Edgar Filing: ENOVA SYSTEMS INC

1
ENOVA SYSTEMS, INC.
Notice of Annual Meeting of Shareholders
To Be Held August 17, 2004

To the Shareholders of ENOVA SYSTEMS, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Enova Systems, Inc., a California corporation (the
"Company"), will be held at GATEWAY HOLIDAY INN, adjacent to ENOVA SYSTEMS,
Inc.'s principal executive office, located at 19800 S. Vermont Ave., Torrance,
California 90502, on August 17, 2004, at 9:00 a.m., local time, for the
following purposes:

1. AMENDMENT TO THE ENOVA SYSTEMS, INC. RESTATED AND AMENDED ARTICLES OF
INCORPORATION ("ARTICLES OF INCORPORATION") TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK. To approve an
amendment to the Articles of Incorporation increasing the authorized
number of shares of Common Stock from 500,000,000 shares to 750,000,000
shares;

2. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK
SPLIT of the Company's Common Stock at a specific ratio to be
determined by the Board of Directors within a range from one-for-ten to
one-for-fifty;

3. AMENDMENT TO THE ENOVA SYSTEMS, INC. 1996 STOCK OPTION PLAN. To approve
an increase in the authorized number of shares under the Enova Systems,
Inc. 1996 Stock Option Plan from 45,000,000 shares to 65,000,000
shares;

4. ELECTION OF DIRECTORS. To elect Directors of the Company as more fully
described in the attached Proxy Statement to serve until the next
Annual Meeting of Shareholders or until their respective successors are
elected and qualified;

5. RATIFICATION OF INDEPENDENT AUDITORS. To ratify the appointment of
Singer Lewak Greenbaum & Goldstein LLP as the independent auditors for
the Company for the fiscal year ending December 31, 2004; and

6. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.

The Board of Directors has fixed the close of business on June 22, 2004
the record date for determining the shareholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.

After careful consideration, the Company's Board of Directors has
approved the proposals and recommends that you vote in favor of each such
proposal.

By Order of the Board of Directors
/s/ Carl D. Perry
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Carl D. Perry
Chief Executive Officer

Torrance, California
July 20, 2004

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING
AND VOTE BY BALLOT, YOUR PROXY WILL BE AUTOMATICALLY REVOKED AND ONLY YOUR VOTE
AT THE ANNUAL MEETING WILL BE COUNTED.

Mailed to Shareholders on or about July 20, 2004

ENOVA SYSTEMS, INC.
19850 South Magellan Drive
Torrance, California 90502
---------------------------------

PROXY STATEMENT
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For the Annual Meeting of Shareholders
To Be Held on August 17, 2004

The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Enova Systems, Inc., a California corporation (the
"Company"), for use at the 2004 Annual Meeting of Shareholders to be held on
August 17, 2004 at 9:00 a.m., local time, at GATEWAY HOLIDAY INN, adjacent to
ENOVA SYSTEMS, Inc.'s principal executive office, located at 19800 S. Vermont
Ave., Torrance, California 90502, and at any adjournment thereof.

This Proxy Statement and the accompanying form of Proxy are to be
mailed to the shareholders entitled to vote at the Annual Meeting on or about
July 20, 2004. The specific proposals to be considered and acted upon at the
Annual Meeting are summarized in the accompanying Notice and are described in
more detail in the Proxy Statement. All shareholders of record at the close of
business on June 22, 2004 are entitled to notice of, and to vote at, the Annual
Meeting.

Proxies

If any shareholder does not expect to attend the Annual Meeting in
person, such shareholder may vote by proxy. The shares represented by the
proxies received, properly marked, dated, executed and not revoked will be voted
at the Annual Meeting. Shareholders are urged to specify their choices on the
enclosed proxy card. If a proxy card is signed and returned without choices
specified, in the absence of contrary instructions, the shares of Common Stock,
Series A Convertible Preferred Stock ("Series A Preferred Stock") and Series B
Convertible Preferred Stock ("Series B Preferred Stock"), as the case may be,
represented by such proxy card will be voted "FOR" Proposals 1, 2, 3, 4 and 5.
The Company does not know of any other business that will be presented for
action at the Annual Meeting but, if any matter is properly presented, the proxy
holders will vote on such matters in the proxy holders' discretion

Revocability of Proxy

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by: (i) delivering to the
Company at its executive offices, 19850 South Magellan Drive Torrance,
California 90502 (to the attention of Carl D. Perry, the Company's President), a
written notice of revocation or a duly executed proxy bearing a later date; or
(ii) attending the Annual Meeting and voting in person.

Solicitation

The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically, by facsimile or by other electronic or written means through its
officers, directors and regular employees, none of whom will receive additional
compensation for assisting with the solicitation.

Record Date and Voting

The close of business on June 22, 2004 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock,
Series A Preferred Stock, and Series B Preferred Stock of the Company entitled
to notice of and to vote at the Annual Meeting. As of the close of business on
the Record Date, the Company had 401,895,856 shares of Common Stock, 2,747,512
shares of Series A Preferred Stock, and 1,217,196 shares of Series B Preferred
Stock, outstanding and entitled to vote at the Annual Meeting.

The presence at the Annual Meeting of a majority of the shares of
Common Stock, Series A Preferred Stock, and Series B Preferred Stock of the
Company in the aggregate on an as converted basis, or approximately 203,945,958
of these shares on an as converted basis either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting.

Each outstanding share of Common Stock and Series A Preferred Stock on
the Record Date is entitled to one (1) vote, and each outstanding share of
Series B Preferred Stock on the Record Date is entitled to two (2) votes on all
matters voted on at the Annual Meeting, except that (i) the holders of the
Series B Preferred Stock are voting as a separate class to fill two vacancies
allotted to the Series B Preferred Stock by voting for two (2) directors and
(ii) the holders of the Common Stock and the holders of the Series A Preferred
Stock are voting together as a single class for the election of six (6)
directors (as more fully described below). Cumulative voting may be used in the
election of directors to be elected by the Common Stock and the Series A
Preferred Stock, voting together as a class, and in the election of directors
elected by the Series B Preferred Stock. Under cumulative voting, each holder of
Common Stock and each holder of Series A Preferred Stock may cast for a single
candidate, or distribute among the candidates as such holder chooses, a number
of votes equal to the number of candidates (six (6) at this meeting) multiplied
by the number of shares held by such shareholder. Likewise, each holder of
Series B Preferred Stock may cast for a single candidate or distribute between
the two (2) candidates as such holder chooses, a number of votes equal to the
number of candidates (two (2) at this meeting) multiplied by the number of
shares held by such shareholder. Cumulative voting will apply only to those
candidates whose names have been placed in nomination prior to voting. No
shareholder shall be entitled to cumulate votes unless the shareholder has given
notice at the meeting, prior to the voting, of the shareholder's intention to
cumulate the shareholder's votes. If any one shareholder gives such notice, all
shareholders may cumulate their votes for candidates in nomination, except to
the extent that if a shareholder withholds votes from the nominees. The proxy
holders named in the accompanying form of proxy, in their sole discretion, will
vote such proxy for, and, if necessary, exercise cumulative voting rights to
secure the election of the nominees listed below as directors of the Company.

The Common Stock, Series A Preferred Stock, and Series B Preferred
Stock will vote together as a single class on all matters scheduled to be voted
on at the Annual Meeting, other than Proposal 4, the election of directors, for
which the Series B Preferred Stock, voting as a separate class, shall vote to
elect two (2) of the directors, and the outstanding Common Stock and Series A
Preferred Stock, voting together as a single class, shall vote to elect the
remaining directors. Additionally, approval of each of Proposal 1, the
authorization to increase the authorized number of shares of Common Stock and
Proposal 2, the authorization for the Board to effect a reverse stock split at a
specific ratio to be determined by the Board of Directors within a range from
one-for-ten to one-for-fifty, requires a separate class vote of the outstanding
Common Stock.

An affirmative vote of a majority of the issued and outstanding shares
of Common Stock (not just shares present and voting at the meeting) voting as a
separate class, and an affirmative vote of a majority of the issued and
outstanding shares of Common Stock, Series A Preferred Stock, and Series B
Preferred Stock in the aggregate voting together as a class (not just shares
present and voting at the meeting) is required for approval of Proposals 1, 2
and 3. An affirmative vote of a majority of the shares of Common Stock, Series A
Preferred Stock, and Series B Preferred Stock, present and voting at the
meeting, either in person or by proxy, is required for approval of Proposal 5
(ratification of independent auditors). With respect to the election of
directors (Proposal 4), the nominees receiving the highest number of affirmative
votes of the shares entitled to be voted for them will be declared elected.

An automated system administered by the Company's Common Stock transfer
agent will tabulate votes of the holders of Common Stock, Series A and Series B
Preferred Stock cast by proxy. An employee of the Company will tabulate votes
cast in person at the Annual Meeting. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, and
each is tabulated separately. However, broker non-votes are not counted for
purposes of determining the number of votes cast with respect to a particular
proposal. In determining whether a proposal (other than the election of
directors) has been approved, abstentions are counted as votes against the
proposal and broker non-votes are not counted as votes for or against the
proposal, except broker non-votes will have the effect of a negative vote for
Proposal 1, 2 and 3 since such proposals require the approval of an affirmative
vote of a majority of the outstanding shares of the Company's Common Stock (not
just shares present and voting at the meeting) voting as a separate class, and
an affirmative vote of a majority of the Common Stock, Series A Preferred Stock,
and Series B Preferred Stock (not just shares present and voting at the meeting)
voting together as a class. As for the election of directors (Proposal 4), votes
against, votes withheld, abstentions and broker non-votes will have no legal
effect.

The Annual Report of the Company for the year ended December 31, 2003
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all shareholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy Statement
and is not considered proxy-soliciting material.

Please mark, date, sign and return the enclosed Proxy in the
accompanying postage-prepaid, return envelope as soon as possible so that, if
you do not attend the Annual Meeting, your shares may be voted.

MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

PROPOSAL NO. 1
AMENDMENT OF THE
COMPANY'S ARTICLES OF INCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK

The Board of Directors has adopted a resolution proposing and declaring
the advisability of amending the Company's Articles of Incorporation to increase
the number of shares of Common Stock that the Company is authorized to issue
from 500,000,000 shares to 750,000,000 shares. The Board of Directors directed
that this proposed amendment be considered at the Annual Meeting of Shareholders
on August 17, 2004. The Board believes this capital structure more appropriately
reflects the present and future needs of the Company. The authorization of an
additional 250,000,000 shares of Common Stock would give the Board of Directors
the express authority, without further action of the shareholders, to issue such
shares of Common Stock from time to time as the Board deems necessary. A copy of
the text of this proposed amendment to the Articles of Incorporation of the
Company is set forth in full as Exhibit A attached to this Proxy Statement and
is hereby incorporated herein by this reference; provided, however, that the
text of the amendment is subject to change as may be required by the California
Secretary of State.

Purposes and Effects of the Amendment to Increase the Authorized Number of
Shares of Common Stock

Number of Shares of Common Stock Issued and Issuable upon Exercise or Conversion
Exceeds Number of Authorized Shares

As of June 22, 2004, the Company had approximately 401,895,856shares of
Common Stock issued and outstanding, 2,747,512 shares of Common Stock issuable
upon conversion of outstanding Series A Preferred Stock, 2,434,392 shares of
Common Stock issuable upon conversion of outstanding Series B Preferred Stock,
16,954,188 shares of Common Stock issuable upon exercise of outstanding options
and warrants, and approximately 10,000,000 shares of Common Stock issuable under
a contractual commitment with Hyundai Heavy Industries, for a total of
approximately 436,531,379 shares issued and outstanding or issuable upon
exercise or conversion of presently outstanding options, warrants and
convertible securities. 500,000,000 shares of Common Stock are authorized to be
issued under the Company's Articles of Incorporation as currently in effect.

Need for Additional Financing and Flexibility

The proposed increase in the authorized number of shares of Common
Stock will allow the Company to reserve an additional number of shares
sufficient to provide flexibility for the future. In particular, the Company may
require additional funding in 2004 and beyond for its operations and will
therefore need the increased number of authorized shares to raise additional
equity. In addition, the additional authorized shares may be used in the future
for any other proper corporate purpose approved by the Board, including
corporate mergers or acquisitions, an increase in the number of shares reserved
under the Company's stock option plans, stock dividends or splits, or other
corporate purposes. Furthermore, the Company needs additional shares available
upon the exercise of additional options that may be granted under the Company's
1996 Stock Option Plan, particularly if Proposal 3 is approved. At present, the
Company has no plans, agreements or understandings for the issuance of
additional shares of capital stock or options therefor, other than pursuant to
the 1996 Stock Option Plan, upon exercise of outstanding options and warrants or
options granted hereafter under the 1996 Stock Option Plan, pursuant to existing
contractual commitments and upon conversion of outstanding shares of Series A
Preferred Stock and Series B Preferred Stock. No further action or authorization
by the shareholders would be necessary prior to the issuance of additional
shares unless applicable laws or regulations require such approval.

The Board of Directors believes the increase in the authorized shares
is necessary to provide the Company with the flexibility to act in the future
with respect to financings, acquisitions and other corporate purposes without
the delay and expense associated with obtaining special shareholder approval
each time an opportunity requiring the issuance of shares may arise.

Effects of the Amendment

Each additional share of Common Stock authorized by the amendment to
the Articles of Incorporation would have the same rights and privileges as each
share of Common Stock currently authorized or outstanding.

An issuance of additional shares by the Company could have an effect on
the potential realizable value of a shareholder's investment. In the absence of
a proportionate increase in the Company's earnings and book value, an increase
in the aggregate number of outstanding shares of the Company caused by the
issuance of the additional shares would dilute the earnings per share and could
dilute the book value per share of all outstanding shares of the Company's
capital stock. If such factors were reflected in the price per share of Common
Stock, the potential realizable value of a shareholder's investment could be
adversely affected.

Vote Required

The approval of the amendment of the Articles of Incorporation
increasing the authorized number of shares of Common Stock requires the
affirmative vote of a majority of the outstanding shares of Common Stock, voting
separately as a class, and the affirmative vote of a majority of the outstanding
shares of Common Stock and Series A Preferred Stock and Series B Preferred
Stock, voting together as a single class (with both the Common Stock and the
Series A Preferred Stock having one vote per share and the Series B Preferred
Stock having two votes per share).

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT OF THE COMPANY'S
ARTICLES OF INCORPORATION INCREASING THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK

PROPOSAL NO. 2
AUTHORIZATION FOR THE BOARD TO
EFFECT A REVERSE STOCK SPLIT
IN A RANGE FROM
ONE-FOR-TEN TO ONE-FOR-FIFTY

General

The Company's shareholders are being asked in Proposal 2 to act upon a
proposal to authorize the Board of Directors, in its discretion, to effect a
reverse stock split of the Company's Common Stock at a specific ratio, ranging
from one-for-ten to one-for-fifty, to be determined by the Board of Directors
within a twelve month period from the date of the Annual Meeting.

An amendment of the Company's Articles of Incorporation will be
required to effect a reverse stock split. The complete text of the form of an
amendment to the Articles of Incorporation for the reverse stock split is set
forth in Exhibit B to this Proxy Statement; provided, however, that such text is
subject to amendment to include such changes as may be required by the
California Secretary of State. If Proposal 2 is approved by the requisite vote
of the Company's shareholders, then the Board of Directors will have the
authority, for the twelve month period following the date of the Annual Meeting,
to determine the specific ratio of a reverse stock split within the range
described herein and to effect one reverse stock split of the Company's Common
Stock in such specific ratio. To effectuate the reverse stock split, the Company
would fill in the specific ratio of the stock split in the attached amendment to
the Articles of Incorporation and file the amendment with the California
Secretary of State. Effective as of the date and time and filing of such
amendment, such reverse stock split will be effective. Each share of the Common
Stock issued and outstanding immediately prior to effective time of the reverse
stock split (the "Old Common Stock"), will be, automatically and without any
action on the part of the shareholders, converted into and reconstituted into a
fraction of a share of the Company's Common Stock (the "New Common Stock")
represented by the specific ratio approved by the Board of Directors. However,
no fractional shares of Common Stock would be issued as a result of the reverse
stock split. In lieu of any such fractional share interest, each holder of Old
Common Stock who would otherwise be entitled to receive a fractional share of
New Common Stock would receive cash in lieu of such fractional share of New
Common Stock in an amount equal to the product obtained by multiplying (a) the
average of the high-bid and low-asked per share prices of the Common Stock as
reported on the NASDAQ electronic "Bulletin Board" on the effective date of the
reverse stock split (appropriately adjusted as the Board of Directors may
determine ) by (b) the number of shares of Old Common Stock held by such holder
that would otherwise have been exchanged for such fractional share interest. For
example, if the shareholders approve Proposal 2 and the Board of Directors
authorizes a reverse stock split in the ratio of one-for-sixteen, then, upon the
date and the time of the filing of the amendment to the Articles of
Incorporation to effect such stock split, each share of the Old Common Stock
will be converted into and reconstituted as 1/16th of a share of the Company's
New Common Stock. No fractional shares would be issued in connection therewith.
As a result, any shareholder who held less than sixteen shares of the Old Common
Stock would no longer have any stock interest in the Company after the
one-for-sixteen reverse stock split but instead would receive cash for such
shareholder's fractional interest, the amount of which would be determined in
the manner described above.

Shortly after the effective date of a reverse stock split, shareholders
will be asked to surrender certificates representing shares of Old Common Stock
in accordance with the procedures set forth in a letter of transmittal to be
sent by the Company. Upon such surrender, a certificate representing the number
of shares of New Common Stock each such shareholder is deemed to own (after
giving effect to the specific reverse stock split) will be issued and forwarded
to the shareholders (and cash in lieu of any fractional share interest).
However, pending surrender, each certificate representing shares of Old Common
Stock will continue to be valid but will represent the number of shares of New
Common Stock (and cash in lieu of fractional shares of Old Common Stock, as
described above) that such shareholder is deemed to own after giving effect to
the reverse stock split. SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL LETTER.

Purposes of the Proposed Reverse Stock Split

As of the record date, the Company had outstanding 401,895,856 shares
of Common Stock and the stock price in the over-the-counter market on that date
(based on the average of the high-bid and low-asked per share price of the
Common Stock as reported on the NASDAQ electronic "Bulletin Board" on that date)
was $0.15 per share, resulting in a market capitalization of approximately
$60,000,000. The Board of Directors has determined that the Company has a
relatively high number of shares outstanding given the Company's market
capitalization, operating results and shareholders' equity. If the Board were to
effect a reverse stock split, the Company will decrease the number of shares
outstanding, which should result in a proportionate increase in the price of the
Company's Common Stock.

The Board believes that a reverse stock split may enhance the
acceptability of the Common Stock by the financial community and the investing
public. The reduction in the number of issued and outstanding shares of Common
Stock caused by a reverse stock split is anticipated initially to increase
proportionally the per share market price of the Common Stock. The Board also
believes that a reverse stock split may result in a broader market for the
Common Stock than that which currently exists. The expected increased price
level may encourage interest and trading in the Common Stock and possibly
promote greater liquidity for the Company's shareholders, although such
liquidity could be adversely affected by the reduced number of shares of Common
Stock outstanding after the effective date of a reverse stock split.
Additionally, a variety of brokerage house policies and practices tend to
discourage individual brokers within those firms from dealing with lower priced
stocks due to the trading volatility often associated with lower priced stock.
Some of those policies and practices pertain to the payment of broker's
commissions and to time consuming procedures that function to make the handling
of lower priced stocks economically unattractive to brokers. In addition, the
structure of trading commissions tends to have an adverse impact upon holders of
lower priced stock because the brokerage commission on a sale of lower priced
stock generally represents a higher percentage of the sales price than the
commission on a relatively higher priced issue. The Board of Directors believes
that a reverse stock split may result in a price level for the Common Stock that
will reduce, to some extent, the effect of the above-referenced policies and
practices of brokerage firms and diminish the adverse impact of trading
commissions on the market for the Common Stock. Any reduction in brokerage
commissions resulting from the proposed reverse stock split may be offset,
however, in whole or in part, by increased brokerage commissions required to be
paid by shareholders selling "odd lots" created by such reverse stock splits.

