
Less current maturities 9,000
--------
$ 20,000
========
NOTE 8 - OPERATING LEASES
The Company's lease on its Torrance, California, facility expires in February
2003. Rent expense was $210,000 and $177,000 for the years ended December 31,
2001 and 2000. Rent for the five months ended December 31, 1999, and the twelve
months ended July 31, 1999, was $40,000 and $144,000. Future minimum lease
payments are as follows:
Year Ending December 31,
------------------------
2002 $ 163,000
2003 27,000
---------
$ 190,000
=========
--------------------------------------------------------------------------------
Page F-9
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT
Series A preferred stock - Series A preferred stock is currently unregistered
and convertible into common stock on a one-to-one basis at the election of the
holder or automatically upon the occurrence of certain events including: sale of
stock in an underwritten public offering; registration of the underlying
conversion stock; or the merger, consolidation, or sale of more than 50% of the
Company. Holders of Series A preferred stock have the same voting rights as
common stockholders. The stock has a liquidation preference of $0.60 per share
plus any accrued and unpaid dividends in the event of voluntary or involuntary
liquidation of the Company. Dividends are non-cumulative and payable at the
annual rate of $0.036 per share if, when, and as declared by, the Board of
Directors. No dividends have been declared on the Series A preferred stock.
Substantially all of the stock notes receivable stem from a Board of Directors
plan for the sale of shares of Series A preferred stock in 1993 to certain
officers and directors (Participants). In general, the Participants could
purchase the preferred stock for a combination of cash, promissory notes payable
to the Company, and conversion of debt and deferred compensation due to the
Participants. All shares issued under this plan were pledged to the Company as
security for the notes. The notes provided for interest at 8% per annum payable
annually, with the full principal amount and any unpaid interest due on January
31, 1997. The notes remain outstanding. The likelihood of collecting the
interest on these notes is remote; therefore, accrued interest has not been
recorded since the fiscal year ended July 31, 1997.
Series B preferred stock - Series B preferred stock is currently unregistered
and each share is convertible into shares of common stock on a two-for-one basis
at the election of the holder or automatically upon the occurrence of certain
events including: sale of stock in an underwritten public offering, if the
offering results in net proceeds of $10,000,000, and the per share price of
common stock is at least $2.00; and the merger, consolidation, or sale of common
stock or sale of substantially all of the Company's assets in which gross
proceeds received are at least $10,000,000. The Series B preferred stock has
certain liquidation and dividend rights prior and in preference to the rights of
the common stock and Series A preferred stock. The stock has a liquidation
preference of $2.00 per share together with an amount equal to, generally, $0.14
per share compounded annually at 7% per year from the filing date, less any
dividends paid. Dividends on the Series B preferred stock are non-cumulative and
payable at the annual rate of $0.14 per share if, when, and as declared by, the
Board of Directors. No dividends have been declared on the Series B preferred
stock.
Stock issued for legal settlement - In December 2001, the Company settled an
outstanding lawsuit related to warrants that were issued during 1996 in exchange
for services performed. The warrants contained a cashless exercise option and
were originally set to expire in 1997. The holders of these warrants claimed,
however, that the Company had agreed to extend the term. To settle the lawsuit,
the Company agreed to issue to the warrant holders 6,000,000 shares of common
stock with a fair market value on the date of issuance of $900,000.
NOTE 10 - STOCK OPTIONS AND WARRANTS
The 1993 Employee and Consultant Stock Plan expires in 2003. Under the Plan, the
Company has reserved 30,000,000 shares of common stock for incentive and
nonstatutory stock options. Options under the Plan expire over periods not to
exceed ten years from date of grant. Options that expire or are canceled may
become available for future grants under the Plan. In addition, the Company
grants other nonstatutory stock options.
Under the Director Stock Option Plan, the Company reserved 1,500,000 shares of
common stock for nonstatutory stock options for nonemployee directors. Options
under this Plan are fully vested upon the granting of the options and expire ten
years from the date of grant unless terminated sooner or upon termination of the
optionee's status as a director. Options that expire or are canceled may become
available for future grants under the Director Option Plan. No options are
outstanding under this Plan.
