TIDMENV TIDMENVS
RNS Number : 1667F
Enova Systems, Inc.
21 May 2013
20 May 2013
ENOVA SYSTEMS, INC
("Enova" or "the Company")
Enova Reports 1st Quarter 2013 Results
Enova Systems, Inc., (NYSE Amex: ENA and AIM: ENV and ENVS), a
leading developer and manufacturer of electric, hybrid and fuel
cell digital power management systems, announces results for the
three month period ended 31 March 2013.
For further information please contact:
Enova Systems, Inc
John Micek, Chief Executive Officer +1(310) 527-2800
Daniel Stewart & Company Plc
Paul Shackleton +44 (0) 20 7776 6550
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
December
March 31, 31,
2012
2013 (audited)
------------------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,000 $ 57,000
Accounts receivable, net 85,000 208,000
Inventories and supplies, net 2,232,000 2,203,000
Prepaid expenses and other current assets 291,000 242,000
--------------------- ------------
Total current assets 2,630,000 2,710,000
Long term accounts receivable 13,000 38,000
Property and equipment, net 239,000 307,000
--------------------- ------------
Total assets $ 2,882,000 $ 3,055,000
===================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 462,000 $ 558,000
Deferred revenues 433,000 118,000
Accrued payroll and related expenses 75,000 98,000
Accrued loss for litigation settlement 2,014,000 2,014,000
Other accrued liabilities 275,000 255,000
Current portion of notes payable 65,000 66,000
--------------------- ------------
Total current liabilities 3,324,000 3,109,000
Accrued interest payable 1,339,000 1,318,000
Notes payable, net of current portion 1,257,000 1,262,000
--------------------- ------------
Total liabilities 5,920,000 5,689,000
--------------------- ------------
Stockholders' equity:
Series A convertible preferred stock - no par
value, 30,000,000 shares authorized; 2,642,000
shares issued and outstanding; liquidating preference
at $0.60 per share as of March 31, 2013 and December
31, 2012 528,000 528,000
Series B convertible preferred stock - no par
value, 5,000,000 shares authorized; 546,000 shares
issued and outstanding; liquidating preference
at $2 per share as of March 31, 2013 and December
31, 2012 1,094,000 1,094,000
Common Stock - no par value, 750,000,000 shares
authorized; 44,520,000 shares issued and outstanding
as of March 31, 2013 and December 31, 2012 145,512,000 145,512,000
Additional paid-in capital 9,581,000 9,579,000
Accumulated deficit (159,753,000) (159,347,000)
--------------------- ------------
Total stockholders' equity (3,038,000 (2,634,000)
--------------------- ------------
Total liabilities and stockholders' equity $ 2,882,000 $ 3,055,000
===================== ============
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
----------------------------
2013 2012
------------- ------------
Revenues $ 53,000 $ 360,000
Cost of revenues 56,000 835,000
----------- -----------
Gross income (loss) (3,000) (475,000)
----------- -----------
Operating expenses
Research and development - 466,000
Selling, general & administrative 383,000 1,254,000
----------- -----------
Total operating expenses 383,000 1,720,000
----------- -----------
Operating loss (386,000) (2,195,000)
----------- -----------
Other income and (expense)
Interest and other income (expense) (20,000) (20,000)
----------- -----------
Total other income and (expense) (20,000) (20,000)
----------- -----------
Net loss $ (406,000) $ (2,215,000)
=========== ===========
Basic and diluted loss per share $ (0.01) $ (0.05)
=========== ===========
Weighted average number of common
shares outstanding 44,520,000 42,765,000
=========== ===========
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
-----------------------------
Cash flows from operating activities: 2013 2012
--------------- -----------
Net loss $ (406,000) $(2,215,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Inventory reserve 11,000 558,000
Inventory write-off (11,000) (15,000)
Depreciation and amortization 58,000 119,000
Loss on asset disposal 10,000 -
Stock option expense 2,000 139,000
(Increase) decrease in:
Accounts receivable 123,000 (163,000)
Inventory and supplies (29,000) (79,000)
Prepaid expenses and other current assets (49,000) (74,000)
Long term receivables 25,000 20,000
Increase (decrease) in:
Accounts payable (96,000) 136,000
Deferred revenues 315,000 (88,000)
Accrued payroll and related expense (23,000) (63,000)
Other accrued liabilities 20,000 (11,000)
Accrued interest payable 21,000 20,000
-------------- ----------
Net cash used in operating activities (29,000) (1,716,000)
-------------- ----------
Cash flows from investing activities:
Purchases of property and equipment - (16,000)
-------------- ----------
Net cash used in investing activities - (16,000)
-------------- ----------
Cash flows from financing activities:
Payment on notes payable (6,000 ) (6,000)
-------------- ----------
Net cash provided by financing activities (6,000) (6,000)
-------------- ----------
Net decrease in cash and cash equivalents (35,000) (1,738,000)
Cash and cash equivalents, beginning of period 57,000 3,096,000
-------------- ----------
Cash and cash equivalents, end of period $ 22,000 $ 1,358,000
============== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 2,000 $ 2,000
============== ==========
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Description of the Company and its Business
Enova Systems, Inc., ("Enova", "We" or "the Company"), a
California corporation, was incorporated in July 1976, and trades
on the OTCQB under the trading symbol "ENVS" and on the London
Stock Exchange under the symbol "ENV" or "ENVS". The Company
believes it has been a globally recognized leader as a supplier of
efficient, environmentally-friendly digital power components and
systems products, in conjunction with associated engineering
services. The Company's core competencies are focused on the
commercialization of power management and conversion systems for
mobile and stationary applications.