There can be no assurance that any or all of the effects described in
this Proxy Statement will occur, including, without limitation, that the market
price per share of New Common Stock after a reverse stock split will be equal to
the applicable multiple of the market price per share of Old Common Stock before
a reverse stock split, or that such price will either exceed or remain in excess
of the current market price. Further, there is no assurance that the market for
the Common Stock will be improved. Shareholders should note that the Board
cannot predict what effect any specific reverse stock split will have on the
market price of the Common Stock.

At the last annual meeting, held on December 5, 2002, the shareholders
of the Company approved four separate reverse stock splits (one in a ratio of
1-for-20, one in a ratio of 1-for-15, one in the ratio of 1-for-10 and one in a
ratio of 1-for-5). However, the Company did not implement any of these reverse
stock splits. The Board of Directors believes that shareholder approval of a
range of exchange ratios (rather than a fixed exchange ratio) provides the
Company with the flexibility to achieve the desired results of the reverse stock
split at a ratio that, at the time of a reverse stock split, would be in the
best interests of the Company and its shareholders. If the shareholders approve
Proposal 2, the Board of Directors would effect a reverse stock split only upon
the Board's determination that a reverse stock split would be in the best
interests of the Company and its shareholders at that time. If the Board were to
effect a reverse stock split, the Board would set the timing for such reverse
stock split and select the specific ratio within the range set forth herein. No
further action on the part of shareholders will be required to either implement
or abandon a reverse stock split. If shareholders approve Proposal 2, and the
Board of Directors determines to implement a reverse stock split, the Company
would communicate to the public, prior to the effective date of such reverse
stock split, additional details regarding the reverse stock split, including the
specific ratio the Board has selected. If the Board of Directors does not
implement the reverse stock split within twelve months from the Annual Meeting,
the authority granted in this proposal to implement the reverse stock split will
terminate. The Board of Directors reserves its right to elect not to proceed, or
may abandon, the reverse stock split if it determines, in its sole discretion,
that this proposal is not in the best interests of the Company and its
shareholders.

Principal Effects of a Reverse Stock Split

Contingent upon shareholder and Board approval, the reverse stock split
will be effected by filing with the California Secretary of State an amendment
to the Company's Articles of Incorporation in substantially the form of Exhibit
B attached hereto (subject to change as may be required by the California
Secretary of State), setting forth therein the specific ratio approved by the
Board. The amendment and the reverse stock split will be effective immediately
upon such filing.

Without any further action on the part of the Company or the
shareholders, after the filing of an amendment to the Company's Articles of
Incorporation effecting the approved reverse stock split, the shares of Old
Common Stock will be converted into and reconstituted into the appropriate
number of shares of New Common Stock resulting from the approved reverse stock
split (and, where applicable, cash in lieu of any fractional shares, as
described elsewhere in this Proxy Statement). Each shareholder will own fewer
shares of our Common Stock following a reverse stock split. However, a reverse
stock split will affect all of the holders of our Common Stock uniformly and
will not affect any shareholder's percentage ownership of the Company except to
the extent that the reverse stock split results in fractional shares. As a
result of paying cash in lieu of fractional shares resulting from a reverse
stock split, a number of shareholders (those holding fewer shares than the ratio
of the approved reverse stock split) will be eliminated as shareholders of the
Company. Because such transaction would be automatic and effective as to all
shares outstanding prior to the reverse stock split, shareholders who otherwise
may wish to retain their existing equity interest in the Company would be
adversely affected. The Company expects that, based on the number of holders of
our Common Stock as of the record date for the Annual Meeting and assuming a
one-for-ten reverse stock split, approximately 750 shares of currently
outstanding shares of Common Stock would result in fractional share interests
for which cash would be paid and approximately 10 holders of our Common Stock
would be eliminated as a shareholder of the Company. The Company expects that,
based on the number of holders of our Common Stock as of the record date for the
Annual Meeting and assuming a one-for-fifty reverse stock split, approximately
13,500 shares of currently outstanding shares of Common Stock would result in
fractional share interests for which cash would be paid and approximately 45
holders of our Common Stock would be eliminated as a shareholder of the Company.
Shares of Common Stock no longer outstanding as a result of the fractional share
settlement procedure will be returned to authorized but unissued shares of the
Company.

There will be no material differences between the rights of the holders
of the shares of Common Stock outstanding prior to the reverse stock split and
those outstanding after the reverse stock split is effected (other than those
arising from the fractional share settlement) as all shareholders are affected
uniformly in a revisers stock split. The reverse stock split will, however,
result in certain adjustments to the voting rights and conversion ratios of the
Series A Preferred Stock and the Series B Preferred Stock. Specifically,
pursuant to the terms of the Company's Articles of Incorporation, the reverse
stock split will result in an adjustment to the voting rights of the Series A
Preferred Stock and the Series B Preferred Stock so that once a reverse stock
split is effected, the relative voting power of such shares to the voting power
of the Common Stock and to the voting power of the other series of outstanding
Preferred Stock will be in the same proportion as existed immediately prior to
such reverse stock split. For example, assuming a one-for-twenty reverse stock
split is approved, this adjustment would result in a reduction in the voting
power of each share of the Series A Preferred Stock from one vote per share to
1/20th of a vote per share and a reduction in the voting power of the Series B
Preferred Stock from 2 votes per share to 1/10th of a vote per share. Thus, the
proportionate voting power of the holders of the voting stock of the Company
would not be affected. The proposed reverse stock split will also result in
adjustments being made to the conversion ratios of the Series A Preferred Stock
and the Series B Preferred Stock so that such shares will be convertible into
such number of shares of Common Stock that a holder of such Preferred Stock
would have been entitled to receive if such Preferred Stock were to have been
converted into Common Stock immediately prior to a proposed reverse stock split.
For example, under such adjustments, after a one-for-twenty reverse stock split
is made effective, each share of the Series A Preferred Stock will be
convertible into 1/20th of a share of Common Stock, as compared to one share of
Common Stock prior to the one-for-twenty reverse stock split, and each share of
the Series B Preferred Stock will be convertible into 1/10th of a share of
Common Stock, as compared to 2 shares of Common Stock prior to the one-for-
twenty reverse stock split.

In addition, all outstanding options and warrants to purchase shares of
Common Stock would be adjusted as a result of any reverse stock split, as
required by the terms of those securities. In particular, the number of shares
issuable upon the exercise of each instrument would be reduced, and the exercise
price per share, if applicable, would be

increased, in accordance with the terms of each instrument and based on the
ratio of the reverse stock split. Also, the number of shares reserved for
issuance under our existing stock option and equity incentive plans would be
reduced proportionally based on the ratio of the reverse stock split.

Consummation of a reverse stock split will not alter the number of
authorized shares of Common Stock which will remain at 500,000,000 shares or
750,000,000 shares if Proposal 1 is approved. As discussed above, proportionate
voting rights and other rights of the holders of Common Stock and Preferred
Stock will not be altered by a reverse stock split (other than as a result of
the payment of cash in lieu of fractional shares, as described above, and other
than the proportionate change in the number of shares of Common Stock into which
the outstanding shares of Series A Preferred Stock and Series B Preferred Stock
are convertible or for which options or warrants may be exercised).

Shareholders should note that certain disadvantages may result from the
adoption of the proposed reverse stock split. In the event Proposal 2 is
approved by the shareholders and the Board of Directors approves a reverse stock
split at a specific ratio, the number of outstanding shares of Common Stock
would be decreased as a result of the reverse stock split, but the number of
authorized shares of Common Stock would not be so decreased. The Company would
therefore have the authority to issue a greater number of shares of Common Stock
following the reverse stock split without the need to obtain shareholder
approval to authorize additional shares. Any such additional issuance may have
the effect of significantly reducing the interest of the existing shareholders
of the Company with respect to earnings per share, voting, liquidation value and
book and market value per share. Although the Company believes that the
availability of such additional shares would provide the Company with the
flexibility to meet business needs as they may arise and to take advantage
quickly of favorable opportunities, there are no current plans to use such
additional shares.

This proposal has been prompted solely by the business considerations
discussed in the preceding paragraphs. Nevertheless, the additional shares of
Common Stock that would become available for issuance if a reverse stock split
is effected could also be used by the Company's management to oppose a hostile
takeover attempt or delay or prevent changes in control or changes in or removal
of management, including transactions that are favored by a majority of the
shareholders or in which the shareholders might otherwise receive a premium for
their shares over then-current market prices or benefit in some other manner.
For example, without further shareholder approval, the Board of Directors could
sell shares of Common Stock in a private transaction to purchasers who would
oppose a takeover or favor the current Board of Directors. The Board of
Directors is not aware of any pending takeover or other transactions that would
result in a change in control of the Company, and the proposal was not adopted
to thwart any such efforts.

The Common Stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and, as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. No reverse stock split that would be permitted to be effected by
approval of Proposal 2 is anticipated to effect the registration of the Common
Stock under the Exchange Act. After the Effective Date, trades of the New Common
Stock will continue to be reported on the NASDAQ electronic "Bulletin Board"
under the Company's symbol "ENVA." No reverse stock split that would be
permitted to be effected by approval of Proposal 2 is anticipated to result in a
"Rule 13e-3 transaction" as defined under the Exchange Act.

California law prohibits the payment of cash for fractional shares if
it would result in the cancellation of more than 10% of the outstanding shares
of any class of stock. Thus, the Company is prohibited from effecting a reverse
stock split if that stock split would result in cancellation of more that 10% of
the Old Common Stock.