The 1996 Stock Option Plan reserves 45,000,000 shares for incentive and
nonstatutory stock options during the period of the Plan, which expires in 2006.
Options under the 1996 Plan expire over a period not to exceed ten years.
--------------------------------------------------------------------------------
Page F-10
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following summarizes common stock option activity (shares in thousands):
1996 Plan 1993 Plan Other
----------------------------- ------------------------- ------------------------
Shares Price Shares Price Shares Price
---------- ------------- ---------- ----------- --------- -----------
Options outstanding at July 31, 1998 8,439,000 $ 0.10-0.30 11,383,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 1,765,000 0.10 -- -- -- --
Exercised (1,765,000) 0.30 (113,000) 0.30 -- --
Forfeited (49,000) 0.30 (159,000) 0.30 -- --
---------- ---------- ---------
Options outstanding at July 31, 1999 8,390,000 11,111,000 1,495,000 0.60-2.80
Granted 12,339,000 $ 0.11 -- -- -- --
Forfeited (234,000) 0.11-0.30 -- -- -- --
---------- ---------- ---------
Options outstanding at December 31, 1999 20,495,000 $ 0.10-0.30 11,111,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 3,600,000 0.17-0.30 -- -- -- --
Exercised (3,286,000) 0.10-0.30 -- -- -- --
Forfeited (344,000) 0.10-0.30 (1,457,000) -- -- --
---------- ---------- ---------
Options outstanding at December 31, 2000 20,465,000 $ 0.10-0.30 9,654,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
Granted 7,472,000 0.11-0.18 -- -- -- --
Exercised (1,805,000) 0.06-0.11 -- -- -- --
Forfeited (5,266,000) 0.11-030 -- -- -- --
---------- ---------- ---------
Options outstanding at December 31, 2001 20,866,000 $ 0.10-0.30 9,654,000 $ 0.10-0.60 1,495,000 $ 0.60-2.80
========== ========== =========
Weighted average remaining
contractual life 3.5 years 1.5 years 1.5 years
========== ========== =========
Options exercisable were 26,293,358 and 24,106,626 as of December 31, 2001 and
2000. Options exercisable at December 31, 1999, and July 31, 1999, were
20,879,245 and 18,567,454.
The Company measures its employee stock-based compensation arrangements under
the provisions of APB No. 25. Had compensation costs for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net loss would have been as follows:
December July
2001 2000 1999 1999
----------- --------- ----------- ---------
Net loss for the year $(3,428,000) $(459,000) $ (961,000) $(395,000)
Compensation expense, net of tax effect 776,500 88,000 174,000 640,700
----------- --------- ----------- ---------
Proforma net loss $(4,204,500) $(547,000) $(1,135,000) $ 245,700
=========== ========= =========== =========
Proforma earnings per common share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
The fair value of options granted were estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
December July
2001 2000 1999 1999
------- ------- ------- -------
Dividends 0% 0% 0% 0%
Expected volatility 125% 124% 164% 164%
Risk-free interest rate 5% 5% 5.88% - 6.69% 5.88% - 6.59%
Expected life 5 years 5 years 5 years 5 years
--------------------------------------------------------------------------------
Page F-11
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The agreement with Ford Motor Company, as discussed in Note 5, included issuing
warrants to Ford to purchase 4.6% of the fully diluted common stock of Enova
Systems over a 66 month period. The number of shares to be acquired will be
adjusted from time to time for increases in the Company's fully diluted common
stock. The vesting of these warrants is dependent upon Ford meeting specific
purchase agreements. Warrants issued and vested under this agreement totaled
2,500,000 at an exercise price of $0.29 per share during the year ended December
31, 2001. Initially, the exercise price of the warrants is equal to the price of
the stock on the date of issuance, with the exercise price adjusted when the
aggregate number of shares is adjusted. Warrants may not be exercised until July
2003. The fair value of warrants granted were estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: (1)
dividend yield of 0%, (2) expected volatility of 102%, (3) risk-free interest
rate of 4.76%, and (4) an expected life of the warrants of 66 months.