THE DISCUSSION SET FORTH BELOW AND ELSEWHERE IN THIS 10-Q IS
QUALIFIED IN ITS ENTIRETY BY THE FOLLOWING: ENOVA REMAINS INSOLVENT
AND OWES IN EXCESS OF $4.5 MILLION IN THE AGGREGATE TO ITS TWO
PRINCIPAL CREDITORS, THE CREDIT MANAGERS ASSOCIATION AND ARENS
CONTROLS COMPANY, L.L.C. ("ARENS"). WITHOUT IMMEDIATE ADDITIONAL
FINANCING OR COLLECTION OF RECEIVABLES, THE COMPANY WILL NEED TO
CEASE OPERATIONS. THE COMPANY CURRENTLY HAS NO VISIBILITY AS TO
EITHER ADDITIONAL FINANCING OR THE COLLECTION OF RECEIVABLES.
SPECIFICALLY, WITHOUT A MUTUALLY ACCEPTABLE SETTLEMENT OF THE ARENS
JUDGMENT ARISING OUT OF ARENS CONTROLS COMPANY, L.L.C. v. ENOVA
SYSTEMS, INC., CASE NO. 13-1102 (7TH CIRCUIT) IN THE AMOUNT OF $2.0
MILLION, THE COMPANY DOES NOT CURRENTLY BELIEVE IT HAS ANY
ALTERNATIVE OTHER THAN TO CEASE OPERATIONS. THE COMPANY CURRENTLY
EMPLOYS ONLY TWO PERSONNEL, JOHN MICEK, THE COMPANY'S CEO, CFO AND
SECRETARY, AND ONE ADDITIONAL INDIVIDUAL IN THE FINANCE
DEPARTMENT.
2. Summary of Significant Accounting Policies
Basis of Presentation - Interim Financial Statements
The financial information as of and for the three months ended
March 31, 2013 and 2012 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company
considers necessary for a fair statement of its financial position
at such dates and the operating results and cash flows for those
periods. The year-end balance sheet data was derived from audited
financial statements, and certain information and note disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules or regulations; however,
the Company believes the disclosures made are adequate to make the
information presented not misleading.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Although management believes these estimates and
assumptions are adequate, actual results could differ from the
estimates and assumptions used.
The results of operations for the interim periods presented are
not necessarily indicative of the results of operations to be
expected for the year. These interim financial statements should be
read in conjunction with the audited financial statements for the
year ended December 31, 2012, which are included in the Company's
Annual Report on Form 10-K for the year then ended.
Liquidity and Going Concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
However, historically the Company has experienced significant
recurring net losses and operating cash flow deficits. The
Company's ability to continue as a going concern is dependent on
many factors, including among others, its ability to raise
additional funding, and its ability to successfully restructure
operations to lower manufacturing costs and reduce operating
expenses.
To date, the Company has incurred recurring net losses and
negative cash flows from operations. At March 31, 2013, the Company
had an accumulated deficit of approximately $159.8 million, cash
and cash equivalents of $22,000 and working capital of
approximately negative $0.7 million and shareholders' deficit of
approximately $3.0 million. Until the Company can generate
significant cash from its operations, the Company expects to
continue to fund its operations with existing cash resources,
proceeds from one or more private placement agreements, as well as
potentially through debt financing or the sale of equity
securities. However, the Company may not be successful in obtaining
additional funding. In addition, the Company cannot be sure that
its existing cash and investment resources will be adequate or that
additional financing will be available when needed or that, if
available, financing will be obtained on terms favorable to the
Company or its stockholders.