The following table depicts, by way of example, the potential effects
of a reverse stock split, assuming certain exchange ratios within the one-for
ten to the one-for-fifty range, upon the number of shares of Common Stock
outstanding, the number of shares of Common Stock reserved for future issuance
and the number of authorized but unissued shares of Common Stock that would be
available for issuance after the reverse stock split at each given ratio. Such
effects are calculated on the basis of 401,895,856 shares issued and outstanding
as of the record date for the Annual Meeting. As discussed above, the number of
shares of Common Stock authorized for issuance under our Articles of

Incorporation would remain unaffected by a reverse stock split. Although the
following table sets forth examples of various reverse stock split ratios, the
Board may choose any ratio within the authorized range.

Shares Shares Shares
Reverse Stock Split Common Stock Reserved for Authorized for Available for
Outstanding (1) Issuance (2) Issuance (3) Issuance (4)
---------------------------- --------------------- ------------------- ------------------- -------------------

Before Split 401,895,856 29,454,188 500,000,000 68,649,956
1-for-10 40,189,586 2,945,419 500,000,000 456,864,996
1-for-20 20,094,793 1,472,709 500,000,000 478,432,498
1-for-30 13,396,529 981,806 500,000,000 485,621,665
1-for-40 10,047,396 736,355 500,000,000 489,216,249
1-for-50 8,037,917 589,084 500,000,000 491,372,999

----------------------------

(1) Represents the total number of shares of Common Stock outstanding after
the reverse stock split, but without giving effect to any changes
resulting from the payment of cash in lieu of fractional shares.

(2) Represents the total number of shares of Common Stock reserved for
issuance upon conversion of Series A Preferred Stock and Series B
Preferred Stock and exercise of outstanding options, warrants, convertible
debt and other rights agreements, but without giving effect to any changes
resulting from the payment of cash in lieu of fractional shares.

(3) Represents the total number of shares of Common Stock authorized for
issuance as of June 22, 2004.

(4) Represents the total number of shares of Common Stock available for
issuance after giving effect to the reverse stock split, but without
giving effect to any changes resulting from the payment of cash in lieu of
fractional shares.

Accounting Matters

Because the Common Stock has no par value, the reverse stock split will
not affect the stated capital on the Company's balance sheet attributable to the
Common Stock. The costs for payment of the cost of fractional shares will be
deducted from the Common Stock account on the balance sheet. The per share net
income or loss and per share net book value of the Common Stock will be
increased as a result of the reverse stock split, because there will be fewer
shares of Common Stock outstanding. In addition, all per-share income and loss
numbers for prior years will be restated to reflect the reverse stock split.

No Dissenters Rights

In connection with the approval of the reverse stock split,
shareholders of the Company will not have a right to dissent and obtain payment
for their shares under California law or the Company's Articles of Incorporation
or bylaws.

Federal Income Tax Consequences of the Proposed Reverse Stock Splits

The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the four proposed reverse stock splits. The following discussion
sets forth the material United States federal income tax consequences that
management believes will apply with respect to the Company and the shareholders
of the Company who are United States holders at the effective time of the
reverse stock split (based on laws in effect as of the date of mailing of this
Proxy Statement). This discussion does not address the tax consequences of
transactions effectuated prior to or after any approved reverse stock split,
including, without limitation, the tax consequences of the exercise of options,
warrants or similar rights to purchase stock. Furthermore, no foreign, state or
local tax considerations are addressed herein. For these purposes, a United
States holder is a shareholder that is: (i) a citizen or resident of the United
States, (ii) a domestic corporation, (iii) an estate whose income is subject to
United States federal income tax regardless of its source, or (iv) a trust if a
United States court can exercise primary supervision over the trust's
administration and one or more United States persons are authorized to control
all substantial decisions of the trust. This discussion is a summary only and
each shareholder is urged to consult with his, her or its own tax advisors as to
the tax effects of a reverse stock split to him, her or it.

The Company believes that a reverse stock split, if effectuated, will
have the following federal income tax effects:

1. A shareholder will not recognize gain or loss on the exchange of Old Common
Stock for New Common Stock resulting from a reverse stock split. In the
aggregate, the shareholder's basis in shares of New Common Stock resulting
from a reverse stock split will equal his, her or its basis in shares of
Old Common Stock, excluding any basis attributable to shares of Old Common
Stock which the shareholder surrenders for cash in lieu of a fractional
share of New Common Stock resulting from a reverse stock split.

2. A shareholder's holding period for tax purposes for shares of New Common
Stock will be the same as the holding period for tax purposes of the shares
of Old Common Stock exchanged therefor.

3. The proposed reverse stock split (regardless of the ratio selected) will
constitute a reorganization within the meaning of Section 368(a)(1)(e) of
the Internal Revenue Code or will otherwise qualify for general
non-recognition treatment, and the Company will not recognize any gain or
loss as a result of any of the proposed reverse stock splits.

4. To the extent a shareholder receives cash from the Company in lieu of a
fractional share of Common Stock resulting from the proposed reverse stock
split, the shareholder will be treated for tax purposes as though the
shareholder sold the fractional share to the Company. The receipt of cash
in the deemed sale of a fractional share will result in a taxable gain or
loss equal to the difference between the amount of cash received and the
holder's adjusted federal income tax basis in the fractional share. Gain or
loss will generally be a capital gain or loss. Capital gain of a
non-corporate United States holder is generally taxed at a lower rate than
other income if the property has been held more than one year. The
deduction of capital losses is subject to certain limitations.

Vote Required for Shareholder Approval of a Reverse Stock Split within a range
from One-for-Ten to One-for-Fifty.

The approval of this Proposal No. 2 requires the affirmative vote of a
majority of the outstanding shares of Common Stock, voting separately as a
class, and the affirmative vote of a majority of the outstanding shares of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting
together as a single class (with both the Common Stock and the Series A
Preferred Stock having one vote per share and the Series B Preferred Stock
having 2 votes per share).

THE BOARD RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE BOARD
TO AMEND THE ARTICLES OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT WITHIN A RANGE FROM
ONE-TO TEN TO ONE-TO FIFTY

PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S
1996 STOCK OPTION PLAN

General

The Company's shareholders are being asked to act upon a proposal to
amend the Company's 1996 Stock Option Plan (the "1996 Plan") to increase the
authorized number of shares reserved thereunder from 45,000,000 to 65,000,000.

A general description of the principal terms of the 1996 Plan, the
amendment approved by the Board of Directors and the purpose of such amendment
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 SEC. A copy of this document will also be furnished without
charge to any shareholder upon written request made prior to the meeting to the
attention of the Acting Chief Financial Officer of the Company at its executive
offices in Torrance, California.

General Description

In October 1996, the Board of Directors of the Company adopted the 1996
Plan. A total of 15,000,000 shares have been 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. Currently, the total number of shares issuable under
both the 1996 Plan is 45,000,000 shares. The Board of Directors has approved an
amendment to the 1996 Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 20,000,000 shares, bringing the total number
of shares issuable under the 1996 Plan to 65,000,000. The proposed share
increase to the 1996 Plan will assure that a sufficient reserve of Common Stock
will be available under the 1996 Plan to provide the Company with the continuing
opportunity to utilize equity incentives to attract and retain the services of
employees essential to the Company's long-term growth and financial success.

Description of 1996 Plan

Administration. With respect to the grant of options to directors or
employees who are also officers or directors, the 1996 Plan is administered by
(i) the Board of Directors of the Company, or (ii) a committee designated by the
Board and constituted in such a manner as to comply with applicable laws and 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 the Company,
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 the employees, directors and consultants of the Company 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.

Eligibility. The 1996 Plan provides that options to purchase Common
Stock may be granted to employees (including officers and directors who are also
employees), directors and consultants to the Company or its subsidiaries.
Incentive stock options may only be granted to employees. As of June 22, 2004,
there were approximately 40 persons eligible to receive options under the 1996
Plan, of which approximately 25 persons were eligible to receive incentive stock
options.

Stock Options. Each option granted under the 1996 Plan is to be
evidenced by a written stock option agreement between the Company and the
optionee and is subject to the following additional terms and conditions:

(a) Exercise of the Option. 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 to the Company, specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company. The acceptable methods of payment for shares issued upon
exercise of an option are set forth in the option agreement and may consist of
(1) cash; (2) check; (3) promissory note; (4) the delivery of a properly
executed exercise notice together with such other documentation as the
Administrator shall require to effect an exercise and delivery to the Company of
the amount of sale or loan proceeds required to pay the exercise price; (5) any
combination of the foregoing methods; or (6) such other consideration and method
of payment as may be determined by the 1996 Plan administrators and permitted
under applicable laws.

(b) Exercise Price. 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 of the Company 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 stock of the Company 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. 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 Company's 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
National Association of Securities Dealers (NASD) "Bulletin Board" on last
market trading day prior to the time of grant. Based on the foregoing formula,
as of June 22, 2004, the fair market value of the Company's Common Stock was
$0.15 per share.

(c) Termination. If the optionee's employment, directorship or consulting
relationship with the Company 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.

(d) Disability. If an optionee is unable to continue his or her employment,
directorship or consulting relationship with the Company as a result of
disability, options may be exercised at any time within 12 months from the date
of disability to the extent such options were exercisable at the date of
disability, provided that the option is exercised no later than its expiration
date. With respect to incentive stock options, if the disability is not a
"disability" as defined in Section 22(e)(3) of the Code, an optionee's incentive
stock options shall automatically convert into nonstatutory options on the day
three months and one day following the date of termination of the optionee.

(e) Death. If an optionee should die while serving as an employee, director
or consultant of the Company, options may be exercised at any time within 12
months after the date of death by the optionee's estate or a person who acquired
the right to exercise the option by bequest or inheritance, but only to the
extent that such options would have been exercisable by the optionee at the date
of death, provided that the option is exercised no later than its expiration
date.

(f) Term and Termination of Options. 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 stock of the Company, may not have a term of more than five (5)
years.

(g) Transferability of Options. 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 shall be transferable to the extent determined
by the administrator and as provided in an optionee's option agreement.

(h) Other Provisions. 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.