NOTE 11 - INCOME TAXES
Federal and state income tax regulations impose restrictions on the utilization
of net operating losses in the event of an ownership change, as defined by
Section 382 of the Internal Revenue Code of 1986. Ownership changes have
occurred, with the changes limiting the future availability of net operating
loss carryforwards. The extent of the limitation has not been determined.
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance and the possible limitation on the future
availability of net operating losses, as discussed above, a full valuation
allowance is recorded against these deferred tax assets.
2001 2000
----------- -----------
Deferred tax assets
Federal tax loss carryforward $25,692,000 $24,666,000
State tax loss carryforward 674,000 920,000
Basis difference 1,610,000 1,610,000
Other, net 290,000 218,000
----------- -----------
28,266,000 27,414,000
Less valuation allowance 28,266,000 27,414,000
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
Net operating losses expire as follows:
Net Operating Loss
Date of Expiration Federal California
------------------ ----------- ----------
2002 $ 11,000 $2,778,000
2003 64,000 1,541,000
2004 322,000 709,000
2005 443,000 655,000
2006 680,000 --
2007 2,552,000 --
2008 24,221,000 --
2009 33,460,000 --
2010 9,083,000 177,000
2011 5,557,000 1,770,000
2012 2,998,000 --
2013 1,418,000 --
2014 1,965,000 --
2015 322,000 --
2016 3,217,000 --
----------- ----------
$86,313,000 $7,630,000
=========== ==========
--------------------------------------------------------------------------------
Page F-12
ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - EXTRAORDINARY ITEM
The Company has been negotiating repayment of long-term trade payables for less
than the amounts originally recorded. The gain from these negotiated payments is
reflected as an extraordinary item.
In consultation with legal counsel, the Company extinguished certain payables
under a provision of the California Code of Civil Procedures. The code's statute
of limitations precludes the ability of a creditor to commence an action to
recover stale account balances. Upon reviewing the code's provisions, the
Company determined that conditions surrounding the application of the statute of
limitations had been met; accordingly, the extraordinary item includes the gain
from the extinguishments.
NOTE 13 - GEOGRAPHIC AREA DATA
The Company operates as a single reportable segment and attributes revenues to
countries based upon the location of the entity originating the sale. Revenues
by geographic area are as follows:
December July
2001 2000 1999 1999
---------- ---------- ---------- ----------
United States $2,854,000 $1,003,000 $ 235,000 $1,564,000
Korea 483,000 1,670,000 394,000 1,210,000
England 84,000 -- -- --
Canada -- 110,000 -- --
Italy 359,000 100,000 -- --
---------- ---------- ---------- ----------
$3,780,000 $2,883,000 $ 629,000 $2,774,000
========== ========== ========== ==========
--------------------------------------------------------------------------------
Page F-13
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
(In thousands, except for share and per share data)
------------------------------------------------------------------------------------------------------------------------------------
As of As of
March 31, 2002 December 31, 2001
-------------- -----------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 793 $ 1,179
Accounts receivable 878 1,237
Inventory 1,346 926
Stockholder receivable 25 25
Prepaids and other current assets 81 87
------------- -------------
Total Current Assets 3,123 3,454
PROPERTY, PLANT AND EQUIPMENT - NET 417 280
OTHER ASSETS 581 606
------------- -------------
TOTAL ASSETS $ 4,121 $ 4,340
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 599 $ 167
Accrued payroll and related expense 181 194
Other accrued expenses 16 53
Bonds and notes payable 120 129
------------- -------------
Total Current Liabilities 916 543
ACCRUED INTEREST PAYABLE 730 677
CAPITAL LEASE OBLIGATIONS 76 20
LONG TERM DEBT 3,332 3,332
------------- -------------
TOTAL LIABILITIES $ 5,054 $ 4,572
------------- -------------
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
2,844,000 shares issued and outstanding at 3/31/02 and 12/31/01 1,867 1,867
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,217,000 shares issued and outstanding at 3/31/02 and 12/31/01 2,434 2,434
Stock notes receivable (1,208) (1,208)
Common Stock - No par value; 500,000,000 shares authorized; 302,532,000
and 302,502,000 shares issued and outstanding at 3/31/02 and 12/31/01 79,862 79,859
Common stock subscribed 160 160
Additional paid-in capital 6,949 6,949
Accumulated deficit (90,997) (90,293)
------------- -------------
Total Shareholders' (Deficit) (933) (232)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 4,121 $ 4,340
============= =============
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date.