Our operations will require us to make necessary investments in
human and production resources, regulatory compliance, as well as
sales and marketing efforts. We do not currently have adequate
internal liquidity to meet these objectives in the long term. On
June 21, 2012, we reported in a Form 8-K filing that, as part of
cost cutting measures in response to our decrease in revenue amid
continued delays in industry adoption of EV technology resulting
from ongoing battery cost and reliability concerns, in excess of
80% of our workforce left our Company, including the resignation of
members of our senior management. We continue to evaluate strategic
partnering opportunities and other external sources of liquidity,
including the public and private financial markets and strategic
partners. Having insufficient funds may require the Company to
delay or eliminate some or all of its product develop, relinquish
some or even all rights to product candidates at an earlier stage
of development or negotiate less favorable terms than it would
otherwise choose. Failure to obtain adequate financing also may
adversely affect the Company's ability to continue in business. If
the Company raises additional funds by issuing equity securities,
substantial dilution to existing stockholders would likely result.
If the Company raises additional funds by incurring debt financing,
the terms of the debt may involve significant cash payment
obligations, as well as covenants and specific financial ratios
that may restrict its ability to operate its business.
The Company continues to pursue other options to raise
additional capital to fund its operations; however, there can be no
assurance that we can successfully raise additional funds through
the capital markets.
As of March 31, 2013, the Company had approximately $22,000 in
cash and cash equivalents and does not anticipate that its existing
cash and anticipated receivables collections will be sufficient to
meet its projected operating requirements through December 2013 to
continue operations and market trading.
Significant Accounting Policies
The accounting and reporting policies of the Company conform to
US GAAP. There have been no significant changes in the Company's
significant accounting policies during the three months ended March
31, 2013 compared to what was previously disclosed in the Company's
Annual Report on Form 10-K for the year ended December 31,
2012.
Revenue Recognition
The Company manufactures proprietary products and other products
based on design specifications provided by its customers. The
Company recognizes revenue only when all of the following criteria
have been met:
-- Persuasive Evidence of an Arrangement - The Company documents
all terms of an arrangement in a written contract signed by the
customer prior to recognizing revenue.
-- Delivery Has Occurred or Services Have Been Rendered - The
Company performs all services or delivers all products prior to
recognizing revenue. Professional consulting and engineering
services are considered to be performed when the services are
complete. Equipment is considered delivered upon delivery to a
customer's designated location. In certain instances, the customer
elects to take title upon shipment.
-- The Fee for the Arrangement is Fixed or Determinable - Prior
to recognizing revenue, a customer's fee is either fixed or
determinable under the terms of the written contract. Fees for
professional consulting services, engineering services and
equipment sales are fixed under the terms of the written contract.
The customer's fee is negotiated at the outset of the arrangement
and is not subject to refund or adjustment during the initial term
of the arrangement.
-- Collectability is Reasonably Assured - The Company determines
that collectability is reasonably assured prior to recognizing
revenue. Collectability is assessed on a customer-by-customer basis
based on criteria outlined by management. New customers are subject
to a credit review process which evaluates the customer's financial
position and ultimately its ability to pay. The Company does not
enter into arrangements unless collectability is reasonably assured
at the outset. Existing customers are subject to ongoing credit
evaluations based on payment history and other factors. If it is
determined during the arrangement that collectability is not
reasonably assured, revenue is recognized on a cash basis. Amounts
received upfront for engineering or development fees under
multiple-element arrangements are deferred and recognized over the
period of committed services or performance, if such arrangements
require the Company to provide on-going services or performance.
All amounts received under collaborative research agreements or
research and development contracts are nonrefundable, regardless of
the success of the underlying research.
The Company recognizes revenue from milestone payments over the
remaining minimum period of performance obligations.
The Company also recognizes engineering and construction
contract revenues using the percentage-of-completion method, based
primarily on contract costs incurred to date compared with total
estimated contract costs. Customer-furnished materials, labor, and
equipment, and in certain cases subcontractor materials, labor, and
equipment, are included in revenues and cost of revenues when
management believes that the company is responsible for the
ultimate acceptability of the project. Contracts are segmented
between types of services, such as engineering and construction,
and accordingly, revenue and gross margin related to each activity
is recognized as those separate services are rendered.
Changes to total estimated contract costs or losses, if any, are
recognized in the period in which they are determined. Claims
against customers are recognized as revenue upon settlement.
Revenues recognized in excess of amounts received are classified as
current assets. Amounts billed to clients in excess of revenues
recognized to date are classified as current liabilities on
contracts.
Changes in project performance and conditions, estimated
profitability, and final contract settlements may result in future
revisions to engineering and development contract costs and
revenue.
These accounting policies were applied consistently for all
periods presented. Our operating results would be affected if other
alternatives were used. Information about the impact on our
operating results is included in the footnotes to our financial
statements.