Adjustments; Mergers and Asset Sales. 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 Company's capitalization
without receipt of consideration by the Company, 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 of the merger or consolidation of the Company in which the
Company is not the surviving corporation, or a proposed sale, transfer or other
disposition of all or substantially all of the assets of the Company in
connection with the complete liquidation or dissolution of the Company, or a
reverse merger in which the Company is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of the
Company's 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 such option is assumed or substituted by such successor
corporation or replaced with a comparable option with respect to shares in the
surviving corporation, or such option is replaced with a comparable cash
incentive program of the successor corporation, or unless the vesting,
exercisability and release of such option is subject to other limitations
imposed by the 1996 Plan administrators at the time of granting such options.

Amendment, Suspension and Termination of the 1996 Plan. 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 shall 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 shall have 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 shall remain outstanding until they expire by their terms.

Amended Plan Benefits

The Company cannot now determine the number of options to be granted in
the future under the 1996 Plan, as proposed to be amended, to its executive
officers, directors or employees. There were no grants of stock options to the
Named Executive Officer (as defined below) under the 1996 Plan during fiscal
2003. The Company granted options covering an aggregate of 9,998,451 shares of
Common Stock to its other employees under the 1996 Plan during fiscal 2003.

Certain Federal Income Tax Information

An optionee who is granted an incentive stock option will not recognize
taxable income either at the time of grant or exercise, although the exercise
may subject the optionee to the alternative minimum tax. Upon the sale or
exchange of the shares more than two years after grant of the option and one
year after exercise, any gain or loss will be treated as capital gain or loss.
If these holding periods are not satisfied, the optionee will recognize ordinary
income at the time of sale or exchange equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise, or (ii) the sale price of the shares. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is subject to Section 16 of the Exchange Act. Any gain
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as capital gain.

An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory option. However, upon its exercise, the optionee will
recognize taxable income generally measured as the excess of the fair market
value of the shares purchased over the purchase price. Any taxable income
recognized in connection with an option exercise by an optionee who is also an
employee of the Company will be subject to tax withholding by the Company. Upon
resale of such shares by the optionee, any difference between the sales price
and the fair market value of shares on the date the optionee purchased the
shares will be treated as capital gain or loss.

An optionee's gain or loss on the sale or exchange of his shares, to
the extent any gain is not treated as ordinary income under the foregoing rules,
will generally represent capital gain or loss. Under current law, the following
holding periods and maximum federal tax rates will generally apply for sales
made in 2004:

Classification of Maximum
-------------------------------------------
Holding Period Gain or Loss Federal Tax Rate
-------------------------- ------------------ --------------------
-------------------------- ------------------ --------------------

One Year or Less Short-Term 35%

More Than One Year Long-Term 15%

These maximum rates are subject to several special computational rules,
and optionees are instructed to consult their personal tax advisors concerning
their own tax situations.

The Company will generally be entitled to a tax deduction in the same
amount as the ordinary income recognized by an optionee with respect to shares
acquired upon exercise of an option.

The foregoing summary of the federal income tax consequences of 1996
Plan transactions is based upon federal income tax laws in effect on the date of
this Proxy Statement. This summary does not purport to be complete, and does not
discuss foreign, state or local tax consequences.

Shares Reserved for Issuance

The Company has reserved 45,000,000 shares of Common Stock for issuance
under the 1996 Plan. In order to continue to attract new talented employees,
directors and consultants, it is proposed that the 1996 Plan be amended, and
that the Company increase the number of shares of Common Stock reserved for
issuance thereunder to 65,000,000 shares of Common Stock.

Vote Required

The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series A Preferred Stock, and Series B Preferred Stock,
voting together as a single class, present or represented by proxy at the Annual
Meeting, is required to approve the amendment to the 1996 Plan which will
increase the number of shares of Common Stock reserved for issuance thereunder
by 20,000,000 shares, bringing the total number of shares issuable under the
1996 Plan to 65,000,000.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT
OF THE 1996 PLAN

PROPOSAL NO. 4
ELECTION OF DIRECTORS

A slate of eight (8) Directors will be presented for election at the
Annual Meeting, each of whom will serve until the next annual meeting of
shareholders or until a successor is elected or appointed and qualified or until
the Director's earlier resignation or removal. The Company's Articles of
Incorporation provide that the holders of the Series B Preferred Stock are
entitled, voting as a separate class, to elect two (2) members of the Board. The
holders of the Common Stock and Series A Preferred Stock, voting together as a
single class, are entitled to elect the balance of the members of the Board. Two
(2) nominees have been nominated for election by the holders of the Series B
Preferred Stock and six (6) nominees have been nominated for election by the
holders of the Common Stock and Series A Preferred Stock.

The Series B Preferred Stock proxy holders will vote, as a separate
class, the proxies received by them to elect as the Series B nominees Donald H.
Dreyer and John J. Micek III. The Common Stock and Series A Preferred Stock
proxy holders will vote, as a single class, the proxies received by them to
elect as their six (6) nominees: Bjorn Ahlstrom, Malcolm R. Currie, Ph.D., Carl
D. Perry, Anthony N. Rawlinson, Edwin O. Riddell and John R. Wallace. With
respect to any proposed nominee, if that nominee is unable or declines to serve
as a Director at the time of the Annual Meeting, the proxies will be voted for
any nominee designated by the proxy holders to fill such vacancy. However, it is
not expected that any nominee will be unable or will decline to serve as a
Director. If shareholders nominate persons other than the Company's nominees for
election as Directors, the Common Stock, Series A Preferred Stock, and Series B
Preferred Stock proxy holders may vote all proxies received by them in
accordance with cumulative voting if invoked to assure the election of as many
of the Company's nominees as possible. The term of office of each person elected
as a Director will continue until the next annual meeting of shareholders or
until the Director's successor has been elected or appointed or until the
Director's earlier resignation or removal.

Certain information about the nominees for the Board of Directors is furnished
below.

Proposed Common Stock and Series A Preferred Stock Nominees:

Bjorn Ahlstrom, Director. Mr. Ahlstrom was appointed to fill a vacancy
on the Board of Directors in June 2004. Mr. Ahlstrom currently is a consultant
in the heavy-duty vehicle industry. Mr. Ahlstrom retired as Chairman of Volvo
Group North America, Inc. on April 1, 2004. Prior to that, Mr. Ahlstrom was
President and Chief Executive Officer of Volvo North America Corporation from
1971 until 1994. During this term, Volvo North America Corporation owned and
operated Volvo's businesses in the United States and Canada. Under Mr.
Ahlstrom's leadership, VNAC grew from a $50 million car importer in the early
1970s to a $6 billion company with manufacturing and marketing operations for
cars, trucks, marine engines, and financial services. In 1981, Mr. Ahlstrom
received the Royal Order of the North Star from King Carl XVI Gustaf of Sweden.
The United States Government awarded him the Medal of Peace and Commerce in
1983. He received the Ellis Island Medal of Honor in 1990. Mr. Ahlstrom has been
awarded honorary Doctor of Law degree from St John's University, NY, and Ramapo
College of New Jersey.

Malcolm R. Currie, Ph.D., Director. Dr. Currie was re-elected to the
Board of Directors in 1999. Dr. Currie had served as a Director of the Company
from 1995 through 1997. 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 papers 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
Directors of LSI Logic, Inamed Corp., Innovative Micro Technology, Regal One,
and Currie Technologies. He is past president of the American Institute of
Aeronautics and Astronautics, and is a Member of the Board of Trustees of the
University of Southern California.

Carl D. Perry, Chief Executive Officer, President and Director. Mr.
Perry served as a Director and as an Executive Vice President of the Company
from July 1993 until November 1997. In November 1997, Mr. Perry was elected as
Chairman of the Board and Chief Executive Officer of the Company, and was
elected President in June 1999.

In July 1999, Mr. Perry resigned his position as Chairman of the Board to allow
Mr. Anthony Rawlinson to become Chairman. He served as Acting Chief Financial
Officer of the Company from November 1997 to March 2004. Mr. Perry continues as
Chief Executive Officer and President and as a Director. Prior to joining the
Company, he was an international aerospace and financial consultant from 1989 to
1993. Mr. Perry served as Executive Vice President of Canadair Ltd., Canada's
largest aerospace corporation, from 1984 to 1989, where he conducted strategic
planning, worldwide marketing, and international joint ventures. From 1979 to
1983, Mr. Perry served as Executive Vice President of the Howard Hughes
Helicopter Company, now known as Boeing Helicopter Company, where he was
responsible for general management, worldwide business development, and
international operations.

Anthony N. Rawlinson, Chairman of the Board. Mr. Rawlinson was
appointed non-executive Chairman of the Board 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. From 1996 to 1999, Mr. Rawlinson was
Chairman of IXLA Ltd., an Australian public company in the field of PC
photography software and its wholly owned subsidiary, photohighway.com. Mr.
Rawlinson is also a Chairman of Cardsoft, Inc., a high technology software
company with secure java based solutions for mobile phones and handheld devices.

Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the
Company since June 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 has served as Manager of
the Transportation Business Unit in the Customer Systems Group 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. 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.

John R. Wallace, Director. Mr. Wallace was elected as a Director of the
Company in December 2002. He retired from the Ford Motor Company in 2002, and is
currently serving as a consultant to the Company for fuel cell and hybrid
electric vehicle strategy. Prior to his retirement, he was executive director of
TH!NK Group. He has been active in Ford Motor Company's alternative fuel vehicle
programs since 1990, serving first as: Director, Technology Development
Programs; then as Director, Electric Vehicle Programs; Director, Alternative
Fuel Vehicles and finally Director, Environmental Vehicles. He is past Chairman
of the Board of Directors of TH!NK Nordic; he is past chairman of the United
States Advanced Battery Consortium; Co-Chairman of the Electric Vehicle
Association of the Americas, and past Chairman of the California Fuel Cell
Partnership. He served as Director of Ford's Electronic Systems Research
Laboratory, Research Staff, from 1988 through 1990. Prior to joining Ford
Research Staff, he was president of Ford Microelectronics, Inc., in Colorado
Springs, Colorado. His other experience includes work as program manager with
Intel Corporation. He also served as Director, Western Development Center, for
Perkin-Elmer Corporation and as President of Precision Microdesign, Inc.