See notes to financial statements.
Q-1
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
-----------------------------------------
2002 2001
------------- -------------
NET SALES $ 941 $ 1,115
COST OF SALES 702 658
------------- -------------
GROSS MARGIN 239 457
------------- -------------
OTHER COSTS AND EXPENSES:
Research & development 275 267
Selling, general & administrative 615 448
Interest and financing fees 55 28
Interest income (2) (16)
------------- -------------
Total other costs and expenses 943 727
------------- -------------
LOSS FROM CONTINUING OPERATIONS $ (704) $ (270)
------------- -------------
GAIN ON DEBT RESTRUCTURING 0 0
NET LOSS $ (704) $ (270)
============= =============
NET LOSS PER COMMON SHARE: $ (0.01) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 302,532,000 224,271,333
Q-2
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
----------------------------------
2002 2001
-------- --------
OPERATIONS
Net loss $ (704) $ (270)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 38 46
Change in operating assets and liabilities:
Accounts Receivable 359 (433)
Inventory (420) (277)
Prepaids and other assets 31 (58)
Accounts payable and accrued expenses 434 219
------- -------
Net cash used by operating activities (263) (773)
------- -------
INVESTING:
Purchases of property, plant and equipment, net of disposals (174) (19)
------- -------
Net cash used by investing activities (174) (19)
------- -------
FINANCING:
Issuance of notes payable 47 (3)
Proceeds from issuance of common stock 3 6
------- -------
Net cash provided by financing activities 50 3
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (387) (789)
CASH AND EQUIVALENTS:
Beginning of period 1,179 1,310
------- -------
End of period $ 792 $ 521
======= =======
Q-3
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, 2002 and 2001
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of our company without audit and have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not contain all the information and notes
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position at March 31, 2002 and the interim results
of operations and cash flows for the three months ended March 31, 2002 have been
included. The balance sheet at December 31, 2001, presented herein, has been
prepared from the audited financial statements of our company for the fiscal
year then ended.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities. The December
31, 2001 and March 31, 2002 inventories are reported at market value.
Inventories have been valued on the basis that they would be used, converted and
sold in the normal course of business. Certain accrued expenses are based upon
an analysis of future costs expected to be incurred in meeting contracted
obligations. The amounts estimated for the above, in addition to other estimates
not specifically addressed, could differ from actual results; and the difference
could have a significant impact on the financial statements.
Accounting policies followed by us are described in Note 1 to the audited
financial statements for the fiscal year ended December 31, 2001. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted for purposes of the interim
financial statements. The financial statements should be read in conjunction
with the audited financial statements, including the notes thereto, for the year
ended December 31, 2001, which are included in this Prospectus pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 as filed with the
Securities and Exchange Commission.
Loss per common share is computed using the weighted average number of common
shares outstanding. Since a loss from operations exists, a diluted earnings per
share number is not presented because the inclusion of common stock equivalents,
consisting of Series A and B preferred stock, unexercised stock options and
warrants, would be anti-dilutive.
The results of operations for the three months ended March 31, 2002 presented
herein are not necessarily indicative of the results to be expected for the full
year.