Several other factors related to the Company may have a
significant impact on our operating results from year to year. For
example, the accounting rules governing the timing of revenue
recognition related to product contracts are complex and it can be
difficult to estimate when we will recognize revenue generated by a
given transaction. Factors such as acceptance of services provided,
payment terms, creditworthiness of the customer, and timing of
delivery or acceptance of our products often cause revenues related
to sales generated in one period to be deferred and recognized in
later periods. For arrangements in which services revenue is
deferred, related direct and incremental costs may also be
deferred.
Deferred Revenues
The Company recognizes revenues as earned. Amounts billed in
advance of the period in which service is rendered are recorded as
a liability under deferred revenues. The Company has entered into
several production and development contracts with customers. The
Company has evaluated these contracts, ascertained the specific
revenue generating activities of each contract, and established the
units of accounting for each activity. Revenue on these units of
accounting is not recognized until a) there is persuasive evidence
of the existence of a contract, b) the service has been rendered
and delivery has occurred, c) there is a fixed and determinable
price, and d) collectability is reasonable assured.
Warranty Costs
The Company provides product warranties for specific product
lines and accrues for estimated future warranty costs in the period
in which revenue is recognized. Our products are generally
warranted to be free of defects in materials and workmanship for a
period of 12 to 24 months from the date of installation, subject to
standard limitations for equipment that has been altered by other
than Enova Systems personnel and equipment which has been subject
to negligent use. Warranty provisions are based on past experience
of product returns, number of units repaired and our historical
warranty incidence over the past twenty-four month period. The
warranty liability is evaluated on an ongoing basis for adequacy
and may be adjusted as additional information regarding expected
warranty costs becomes known.
Stock Based Compensation
We measure the compensation cost for stock-based awards
classified as equity at their fair value on the date of grant and
recognize compensation expense over the service period for awards
expected to vest, net of estimated forfeitures.
Accounting Changes and Recent Accounting Pronouncements
Certain accounting standards that have been issued or proposed
by the FASB or other standards-setting bodies are not expected to
have a material impact on the Company's financial position, results
of operations and cash flows.
3. Inventory
Inventory, consisting of materials, labor and manufacturing
overhead, is stated at the lower of cost (first-in, first-out) or
market and consisted of the following at:
December
March 31, 31,
2013 2012
----------- -----------
Raw Materials $ 4,012,000 $ 3,988,000
Work In Progress 41,000 2,000
Finished Goods 553,000 587,000
Reserve for Obsolescence (2,374,000) (2,374,000)
---------- ----------
Total $ 2,232,000 $ 2,203,000
========== ==========
Inventory write-offs were $11,000 and $15,000 for the three
months ended March 31, 2013 and 2012, respectively.
4. Property and Equipment
Property and equipment consisted of the following at:
December
March 31, 31,
2013 2012
----------- -----------
Computers and software $ 515,000 $ 580,000
Machinery and equipment 271,000 535,000
Furniture and office equipment 87,000 87,000
Demonstration vehicles and buses 617,000 675,000
Leasehold improvements - 1,327,000
---------- ----------
1,490,000 3,204,000
Less accumulated depreciation and amortization (1,251,000) (2,897,000)
---------- ----------
Total $ 239,000 $ 307,000
========== ==========
Depreciation and amortization expense was $58,000 and $119,000
for the three months ended March 31, 2013 and 2012, respectively,
and within those total expenses, the amortization of leasehold
improvements was $22,000 and $66,000 for the three months ended
March 31, 2013 and 2012. The Company's headquarters lease expired
on January 31, 2013, which resulted in a decrease in leasehold
improvements in the amount of $1,327,000. In addition, an
evaluation of fixed assets as of March 31, 2013 identified $367,000
in obsolete fixed assets which were disposed of or abandoned and a
loss on disposal of fixed assets of $10,000 was recorded in the
three months ended March 31, 2013. There was no impairment recorded
in the three months ended March 31, 2012.