Proposed Series B Preferred Stock Nominees:

Donald H. Dreyer, Director. Mr. Dreyer was elected a Director of the
Company in January 1997. Mr. Dreyer is President and CEO of Dreyer & Company,
Inc., a consultancy in credit, accounts receivable and insolvency services,
which he founded in 1990. Mr. Dreyer has served as Chairman of the Board of
Credit Managers Association of California during the 1994 to 1995 term and
remains a current member. Mr. Dreyer is also a member of the American Bankruptcy
Institute and the National Advisory Committee of Dun & Bradstreet, Inc.

John J. Micek III, Director. Mr. Micek was elected a Director of the
Company in April 1999. Mr. Micek served as the Company's Vice President, General
Counsel and Secretary from March 1994 to March 1997. From June 1997 to August
1998, Mr. Micek was COO Sboof Pelion Systems, Inc. Mr. Micek is currently
Managing Director of

Silicon Prairie Partners, LP. He also is a practicing attorney specializing in
corporate finance and business development in Palo Alto, CA. He is a Board
Member of Universal Warranty and also sits on the boards of UTEK Corp., Pelion
Systems, Inc., Universal Assurors Agency, Inc., and Armanino Foods.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE

Directors, Nominees and Executive Officers

The following table sets forth certain information with respect to the
Directors, nominees for Directors and executive officers of the Company:

Directors, Nominees and Executive Officers

Name Age Position
Anthony N. Rawlinson 48 Chairman of the Board
Carl D. Perry 71 Chief Executive Officer,
President and Director
Malcolm R. Currie, Ph.D. (2) 77 Director
Donald H. Dreyer (1) 66 Director
John J. Micek III (1) 51 Director
Edwin O. Riddell (2) 61 Director
John R. Wallace 55 Director
Bjorn Ahlstrom 70 Director
Larry B. Lombard 43 Acting Chief Financial
Officer
Edward M. Moore 42 Chief Operating Officer

----------------------------

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Biographical information regarding Directors and nominees for Directors
is set forth above.

Larry B. Lombard, Acting Chief Financial Officer. Mr. Lombard was
appointed Acting Chief Financial Officer in March 2004. He has served as the
Company's Director of Finance and Administration since 1998. Mr. Lombard has
over twenty years experience in management and finance for a wide range of
companies including software development, insurance, petroleum and banking. He
received his BA in Business Economics, University of California at Los Angeles
and his MBA in Global Management from the University of Phoenix.

Edward M. Moore, Chief Operating Officer. Mr. Moore was appointed Chief
Operating Officer in March 2004. He has served as the Company's Vice President,
Marketing and Sales since 2000. Mr. Moore was vice president, sales for E-Bus
from 1999 to 2000. Mr. Moore has experience in creating and implementing
strategic marketing plans for both domestic and international markets. He has an
extensive background in the alternative fuels and drive system industry, having
worked with GM Hughes, AeroEnvironment and E-Bus in both the technology and
marketing fields. He received his BS, Occupational Education from Southern
Illinois University and his MBA from the University of Phoenix.

Relationships Among Directors or Executive Officers

There are no family relationships among any of the Directors, nominees
or executive officers of the Company.

Meetings and committees of the Board of Directors of Rule 4200(a)(15)
of the National Association of Securities Dealers' listing standards. All
members of the Board of Directors participate in the consideration of director
nominees.

Nomination of Directors

The Board of Directors does not have a separately constituted
nominating committee. The Board believes that it is appropriate under existing
circumstances not to have a separate nominating committee because the Board is
comprised of only seven existing members (there is currently one vacancy on the
Board), six of whom are "independent" within the meaning of Rule 4200(a)(15) of
the National Association of Securities Dealers' listing standards. All members
of the Board of Directors participate in the consideration of director nominees.
The Board of Directors does not have a formal policy with regard to the
consideration of any director candidates recommended by shareholders. However,
the Board of Directors would consider for possible nomination qualified nominees
recommended by shareholders. Shareholders who wish to propose a qualified
nominee for consideration should submit complete information as to the identity
and qualifications of that person to the Secretary of the Company at 19850 South
Magellan Drive, Torrance, California 90502 sufficiently in advance of an annual
meeting. Absent special circumstances, the Board of Directors will continue to
nominate qualified incumbent Directors whom the Board of Directors believes will
continue to make important contributions to the Board of Directors. The Board
generally requires that nominees be persons of sound ethical character, be able
to represent all shareholders fairly, have no material conflicts of interest,
have demonstrated professional achievement, have meaningful experience and have
a general appreciation of the major business issues facing Enova. The Board of
Directors does not have a formal process for identifying and evaluating nominees
for Director.

Compensation of Directors

Directors who are employees of the Company do not receive any
compensation for their services as Directors. All Directors are reimbursed for
expenses incurred in connection with attending Board and committee meetings.

In September 1999, the Company's Board of Directors unanimously
approved a compensation package for outside directors consisting of the
following consideration. 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 on that date. For
each telephonic Board meeting attended, 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 on that date. 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 on that date. As of January 2002, this package was
amended to include like compensation of $500 in cash and $500 in stock to all
committee members in attendance at each committee meeting. All Directors are
also reimbursed for expenses incurred in connection with attending Board and
committee meetings. In May 2004, the Company's Board of Directors unanimously
approved an increase in compensation for outside directors which doubled the
amount of cash and stock paid for the various directors' meetings.

For and with respect to fiscal 2003, 754,167 shares of the Company's
Common Stock were issued under the above described compensation plan for outside
directors. As of the record date for the Annual Meeting, 2,841,476 shares have
been issued under the compensation plan for Directors since its inception in
September 1999.

Certain Relationships and Related Transactions

The following are certain transactions entered into between the Company
and its officers, directors, nominees for director and principal shareholders
and their affiliates since January 1, 2003:

James M. Strock

The Company has entered into a consulting agreement with James Strock &
Company, a corporation wholly owned by James M. Strock. Mr. Strock served as a
Director of the Company from July 2000 until his resignation in March 2004.
Under the terms of that consulting agreement, the Company retained Mr. Strock's
services for a minimum monthly retainer of $3,000 plus reasonable expenses. This
consulting agreement was terminated in April 2003. During 2003, the Company paid
Mr. Strock $17,000 in cash for consulting services and expenses and $12,000 for
directors fees

(which latter amount includes the cash paid and the value of the stock issued to
him pursuant to the outside directors compensation package described above).

John R. Wallace

The Company has entered into a consulting agreement with John R.
Wallace wherein the Company compensates Mr. Wallace at the rate of $1,500 per
day plus reasonable expenses for consulting services rendered. Mr. Wallace is
not compensated per this agreement when acting in the capacity of a director of
the Company. During 2003, the Company paid Mr. Wallace $6,000 in cash for
consulting services and expenses and $12,000 for directors fees (which latter
amount includes the cash paid and the value of the stock issued to him pursuant
to the outside directors' compensation package described above).

Donald H. Dreyer

The Company utilizes the consulting service of Donald H. Dreyer wherein
the Company compensates Mr. Dreyer at the rate of $150 per hour plus reasonable
expenses for consulting services rendered. Mr. Dreyer is not compensated when
acting in the capacity of a director of the Company other than the fees noted
above. During 2003, the Company paid Mr. Dreyer $10,000 in cash for consulting
services and expenses and $12,000 for directors fees (which latter amount
includes the cash paid and the value of the stock issued to him pursuant to the
outside directors' compensation package described above).

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Summary Compensation Table

The following table sets forth all compensation earned by the Company's
Chief Executive Officer and each of the other most highly compensated executive
officers of the Company whose annual salary and bonus exceeded $100,000 for the
years ended December 31, 2003, 2002 and 2001 (collectively, the "Named Executive
Officers"). Mr. Carl D. Perry was the sole executive officer of the Company
whose salary exceeded $100,000 as of December 31, 2003.

Summary Compensation Table
Name and Principal Position Annual Compensation
------------------------------- ------------------------
Year Salary Bonus
($) ($)
---------- ------------ -----------

Carl D. Perry (1) 2003 139,615 --
Chief Executive Officer and President 2002 150,000 --
2001 160,989 30,000
(earned
in 2002)

----------------------------

(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr.
Perry's current salary is $120,000 per year, a 20% voluntary reduction
from the prior year's salary. Mr. Perry served as Acting Chief Financial
Officer during the periods reflected in the above chart and through June
22, 2004.

Option/SAR Grants

No grants of stock options or stock appreciation rights ("SARs") were
made during the year ended December 31, 2003 to the Named Executive Officer.

Option Exercises and Option Values

The Named Executive Officer did not exercise any options during the
year ended December 31, 2003. All options of the Named Executive Officer expired
prior to December 31, 2003 without exercise.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board of Directors currently consists
of Edwin O. Riddell and Malcolm R. Currie, Ph.D. Neither of such persons was an
officer or employee of Enova during the fiscal year ended December 31, 2003, has
previously been an employee of the Company nor had any relationship with the
Company other than as a Director of the Company.

Compensation Committee Report on Executive Compensation

Compensation Policy. The Company's Compensation Policy as established
by the Compensation Committee of the Board of Directors is that executive
officers' total annual cash compensation should vary with the performance of the
Company and that long-term incentives awarded to such officers should be aligned
with the interest of the Company's shareholders. The Company's executive
compensation program is designed to attract and retain executive officers who
will contribute to the Company's long-term success, to reward executive officers
who contribute to the Company's financial performance and to link executive
officer compensation and shareholder interests through the 1996 Plan. The terms
and conditions of these plans were more fully discussed in the Company's Form
S-1 Registration Statement filed with the SEC on July 26, 2002.

Compensation of the Company's executive officers consists of two
principal components: salary and long-term incentive compensation consisting of
stock option grants.

Base Salary and Bonus. Base salary and bonus of the Chief Executive
Officer as established are determined by a subjective assessment of the
executive officer's performance in light of the officer's responsibilities and
position with the Company and the Company's performance during prior periods. In
evaluating overall Company performance, the primary focus is upon financial
performance for the relevant annual period measured by operating income. Base
salaries for all executive officers are reviewed periodically and from time to
time by the Compensation Committee and adjusted appropriately. Incentive
compensation is reviewed periodically and from time to time by the Compensation
Committee and adjusted accordingly.