Q-4
NOTE 2 - Inventories
Inventories are comprised of the following (in thousands):
March 31, 2002 December 31, 2001
(unaudited) -----------------
-----------
Raw materials 700 563
WIP 472 272
Finished Goods 174 91
$1,346 $ 926
====== ======
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):
March 31, 2002 December 31, 2001
-------------- -----------------
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 zero balance
as of December 31, 2001 and March 31,
2002. 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
Other 120 120
3,452 3,452
120 120
------ ------
Less current maturities $3,332 $3,332
====== ======
Q-5
You should rely only on the information contained in
this prospectus. We have not authorized anyone to
provide you with information different from that
contained in this prospectus. The selling shareholders 42,100,000 Shares
are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this ENOVA SYSTEMS, INC.
prospectus is accurate only as the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. COMMON STOCK
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary................................... 2
Risk Factors......................................... 7
Cautionary Note on Forward-Looking
Statements.........................................11 ------------------
Use of Proceeds......................................12 PROSPECTUS
Price Range of Common Stock..........................12 ------------------
Dividend Policy......................................13
Capitalization.......................................13
Selected Financial Data..............................13
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................15
Business.............................................22
Management...........................................33
Certain Relationships and Related
Transactions.......................................42
Principal Shareholders...............................42
Selling Shareholders.................................44
Plan of Distribution.................................45
Description of Capital Stock.........................47
Shares Eligible for Future Sale......................50
Legal Matters........................................51
Experts..............................................52
Where you can get more Information...................52
Index to Financial Statements........................53
July 16, 2002
-2-
PART II
Item 13..Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by us. All amounts are estimates, other than the SEC registration fee.
SEC Registration fees: $ 532.57
Accounting fees and expenses: $ 5,000.00
Legal fees and expenses: $ 10,000.00
Printing expenses: $ 1,500.00
Miscellaneous fees and expenses: $ 5,000.00
Total: $ 22,032.57
==========
Item 14. Indemnification of Directors and Officers
Section 317 of the California General Corporation Law (the "CGCL") provides that
a subject corporation shall have the power to indemnify any agent of the
corporation (including our directors and officers) who was or is a party to any
proceeding or threatened proceeding (other than an action by or in the right of
the corporation) against expenses, judgments, fines, settlements and other
amounts incurred if that person acted in good faith and in a manner reasonably
believed to be in the best interests of the corporation, and in the case of a
criminal proceeding, had no reasonable cause to believe the conduct of such
person was unlawful. Section 317 of the CGCL further provides that a subject
corporation shall have the power to indemnify any agent of the corporation who
was or is a party to any proceeding or threatened proceeding by or in the right
of the corporation against expenses incurred in connection with the defense or
settlement of the proceeding if the person acted in good faith and in a manner
the person believed to be in the best interests of the corporation and our
shareholders.
Under Section 317 of the CGCL, to the extent that an agent of a subject
corporation is successful on the merits in the defense of an action, the
corporation must indemnify such person for his or her actual and reasonable
expenses incurred in connection with such defense. Under Section 317 of the
CGCL, a subject corporation may advance expenses of an indemnifiable person in
defending an action; provided that such advancement of expenses may be made only
if the person provides an undertaking to reimburse the corporation if it is
ultimately determined that the person is not entitled to be indemnified against
such expenses.
The Registrant has entered into agreements to provide indemnification for our
directors and certain officers in addition to the indemnification provided for
in the Bylaws. These agreements, among other things, indemnify such parties to
the fullest extent permitted by California law for certain expenses (including
attorneys' fees), and all losses, claims, liabilities, judgments, fines and
settlement amounts incurred by such persons arising out
II-1
of or in connection with such persons' service as directors or officers of the
Registrant or an affiliate of the Registrant.
The above-described provisions relating to the indemnification of directors and
officers are sufficiently broad to permit the indemnification of such persons in
certain circumstances against liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1993, as amended.
Item 15. Recent Sales of Unregistered Securities.
In June 2002, we issued 42,100,000 shares of common stock for cash at $0.10 per
share a total of $4,210,000 in connection with a private placement offering to
accredited investors who are the selling shareholders under this Registration
Statement. We relied on Rule 506 and Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), for the exemption from registration of the
sale of the shares.