5. Other Accrued Liabilities
Other accrued liabilities consisted of the following at:
December
March 31, 31,
2013 2012
----------- --------
Accrued inventory received $ 14,000 $ 14,000
Accrued professional services 95,000 45,000
Accrued warranty 93,000 117,000
Other 73,000 79,000
------- -------
Total $ 275,000 $255,000
======= =======
Accrued warranty consisted of the following activities during
the three months ended March 31:
2013 2012
-------- --------
Balance at beginning of quarter $117,000 $227,000
Accruals for warranties issued during the period 10,000 25,000
Warranty claims (34,000) (66,000)
------- -------
Balance at end of quarter $ 93,000 $186,000
======= =======
6. Notes Payable, Long-Term Debt and Other Financing
Notes payable consisted of the following at:
December
March 31, 31,
2013 2012
---------- ----------
Secured note payable to Credit Managers Association
of California, bearing interest at prime plus 3%
(6.25% as of March 31, 2013), and is adjusted annually
in April through maturity. Principal and unpaid
interest due in April 2016. A sinking fund escrow
may be funded with 10% of future equity financing,
as defined in the Agreement $1,238,000 $1,238,000
Secured note payable to a Coca Cola Enterprises
in the original amount of $40,000, bearing interest
at 10% per annum. Principal and unpaid interest
due on demand 40,000 40,000
Secured note payable to a financial institution
in the original amount of $38,000, bearing interest
at 8.25% per annum, payable in 60 equal monthly
installments of principal and interest through February
19, 2014 8,000 11,000
Secured note payable to a financial institution
in the original amount of $19,000, bearing interest
at 10.50% per annum, payable in 60 equal monthly
installments of principal and interest through August
25, 2014 7,000 8,000
Secured note payable to a financial institution
in the original amount of $26,000, bearing interest
at 7.91% per annum, payable in 60 equal monthly
installments of principal and interest through April
9, 2015 12,000 14,000
Secured note payable to a financial institution
in the original amount of $25,000, bearing interest
at 7.24% per annum, payable in 60 equal monthly
installments of principal and interest through March
10, 2016 17,000 17,000
--------- ---------
1,322,000 1,328,000
Less current portion of notes payable (65,000) (66,000)
--------- ---------
Notes payable, net of current portion $1,257,000 $1,262,000
========= =========
As of March 31, 2013 and December 31, 2012, the balance of long
term interest payable amounted to $1,339,000 and $1,318,000,
respectively, of which the Credit Managers Association of
California note amounted to $1,309,000 and $1,286,000,
respectively. Interest expense on notes payable amounted to
approximately $21,000 and $22,000 for the three months ended March
31, 2013 and 2012, respectively.
7. Deferred Revenues
The Company had deferred $433,000 and $118,000 in revenue
related to production and development contracts at March 31, 2013
and December 31, 2012, respectively. The Company anticipates that
the March 31, 2013 deferred revenue balance will be recognized in
the second quarter of 2013.
8. Stock Options
Stock Option Program Description
As of March 31, 2013, the Company had two equity compensation
plans, the 1996 Stock Option Plan (the "1996 Plan") and the 2006
equity compensation plan (the "2006 Plan"). The 1996 Plan has
expired for the purposes of issuing new grants. However, the 1996
Plan will continue to govern awards previously granted under that
plan. The 2006 Plan has been approved by the Company's
shareholders. Equity compensation grants are designed to reward
employees and executives for their long term contributions to the
Company and to provide incentives for them to remain with the
Company. The number and frequency of equity compensation grants are
based on competitive practices, operating results of the company,
and government regulations.
The maximum number of shares issuable over the term of the 1996
Plan was limited to 65 million shares (without giving effect to
subsequent stock splits). Options granted under the 1996 Plan
typically have an exercise price of 100% of the fair market value
of the underlying stock on the grant date and expire no later than
ten years from the grant date. The 2006 Plan has a total of
3,000,000 shares reserved for issuance, of which zero and 20,000
were granted in the three months ended March 31, 2013 and 2012,
respectively, and 2,111,000 shares were available for grant as of
March 31, 2013. Options granted under the 2006 Plan have terms of
between three and ten years and generally vest and become fully
exercisable from one to three years from the date of grant or vest
according to the price performance of our shares.
Stock-based compensation expense related to stock options was
$2,000 and $139,000 for the three months ended March 31, 2013 and
2012, respectively. As of March 31, 2013, the total compensation
cost related to non-vested awards not yet recognized is $15,000.
The remaining period over which the future compensation cost is
expected to be recognized is 22 months.
The following table summarizes information about stock options
outstanding and exercisable at March 31, 2013:
Weighted
Average
Weighted Remaining
Number of Average Contractual Aggregate
Share Exercise Term in Intrinsic
Options Price Years Value(1)
---------- ----------- ------------ -------------
Outstanding at December 31,
2012 810,000 $ 0.64 4.06 $ -
Granted - $ - - $ -
Exercised - $ - - $ -
Forfeited or Cancelled - $ - - $ -
--------- ------- ------------ ------------
Outstanding at March 31, 2013 810,000 $ 0.64 3.82 $ -
========= ======= ============ ============
Exercisable at March 31, 2013 599,000 $ 0.83 4.09 $ -
========= ======= ============ ============
Vested and expected to vest
(2) 810,000 $ 0.64 3.82 $ -
========= ======= ============ ============
(1) Aggregate intrinsic value represents the value of the closing price
per share of our common stock on the last trading day of the fiscal
period in excess of the exercise price multiplied by the number
of options outstanding or exercisable, except for the "Exercised"
line, which uses the closing price on the date exercised.