Long-term Incentive Compensation. The Company believes that option
grants (i) align executive interests with shareholder interests by creating a
direct link between compensation and shareholder return, (ii) give executives a
significant, long-term interest in the Company's success, and (iii) help retain
key executives in a competitive market for executive talent.

The Company's 1996 Plan authorizes the Committee to grant stock options
to employees and consultants, including executives. Currently, option grants
will only be made under the 1996 Plan and will be made from time to time to
executives whose contributions have or will have a significant impact on the
Company's long-term performance. The Company's determination of whether option
grants are appropriate each year is based upon individual performance measures
established for each individual. Options are not necessarily granted to each
executive during each year. Options granted to executive officers typically vest
in equal monthly installments over a period of five years and expire either five
or ten years from the date of grant. No stock options were granted to the Named
Executive Officer during fiscal 2003.

Compensation of Chief Executive Officer. In determining the
compensation of Carl D. Perry, the Chief Executive Officer, the Board of
Directors considered the expense to replace an executive of Mr. Perry's caliber.
The Board therefore established a compensation package for 2003 consisting of an
annual salary of $150,000 plus a bonus to be determined based on the performance
of the Company. In June 2003, Mr. Perry voluntarily reduced his annual salary to
$120,000 in an effort to reduce overhead of the Company. As of the record date,
Mr. Perry's annual salary has not been reinstated to its prior level. The
Compensation Committee believes that Mr. Perry's dedication, commitment and
experience have been vitally important to the successful and ongoing growth of
the Company. Mr. Perry's overall compensation for the year ended December 31,
2003 consisted solely of base salary. Mr. Perry did not receive any additional
options or other stock-based compensation during 2003 at his request. In
determining Mr. Perry's compensation, the Compensation Committee evaluated Mr.
Perry's personal performance, the performance of the Company and Mr. Perry's
long-term commitment to the success of the Company. The Committee believes that
the salary paid to Mr. Perry in 2003 was appropriate based on the financial
condition of the Company.

Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code which provides
that, for purposes of the regular income tax and the alternative minimum tax,
the otherwise allowable deduction for compensation paid or accrued with respect
to a covered employee of a publicly-held corporation is limited to $1 million
per year. For the fiscal year ended December 31, 2003, no executive officer of
the Company received in excess of $1 million in compensation from the Company.
The 1996 Plan is structured so that any compensation deemed paid to an executive
officer when he exercises an outstanding option under the Plan, with an exercise
price equal to the fair market value of the option shares on the grant date,
will qualify as performance-based compensation which will not be subject to the
$1 million limitation. The Compensation Committee currently intends to limit the
dollar amount of all other compensation payable to the Company's executive
officers to no more than $1 million.

Submitted by the Compensation Committee:

Edwin O. Riddell
Malcolm R. Currie, Ph.D.

Stock Performance Graph

The graph below compares the cumulative total shareholder return on our
Common Stock with the cumulative total return on the Standard & Poor's Small
Capitalization 600 Index and an index of peer companies selected by us. A group
of five other electric vehicle companies comprise the peer group index.(1)

The period shown commences on December 31, 1998, and ends on December
31, 2003, the end of our last fiscal year. The graph assumes an investment of
$100 on December 31, 1998 and the reinvestment of any dividends. The comparisons
in the graph below are based upon historical data and are not indicative of, nor
intended to forecast, future performance of our Common Stock.

[The following table was depicted as a line graph in the printed material.]

ENOVA SYSTEMS INC
Cumulative Total Return
-------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
ENOVA SYSTEMS, INC. 100.00 1048.39 548.39 483.87 258.06 435.48
S & P SMALLCAP 600 100.00 112.40 125.67 133.89 114.30 158.63
PEER GROUP 100.00 179.53 157.93 100.05 48.78 75.62

* $100 invested on 12/31/98 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31. 1 - Companies included in the peer
group index are Amerigon, Inc. (ARGN), Electric Fuel Corp. (EFCX) - Electric
Fuel Corp changed it's name to Arotech Corp. (ARTX), Energy Conversion Devices,
Inc. (ENER), Unique Mobility (UQM), and Valence Technology, Inc. (VLNC).

Employment Agreements

Carl D. Perry, Chief Executive Officer of the Company, has no
employment agreement and is an "at will" employee with the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock, Series A
Preferred Stock and Series B Preferred Stock as of the record date, by (i) each
shareholder known to the Company to own beneficially more than 5% of such class
or series of securities; (ii) each of the Company's Directors and nominees for
Director; (iii) the sole Named Executive Officer; and (iv) all executive
officers and Directors 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 Common Stock, Series A Preferred
Stock and Series B Preferred Stock shown as beneficially owned by them.

Shares Percentage of
Beneficially Shares Beneficially Voting
Name and Address of Beneficial Owner Owned (1) Owned (2) Percentage (3)
-------------------------------------------- -------------------- ---------------------- -----------------

Jagen, Pty., Ltd. 145,000,000 33.22% 35.62%
9 Oxford Street, South Ybarra 3141
Melbourne, Victoria Australia

Hyundai Heavy Industries, Co. 33,076,923(4) 7.58% 5.67%
1 Cheona-Dong, Dong-Ku
Ulsan, Korea

Citibank N.A. 31,405,754 7.19% 7.71%
111 Wall Street, 8th Floor
New York, NY 10043

Jean Schulz 1,329,111(5) * *
4900 Upper Ridge Road
Santa Rosa, CA 95404

Delphi Delco Electronics 1,278,720(6) * *
2151 E. Lincoln Road
Kokomo IN 46904-9005

Bjorn Ahlstrom - * *

Carl D. Perry 10,000,500 2.29% 2.46%

Anthony N. Rawlinson 25,430,759 5.83% 6.25%

John J. Micek III 1,521,691(7) * *

Edwin O. Riddell 675,756 * *

Malcolm R. Currie, Ph.D. 565,126 * *

Donald H. Dreyer 488,620 * *

John R. Wallace 159,524 * *

Larry B. Lombard 1,800,000(8) * *

Edward M. Moore 1,022,256(9) * *

All Directors and executive officers 41,664,232(10) 9.54% 9.87%
as a group (9 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 22, 2004.

(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 22, 2004.

(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 10,000,000 shares of Common Stock issuable pursuant to a Stock
Purchase Agreement between Hyundai Heavy Industries, Ltd. and Enova
Systems, Inc. for $1.5M of Enova restricted common stock at an
estimated prices of $0.15 per share based on the weighted average
market closing price of Enova's common stock at June 22, 2004 for the
prior ninety day period.

(5) The number of shares shown represents the ownership of 1,329,111 shares
of Series A Preferred Stock, each of which is 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.

(6) The number of shares shown represents the ownership of 639,360 shares
of Series B Preferred Stock, each of which is convertible into two
shares of Common Stock. These 639,360 shares represent more than 5% of
the outstanding shares of Series B Preferred Stock.

(7) Includes 1,000,000 shares of Common Stock issued to Silicon Prairie
Partners, LP, a limited partnership in which John J. Micek III is the
general partner.

(8) Includes 1,000,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $.16 per share.

(9) Includes 1,000,000 shares of Common Stock issuable pursuant to stock
options exercisable at prices from $.17 to $.20 per share.

(10) Includes 2,000,000 shares of Common Stock issuable pursuant to stock
options exercisable at prices from $.16 to $.20 per share and 1,000,000
shares of Common Stock issued to Silicon Prairie Partners, LP, a
limited partnership in which John J. Micek III is the general partner.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires persons who own more than
10% of the Company's Common Stock and the Company's Directors and executive
officers (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's equity securities to the Securities and
Exchange Commission. Copies of these reports are also required to be delivered
to the Company.

The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
each of Messrs. Rawlinson, Riddell, Currie, Micek, Wallace and Dreyer, each of
whom is a Director of Enova, and James M. Strock (who resigned as a Director of
Enova in March 2004), failed to file on a timely basis three separate Form 4s,
each of which Form 4 reported one transaction, namely the issuance of shares of
Common Stock in partial payment of directors' fees for August and November 2003
and February 2004.

PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

It is the Company's policy that the Audit Committee is to approve the
engagement of the Company's independent auditors. The Audit Committee approved
of the engagement of Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") as
the Company's independent auditors on November 21, 2003 to prepare the Company's
audited financial statements for the year ended December 31, 2003. Singer Lewak
has offices in several locations throughout Southern California and is among the
top twenty auditing firms with regard to the number of public companies audited.
The Audit Committee subsequently approved the engagement of Singer Lewak to
continue as the Company's independent auditors for the Company's year ending
December 31, 2004. In the event that ratification of this selection of auditors
is not approved by a majority of the shares of Common Stock, Series A Preferred
Stock, and Series B Preferred Stock voting at the Annual Meeting in person or by
proxy, management will review its future selection of auditors.

A representative of Singer Lewak is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a statement
and is expected to be available to respond to appropriate questions.

Moss Adams LLP ("Moss Adams") had served as the independent auditors
for the Company for the fiscal years ended December 31. 2001 and 2002 and during
the interim periods from January 1,2003 through November 21, 2003. On November
21, 2003, the Company dismissed Moss Adams and engaged Singer Lewak as its
independent auditors to audit its financial statements for its year ending
December 31, 2003. This decision was approved by the Company's Audit Committee.
Prior to such engagement, the Company did not consult with Singer Lewak
regarding the application of accounting principles to a specific, completed or
contemplated transaction, or the type of audit opinion that might be rendered on
the Company's financial statements.

During the fiscal years ended December 31, 2001 and 2002, and the
subsequent interim period through November 21, 2003, there were no disagreements
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Moss Adams, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports, except the
following:

o In connection with the audit of the Company's financial statements for
the year ended December 31, 2002, Moss Adams had a disagreement with
the Company over the valuation of inventory.

o In connection with the review of the Company's financial statements for
the quarter ended September 30, 2003, Moss Adams had a disagreement
with the Company over the allowance for uncollectible receivables.

o The Audit Committee and the management of the Company discussed each of
these disagreements with Moss Adams and resolved the matters to each
party's satisfaction prior to the filing of the Company's applicable
Form 10-K and Form 10-Q, respectively. The Company authorized Moss
Adams to respond fully to inquiries from Singer Lewak concerning the
matters described in the bullet points immediately above.