In December 2001, we issued 6,000,000 shares of common stock at a rate of $0.15
per share for a total of $900,000 in settlement of litigation brought against us
by Fontal International, Ltd. In April 2002, in connection with this settlement,
we issued an additional 100,000 shares of common stock at a rate of $0.15 per
share for a total of $15,000. In May 2002, also in connection with this
settlement we issued another 100,000 shares of common stock at a rate of $0.15
per share for a total of $15,000. In June 2002, also in connection with this
settlement we issued another 100,000 shares of common stock at a rate of $0.15
per share for a total of $15,000. We did not receive any cash in connection with
any of these transactions. Fontal International, Ltd. represented to us that it
was an accredited investor. We relied on Rule 506 and Section 4(2) of the
Securities Act for the exemption of the issuance of these shares.
In July 2001, Anthony Rawlinson exercised warrants to purchase 8,333,334 shares
of common stock at $0.06 per share for a total of $500,000 in cash. Mr.
Rawlinson represented that he was an accredited investor under the definition
set forth by the Securities and Exchange Commission. We relied on Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), for the exemption from registration of the sale of the
shares.
In May 2001, Jagen Pty, Ltd exercised warrants to purchase 41,666,666 shares of
common stock at $0.06 per share for a total of $2,500,000 in cash. Jagen, an
Australian company and our majority shareholder, represented that they were
accredited investors. We relied on Rule 506 of Regulation D and Section 4(2) of
the Securities Act for the exemption from registration of the sale of such
shares.
In June 2001, we issued warrants to purchase 15,000,000 shares of our common
stock to a customer. We relied on Rule 506 of Regulation D and Section 4(2) of
the Securities Act for the exemption from registration of the sale of such
shares.
II-2
In September 2000, Perla Blanca Investments, Ltd. purchased 3,333,333 shares of
common stock for $1,000,000 in cash. Perla Blanca, a British Virgin Islands
company, represented that they were accredited investors. We relied on Rule 506
of Regulation D and Section 4(2) of the Securities Act for the exemption from
registration of the sale of such shares.
In January 2000, Kafig Pty, Ltd. purchased 3,333,333 shares of common stock for
$1,000,000. Kafig, an Australian company, represented that they were accredited
investors. We relied on Rule 506 of Regulation D and Section 4(2) of the
Securities Act for the exemption from registration of the sale of such shares.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Annual Report on Form
10K for the year ended December 31, 2000 filed on March 30, 2001
and incorporated herein by reference).
3.2 Bylaws of Registrant (filed as Exhibit 3.12 to the Registration
Statement on Form 10 filed on November 29, 1994, and incorporated
herein by reference).
4.1 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd. (filed as Exhibit 4.1 to the Registrant's
Annual Report on Form 10-K for the year ended July 31, 1996, as
filed on November 12, 1996, and incorporated herein by reference).
5.1*** Opinion of Crosby, Heafey, Roach & May Professional Corporation as
to the legality of the securities being registered.
10.1 Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan (filed as Exhibit 10.15 to the Registration Statement
on Form 10 filed on November 29, 1994, and incorporated herein by
reference).
10.2 Form of Solar Electric Engineering, Inc. 1993 Employee and
Consultant Stock Plan (filed as Exhibit 10.16 to the Registration
Statement on Form 10 filed on November 29, 1994, and incorporated
herein by reference).
10.3 Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc., dated
January 2, 1996, delivered by Enova to certain of our unsecured
trade creditors, including exhibits (filed as Exhibit 10.91 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996, as filed on March 18, 1996, and incorporated
herein by reference).
10.4 Form of Stock Purchase, Note and Debt Exchange Agreement dated
II-3
January 2, 1996 between Enova and certain unsecured trade
creditors (filed as Exhibit 10.92 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1996, as
filed on March 18, 1996, and incorporated herein by reference).
10.5 Form of Indemnification Agreement (filed as Exhibit 10.63 to the
Registration Statement on Form 10 filed on November 29, 1994, and
incorporated herein by reference).