(2) Number of shares includes options vested and those expected to
vest net of estimated forfeitures.
The exercise prices of the options outstanding at March 31, 2013
ranged from $0.07 to $4.35. The weighted average grant-date fair
value of options granted during the three months ended March 31,
2012 was $0.18. The Company's policy is to issue shares from its
authorized shares upon the exercise of stock options.
Unvested share activity for the three months ended March 31,
2013 is summarized below:
Weighted
Average
Unvested Grant Date
Number of Fair
Options Value
----------- -------------
Unvested balance at December 31, 2012 236,000 $ 0.04
Granted - $ -
Vested (25,000) $ 0.11
Forfeited - $ -
---------- --- --------
Unvested balance at March 31, 2013 211,000 $ 0.08
========== === ========
The fair values of all stock options granted during the three
months ended March 31, 2013 and 2012 were estimated on the date of
grant using the Black-Scholes option-pricing model with the
following range of assumptions:
For the three months
ended
------------------------
March 31, March 31,
2013 2012
------------- ---------
Expected life (in years) - 6.5
Average risk-free interest rate - 1.66 %
Expected volatility - 108 %
Expected dividend yield - 0 %
Forfeiture rate - 3 %
The estimated fair value of grants of stock options to
nonemployees of the Company is charged to expense in the financial
statements. These options vest in the same manner as the employee
options granted under each of the option plans as described
above.
9. Warrants
In December 2011, the Company completed a private equity
placement of 11,250,000 shares of common stock for $1,245,000
together with warrants to purchase up to 11,250,000 shares of
common stock to a group of 17 shareholders (the "Low-Beer Managed
Accounts"). The warrants are exercisable for a period of five years
and exercisable at a price of $0.22 per share. The warrants further
provide that if, for a twenty consecutive trading day period, the
average of the closing price quoted on the OTCQB market is greater
than or equal to $0.44 per share, with at least an average of
10,000 shares traded per day, then, on the 10th calendar day
following written notice from the Company, any outstanding warrants
will be deemed automatically exercised pursuant to the cashless/net
exercise provisions under the warrants.
The following is a summary of changes to outstanding warrants
during the fiscal year ended March 31, 2013:
Weighted
Number Weighted Average
of Average Remaining
Share Exercise Contractual
Options Price Life
----------- ------------ ---------------
Outstanding at December 31, 2012 11,250,000 $ 0.22 4.00
Granted - $ - -
Exercised - $ - -
Forfeited or Cancelled - $ - -
---------- -------- ---------------
Outstanding at March 31, 2013 11,250,000 $ 0.22 3.75
========== ======== ===============
Exercisable at March 31, 2013 - $ - -
========== ======== ===============
10. Concentrations
The Company's trade receivables are concentrated with a few
customers. The Company performs credit evaluations on its
customers' financial condition and generally requires no collateral
from its customers. Concentrations of credit risk, with respect to
accounts receivable, exist to the extent of amounts presented in
the financial statements. Two customers represented 79% and 21%,
respectively, of gross accounts receivable at March 31, 2013, and
two customers represented 61% and 39%, respectively, of gross
accounts receivable at December 31, 2012.
The Company's revenues are concentrated with a few customers.
For the three months ended March 31, 2013, three customers
represented 60%, 24% and 14% of gross revenues. For the three
months ended March 31, 2012, one customer represented 88% of gross
revenues.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains statements
indicating expectations about future performance and other
forward-looking statements that involve risks and uncertainties. We
usually use words such as "may," "will, " "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "future,"
"intend," "potential," or "continue" or the negative of these terms
or similar expressions to identify forward-looking statements.
These statements appear throughout this Quarterly Report on Form
10-Q and are statements regarding our current intent, belief or
expectation, primarily with respect to our operations and related
industry developments. Examples of these statements include, but
are not limited to, statements regarding the following: our future
operating expenses, our future losses, our future expenditures for
research and development and the sufficiency of our cash resources.
You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Quarterly
Report on Form 10-Q. Our actual results could differ materially
from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us and described in our
Annual Report on Form 10-K for the year ended December 31, 2012, as
updated by the disclosure contained in Item 1A of Part II of this
Form 10-Q.
The following discussion and analysis should be read in
conjunction with the unaudited interim financial statements and
notes thereto included in Part I, Item 1 of this Quarterly Report
on Form 10-Q and with the financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2012.