During the fiscal years ended December 31, 2001 and 2002 or the
subsequent interim period through the date of Moss Adams' dismissal, Moss Adams
did not advise the Company that the internal controls necessary for the Company
to develop reliable financial statements were inadequate, except as follows:

o In connection with its audit of the Company's financial statements for
the year ended December 31, 2002 and 2001, Moss Adams advised the
Company of a reportable condition involving the Company's internal
controls in its procedures for tracking and reporting inventory. In
2002, this was reported to the Company by Moss Adams as a material
weakness. Moss Adams informed the Company that (i) controls were not in
place to timely detect possible inventory misstatements and (ii) the
inability to timely detect these possible misstatements could
potentially misstate cost of goods sold in the quarterly financial
statements. In response, management timely proposed and implemented
certain improvements to address these concerns.

The Company authorized Moss Adams to respond fully to inquiries from
Singer Lewak concerning the matters described in the bullet point immediately
above.

No report of Moss Adams on the financial statements of the Company for
either of the years ended December 31, 2001 or 2002 contained an adverse opinion
or a disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles. The Company provided both Moss Adams and Singer
Lewak with a copy of the foregoing disclosures.

Singer Lewak billed the Company the following amounts for the following
services with respect to the fiscal year ended December 31, 2003:

Audit Fees: $49,878
Audit-Related Fees: $0
Tax Fees: $0
All Other Fees: $0

Moss Adams billed the Company the following aggregate amounts for the
following services with respect to the fiscal year ended December 31, 2002 and
the period from January 1, 2003 through December 31, 2003:

2003

Audit Fees: $110,223
Audit-Related Fees: $0
Tax Fees: $0
All Other Fees: $0

2002

Audit Fees: $82,916
Audit-Related Fees: $0
Tax Fees: $0
All Other Fees: $0

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 2004.

Audit Committee Report on the Audited Financial Statements and Independent
Auditors

The Audit Committee meets at least quarterly to discuss the quarterly
reviewed and annual audited financial statements of the Company. The Audit
Committee held four meetings in fiscal 2003. Management and the independent
auditors are present at all Audit Committee meetings to discuss the financial
statements, the results of audits and reviews, and the auditor's management
report.

The Audit Committee has reviewed and discussed with the independent
auditors the matters required to be discussed by SAS 61. The Audit Committee has
received the written disclosures and the letter from the independent accountants
required by Independence Standards Board Standard No.1 and has discussed with
the independent accountant the independent accountant's independence.

Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 for filing with the Commission.

Submitted by the Audit Committee,

Donald H. Dreyer
John J. Micek III

CODE OF ETHICS

Enova has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller and all persons performing similar functions, if any. The Company
will provide to any person without charge, upon request, a copy of such code of
ethics. Requests should be made in writing to Enova Systems, Inc., Larry
Lombard, Acting Chief Financial Officer, 19850 S. Magellan Drive, Torrance,
California 90502.

SHAREHOLDER PROPOSALS AND COMMUNICATION WITH THE BOARD

To be considered for presentation to the annual meeting of the
Company's shareholders to be held in 2005, a shareholder proposal must be
received by Carl D. Perry, Chief Executive Officer, Enova Systems, Inc., 19850
South Magellan Drive, Torrance, California, no later than March 17, 2005. If a
shareholder intends to present a proposal at the annual meeting to be held in
2005 but does not seek inclusion of the proposal in the proxy statement for that
meeting, the proxy holders for that meeting will be entitled to exercise their
discretionary authority on that proposal if the Company does not have notice of
the proposal by May 31, 2005.

OTHER MATTERS

The Board of Directors knows of no other business which will be
presented at the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form will
be voted in respect thereof in accordance with the judgment of the persons
voting the proxies.

It is important that the proxies be returned promptly and that your
shares be represented. Shareholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.

By Order of the Board of Directors,

/s/ Carl D. Perry
-------------------------
Carl D. Perry
President and Chief Executive Officer

July 20, 2004
Torrance, California

ENOVA SYSTEMS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders
August 17, 2004

The undersigned stockholder of Common Stock and/or Series A Preferred Stock of
ENOVA SYSTEMS, INC., a California corporation, hereby acknowledges receipt of
the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated
July 20, 2004, and the Annual Report on Form 10-K for the year ended December
31, 2003, as amended, and hereby appoints Carl D. Perry and Larry B. Lombard, or
any of them, proxies, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 2004 Annual
Meeting of Shareholders of ENOVA SYSTEMS, INC. to be held on Tuesday, August 17,
2004, at 9:00 a.m., local time at the GATEWAY HOLIDAY INN, adjacent to ENOVA
SYSTEMS, Inc.'s principal executive office, located at 19800 S. Vermont Ave.,
Torrance, California 90502, and at any adjournment or adjournments thereof, and
to vote all shares of Common Stock and Series A Preferred Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below.

PROPOSAL 1. To approve an amendment to the Restated and Amended Articles of
Incorporation increasing the authorized number of shares of
Common Stock from 500,000,000 shares to 750,000,000 shares;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 2. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock at a specific ratio to be
determined by the Board of Directors within a range from
one-for-ten to one-for-fifty within a 12 month period from the
date of the Annual Meeting;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 3. To approve an increase in the authorized number of shares under
the Enova Systems, Inc. 1996 Stock Option Plan from 45,000,000
shares to 65,000,000 shares;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 4. To elect Anthony Rawlinson, Carl D. Perry, Bjorn Ahlstrom,
Malcolm R. Currie, Edwin O. Riddell and John R. Wallace as
Directors of Enova Systems, Inc. to serve until the next Annual
Meeting of Shareholders or until their respective successors are
elected and qualified;

[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as indicated) for
all nominees listed below

If you wish to withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the
following list below:

Anthony Rawlinson, Carl D. Perry, Bjorn Ahlstrom,
Malcolm R. Currie, Edwin O. Riddell, John R. Wallace

PROPOSAL 5. To ratify the appointment of Singer Lewak Greenbaum & Goldstein
LLP as the independent auditors for the Company for the year
ending December 31, 2004;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR ALL OF THE PROPOSALS SET FORTH ABOVE AND AS SAID
PROXIES MAY DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.

-----------------------------------
Signature

Dated:_________________________2004

This proxy should be marked, dated
and signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the envelope enclosed. Persons
signing in a fiduciary capacity
should so indicate. If shares are
by joint tenants or as community
property, both should sign.

ENOVA SYSTEMS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders
August 17, 2004

The undersigned stockholder of Series B Preferred Stock of ENOVA SYSTEMS, INC.,
a California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated July 20, 2004, and the
Annual Report on Form 10-K, as amended, for the year ended December 31, 2003,
and hereby appoints Carl D. Perry and Larry B. Lombard, or any of them, proxies,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 2004 Annual Meeting of
Shareholders of ENOVA SYSTEMS, INC. to be held on Tuesday, August 17, 2004, at
9:00 a.m., local time at the GATEWAY HOLIDAY INN, adjacent to ENOVA SYSTEMS,
Inc.'s principal executive office, located at 19800 S. Vermont Ave., Torrance,
California 90502, and at any adjournment or adjournments thereof, and to vote
all shares of Series B Preferred Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below.

PROPOSAL 1. To approve an amendment to the Restated and Amended Articles of
Incorporation increasing the authorized number of shares of
Common Stock from 500,000,000 shares to 750,000,000 shares;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 2. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock at a specific ratio to be
determined by the Board of Directors within a range from
one-for-ten to one-for-fifty at any time within a 12 month period
from the date of the Annual Meeting;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 3. To approve an increase in the authorized number of shares under
the Enova Systems, Inc. 1996 Stock Option Plan from 45,000,000
shares to 65,000,000 shares;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

PROPOSAL 4. To elect Donald H. Dreyer and John J. Micek III as Directors of
Enova Systems, Inc. to serve until the next Annual Meeting of
Shareholders or until their respective successors are elected and
qualified;

[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as indicated) for all
nominees listed below

If you wish to withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the
following list below:

Donald H. Dreyer, John J. Micek III

PROPOSAL 5. To ratify the appointment of Singer Lewak Greenbaum & Goldstein
LLP as the independent auditors for the Company for the year
ending December 31, 2004;

[ ] FOR [ ] AGAINST [ ] ABSTAIN

-----------------------------------
Signature

Dated:_________________________2004

EXHIBIT A

FORM OF AMENDMENT TO INCREASE AUTHORIZED NUMBER OF SHARES

The second sentence of Article III of the Restated and Amended Articles
of Incorporation of this Corporation is amended to read in its entirety as
follows:

"This Corporation is authorized to issue Seven Hundred Fifty Million
(750,000,000) shares of Common Stock and Thirty-five Million (35,000,000) shares
of Preferred Stock."

37
EXHIBIT B

FORM OF REVERSE SPLIT AMENDMENT

Assuming that Proposal 1 is approved and the amendment contemplated
thereby is effected, the text for an amendment to effectuate a proposed reverse
stock split would be in substantially the following form:

"This Corporation is authorized to issue Seven Hundred Fifty Million
(750,000,000) shares of Common Stock and Thirty-five Million (35,000,000) shares
of Preferred Stock. Upon the amendment of Article III of the Restated and
Amended Articles of Incorporation of this Corporation, each issued and
outstanding share of Common Stock of this Corporation shall be converted into
[____] share of Common Stock, there being no conversion of any outstanding
shares of Preferred Stock. In lieu of any fractional shares to which a holder of
Common Stock would otherwise be entitled, this Corporation shall pay cash equal
to (a) the average of the high-bid and low-asked per share prices of the Common
Stock as reported on the NASDAQ electronic "Bulletin Board" on the effective
date of the reverse stock split (appropriately adjusted as the Board of
Directors may determine) multiplied by (b) the number of shares of Common Stock
held by such holder that would otherwise have been exchanged for such fractional
share interest."