10.6 Form of Security Agreement made as of May 31, 1995, between Enova
and Credit Managers Association of California, Trustee (filed as
Exhibit 10.85 to the Registrant's Quarterly Report on Form 24 10-Q
for the quarter ended April 30, 1996, as filed on June 14, 1996,
and incorporated herein by reference).
10.7 Amended 1996 Employee and Consultant Stock Option Plan (filed as
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.8 Stock Purchase Agreement and Technology License Agreement dated
February 27, 1997, by and between Enova and Hyundai Motor Company
and Hyundai Electronics Industries Co., Ltd. (filed as Exhibit
10.98 to the Registrant's Quarterly Report on Form 10-Q for fiscal
quarter ended January 31, 1997, as filed on March 14, 1997, and
incorporated herein by reference).
10.9 Loan Agreement for $400,000 convertible promissory note with
Fontal International, Ltd., dated April 30, 1997 (filed as Exhibit
10.99 to the Registrant's Quarterly Report on Form 10-Q for fiscal
quarter ended April 30, 10997, as filed on June 13, 1997, and
incorporated herein by reference).
10.10 Agreement of Debt Forgiveness by and between Carl D. Perry and the
Registrant dated July 30, 1999 (filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for fiscal year ended July
31, 1999, as filed on October 29, 1999, and incorporated herein by
reference).
10.11 Agreement of Terms by and between the Registrant and Carl D. Perry
(filed as Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for fiscal year ended July 31, 1999, as filed on October 29,
1999, and incorporated herein by reference).
10.12 Securities Purchase Agreement dated as of June 1, 1999, by and
between the Registrant and Jagen Pty, Ltd. and Anthony N.
Rawlinson (filed as Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K for fiscal year ended July 31, 1999, as filed
on October 29, 1999, and incorporated herein by reference).
II-4
10.13 Shareholders' Agreement dated as of June 1, 1999, by and among
Jagen Pty, Ltd. and Anthony N. Rawlinson, Carl D. Perry and the
Registrant (filed as Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K for fiscal year ended July 31, 1999, as filed
on October 29, 1999, and incorporated herein by reference).
10.14 Loan and Security Agreement dated as of June 1, 1999, by and among
the Registrant, Jagen Pty, Ltd. and Anthony N. Rawlinson (filed as
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.15 Convertible Secured Promissory Note dated June 1, 1999 by the
Registrant in favor of Jagen Pty, Ltd. in the principal amount of
$400,000 (filed as Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K for fiscal year ended July 31, 1999, as filed on
October 29, 1999, and incorporated herein by reference).
10.16 Letter of Intent (redacted) between Registrant and a domestic
supplier, dated December 9, 1999, to design, develop and
manufacture low voltage electric drive system components (filed as
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 2000 and incorporated herein by
reference).
10.17 Put/Call Option to sell Itochu shares between Registrant and Carl
D. Perry dated September 1, 1999 (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for fiscal year ended
December 31, 2000 and incorporated herein by reference).
10.18** Agreement (redacted) between the Registrant and a customer dated
June 14, 2001, to develop and produce power management systems.
(filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for Six Months ended June 30, 2001 and incorporated
herein by reference).
10.19** Agreement (redacted) between the Registrant and Eco Power
Technology, dated June 12, 2001, to produce and sell power drive
systems (filed as Exhibit 10.19 to Amendment No. 6to the
Registrant's Registration Statement on Form S-1, No. 333-85308,
and incorporated herein by reference).
10.20** Agreement (redacted) between the Registrant and Tomoe
Electro-Mechanical Engineering and Manufacturing, Inc., dated
November 19, 2001, to produce and sell power drive systems (filed
as Exhibit 10.20 to Amendment No. 6 to the Registrants
Registration Statement on Form S-1, NO. 333-85308, and
incorporated herein by reference).
10.21** Agreement (redacted) between the Registrant and Moriah
Corporation,
II-5
dated January 22, 2002, to produce and sell power drive systems
(filed as Exhibit 10.21 to Amendment No. 6 to the Registrants
Registration Statement on Form S-1, NO. 333-85308, and
incorporated herein by reference).