Overview
Enova believes it has been a leader in the development, design
and production of proprietary, power train systems and related
components for electric and hybrid electric buses and medium and
heavy duty commercial vehicles. Electric drive systems are
comprised of an electric motor, electronics control unit and a gear
unit which power a vehicle. Hybrid electric systems, which are
similar to pure electric drive systems, contain an internal
combustion engine in addition to the electric motor, and may
eliminate external recharging of the battery system. A hydrogen
fuel cell based system is similar to a hybrid system, except that
instead of an internal combustion engine, a fuel cell is utilized
as the power source. A fuel cell is a system which combines
hydrogen and oxygen in a chemical process to produce
electricity.
A fundamental element of Enova's strategy has been to develop
and produce advanced proprietary software and hardware for
applications in these alternative power markets. Our focus has been
on powertrain systems including digital power conversion, power
management and system integration, focusing chiefly on vehicle
power generation. Specifically, we have developed, designed and
produce drive systems and related components for electric, hybrid
electric and fuel cell powered vehicles in both the new and
retrofit markets. We also perform internal research and development
("R&D") and funded third party R&D to augment our product
development and support our customers.
Our product development strategy is to design and introduce to
market successively advanced products, each based on our core
technical competencies. In each of our product/market segments, we
provide products and services to leverage our core competencies in
digital power management, power conversion and system integration.
We believe that the underlying technical requirements shared among
the market segments will allow us to more quickly transition from
one emerging market to the next, with the goal of capturing early
market share.
Enova's primary market focus has been centered on aligning
ourselves with key customers and integrating with original
equipment manufacturers ("OEMs") in our target markets. We believe
that alliances will result in the latest technology being
implemented and customer requirements being met, with an optimized
level of additional time and expense. Provided we generate
necessary resources, we will continue to work refining both our
market strategy and our product line to maintain our edge in power
management and conversion systems for vehicle applications.
Our website, www.enovasystems.com, contains up-to-date
information on our company, our products, programs and current
events. Our website is a prime focal point for current and
prospective customers, investors and other affiliated parties
seeking additional information on our business.
Enova has incurred significant operating losses in the past. As
of March 31, 2013, we had an accumulated deficit of approximately
$159.8 million, working capital of approximately negative $0.7
million and shareholders'deficit of approximately $3.0 million. As
reported in our Form 8-K filing on June 21, 2012, due to continued
delays in industry adoption of EV technology, the Company's
revenues continue to significantly decrease. As part of cost
cutting measures, we implemented a reduction in our workforce
whereby in excess of 80% of our employees have left the Company. We
continue to evaluate strategic opportunities to leverage resources
and assist with continuing operations. We expect to incur
additional operating losses until we re-position the company in
order to achieve a level of product sales sufficient to cover our
operating and other expenses. As of March 31, 2013, the Company had
approximately $22,000 in cash and cash equivalents and we do not
anticipate that our existing cash and anticipated receivables
collections will be sufficient to meet
projected operating requirements through the end of 2013 to
continue operations and market trading.
Customer Highlights
FIRST AUTO WORKS (FAW) - Enova continues to supply FAW drive
systems for their hybrid buses. Since the 2008 Olympics in Beijing,
Enova Systems and First Auto Works have deployed over 500 vehicles,
all utilizing Enova's pre-transmission hybrid drive system
components. First Auto Works is one of China's largest vehicle
producers, manufacturing in excess of 1,000,000 vehicles
annually.
SMITH ELECTRIC VEHICLES (SEV) - Enova continues to be SEVs
supplier of drive systems. SEV, a leader in the all EV market, is
currently in the process of an IPO. A successful IPO could result
in increased opportunity for Enova.
OPTARE PLC - Enova fulfilled an order in the second quarter of
2012 for eight 120kW systems for integration into Optare's Solo and
Versa Electric Bus models. Optare has chosen Enova as the
production drive system supplier for its all electric buses. Optare
designs, manufactures and sells single deck and double deck buses
and mini coaches and operates in the UK, Continental Europe, and
North America.
Technology Highlights
OMNI INVERTER. Power-source and motor design agnostic, Enova's
new Omni-series inverter/vehicle controller offers increased
flexibility and ease-of-integration. With plug-and-play
connectivity, it is compatible with a wide range of vehicle drive
systems and motors, and can be configured for HEV, PHEV and EV
applications. The inverter is fully production validated.
OMNI CHARGER. Our Omni-series 10kW on-board battery charger for
plug-in hybrid-electric and all-electric vehicles is a CAN control
based unit that offers increased flexibility, ease-of-integration
and compatibility with a wide range of vehicle platforms.