10.22* Form of Stock Purchase Agreement dated June 7, 2002 between
Registrant and each of the selling shareholders listed in the
Prospectus included within this Registration Statement on Form
S-1.
10.23* Form of Registration Rights Agreement dated June 7, 2002 between
Registrant and each of the selling shareholders listed in the
Prospectus included within this Registration Statement on Form
S-1.
23.1*** Consent of Moss Adams, LLP, Independent Auditors
23.2*** Consent of Crosby, Heafey, Roach & May Professional Corporation
(included in Exhibit 5.1 hereto).
24* Power of Attorney (included on signature page)
* Filed herewith.
** Portions of this Exhibit have been redacted pursuant to the Registrant's
requests for confidential treatment pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
*** To be filed by amendment.
(b) Financial Statements
Audited Financial Statements - Fiscal Year ended July 31, 1999
Audited Financial Statements - Five months ended December 31, 1999
Audited Financial Statements - Fiscal Year ended December 31, 2000
Audited Financial Statements - Fiscal Year ended December 31, 2001
Unaudited Financial Statements - Three Months ended March 31, 2002
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which,
II-6
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that (i) and (ii) do not apply if the Registration Statement is on Form
S-3 or Form S-8, and the information required to be included in a post-effective
amendment by (i) and (ii) is contained in periodic reports filed with or
furnished to the SEC by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against pubic policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Torrance, State of
California, on July 16, 2002.
ENOVA SYSTEMS, INC.
By: /s/ Carl D. Perry
-----------------
Carl D. Perry, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on July
15, 2002.
By: /s/ Larry B. Lombard
--------------------
Larry B. Lombard, Controller
----------------------------
We, the undersigned directors and/or officers of Enova Systems, Inc. (the
"Registrant"), hereby severally constitutes and appoint Carl D. Perry with full
powers of substitution and resubstitution, our true and lawful attorney, with
full powers to sign for us, in our names and in the capacities indicated below,
the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission, and any and all amendments to said Registration Statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection with the
registration under the Securities Act of 1933, as amended, of equity securities
of the Registrant, and to file or cause to be filed with the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney, and his
substitute or substitutes, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, and
hereby ratifying and confirming all that said attorney or his substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
This Power of Attorney may be executed in counterparts.
S-1
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/s/ Carl D. Perry Chief Executive Officer, Chief Financial
----------------- Officer and Director (Principal Executive
Carl D. Perry Officer and Principal Financial Officer) July 16, 2002
/s/ Larry Lombard
-----------------
Larry Lombard Controller July 16, 2002
/s/ Anthony N. Rawlinson
------------------------
Anthony N. Rawlinson Chairman July 16, 2002
/s/ Malcolm Currie
Malcolm Currie Director July 16, 2002
/s/ Edwin O. Riddell Director July 16, 2002
--------------------
Edwin O. Riddell
/s/ John J. Micek, III Director July 16, 2002
----------------------
John J. Micek, III
/s/ Donald H. Dreyer Director July 16, 2002
--------------------
Donald H. Dreyer
/s/ James M. Strock Director July 16, 2002
-------------------
James M. Strock
S-2
EXHIBIT INDEX
Exhibit Description
5.1*** Opinion of Crosby, Heafey, Roach & May Professional
Corporation as to the legality of the securities being
registered.
10.22 Form of Stock Purchase Agreement dated June 7, 2002 between
Registrant and each of the selling shareholders listed in the
Prospectus included within this Registration Statement on Form
S-1.
10.23 Form of Registration Rights Agreement dated June 7, 2002
between Registrant and each of the selling shareholders listed
in the Prospectus included within this Registration Statement
on Form S-1.
23.1*** Consent of Moss Adams, LLP, Independent Auditors
23.2*** Consent of Crosby, Heafey, Roach & May Professional
Corporation (included in Exhibit 5.1 hereto).
24 Power of Attorney (included on signature page)
*** To be filed by amendment.