Enova has delayed further introduction of the Omni Inverter and
Charger with customers due to the reduction in our workforce and
current financial resource constraints. Provided additional
resources are obtained, we anticipate continuing development and
marketing of these two products, which we believe can gain broad
market acceptance.
Critical Accounting Policies
In the ordinary course of business, the Company has made a
number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation of
its financial statements in conformity with accounting principles
generally accepted in the United States of America. The Company
constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Estimates and
assumptions include, but are not limited to, customer receivables,
inventories, equity investments, fixed asset lives, contingencies
and litigation. There have been no material changes in estimates or
assumptions compared to our most recent Annual Report for the
fiscal year ended December 31, 2012.
The following represents a summary of our critical accounting
policies, defined as those policies that we believe: (a) are the
most important to the portrayal of our financial condition and
results of operations and (b) involve inherently uncertain issues
which require management's most difficult, subjective or complex
judgments.
Cash and cash equivalents - Cash consists of currency held at
reputable financial institutions.
Inventory - Inventories are priced at the lower of cost or
market utilizing first-in, first-out ("FIFO") cost flow assumption.
We maintain a perpetual inventory system and continuously record
the quantity on-hand and standard cost for each product, including
purchased components, subassemblies and finished goods. We maintain
the integrity of perpetual inventory records through periodic
physical counts of quantities on hand. Finished goods are reported
as inventories until the point of transfer to the customer.
Generally, title transfer is documented in the terms of sale.
Inventory reserve - We maintain an allowance against inventory
for the potential future obsolescence or excess inventory. A
substantial decrease in expected demand for our products, or
decreases in our selling prices could lead to excess or overvalued
inventories and could require us to substantially increase our
allowance for excess inventory. If future customer demand or market
conditions are less favorable than our projections, additional
inventory write-downs may be required, and would be reflected in
cost of revenues in the period the revision is made.
Allowance for doubtful accounts - We maintain allowances for
doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. The assessment of the
ultimate realization of accounts receivable including the current
credit-worthiness of each customer is subject to a considerable
degree to the judgment of our management. If the financial
condition of the Company's customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional
allowances may be required.
Stock-based Compensation - The Company measures and recognizes
compensation expense for all share-based payment awards made to
employees and directors, including employee stock options based on
the estimated fair values at the date of grant. The compensation
expense is recognized over the requisite service period.
Revenue recognition - Effective January 1, 2011, we adopted the
provisions of Accounting Standards Update, or ASU, 2009-13,
Multiple-Deliverable Revenue Arrangements, or ASU 2009-13, which is
included within the Codification as Revenue Recognition-Multiple
Element Arrangements, on a prospective basis. Under the provisions
of ASU 2009-13, we no longer rely on objective and reliable
evidence of the fair value of the elements in a revenue arrangement
in order to separate a deliverable into a separate unit of
accounting, and the use of the residual method has been eliminated.
We instead use a selling price hierarchy for determining the
selling price of a deliverable, which is used to determine the
allocation of consideration to each unit of accounting under an
arrangement. The selling price used for each deliverable will be
based on vendor-specific objective evidence, if available,
third-party evidence if vendor-specific objective evidence is not
available or estimated selling price if neither vendor-specific
objective evidence nor third-party evidence is available. As of
September 30, 2012, we had not applied the provisions of ASU
2009-13 to any of our revenue arrangements as we had not entered
into any new, or materially modified any of our existing, revenue
arrangements since our adoption of ASU 2009-13. Therefore, there
was no material impact on our financial position or results of
operations from adopting ASU 2009-13. However, the provisions of
ASU 2009-13 could have a material impact on the revenue recognized
from any collaboration agreements that we enter into in future
periods.
We generally recognize revenue at the time of shipment when
title and risk of loss have passed to the customer, persuasive
evidence of an arrangement exists, performance of our obligation is
complete, our price to the buyer is fixed or determinable, and we
are reasonably assured of collection. If a loss is anticipated on
any contract, a provision for the entire loss is made immediately.
Determination of these criteria, in some cases, requires
management's judgment. Should changes in conditions cause
management to determine that these criteria are not met for certain
future transactions, revenue for any reporting period could be
adversely affected.
The Company also recognizes engineering and construction
contract revenues using the percentage-of-completion method, based
primarily on contract costs incurred to date compared with total
estimated contract costs. Customer-furnished materials, labor, and
equipment, and in certain cases subcontractor materials, labor, and
equipment, are included in revenues and cost of revenues when
management believes that the company is responsible for the
ultimate acceptability of the project. Contracts are segmented
between types of services, such as engineering and construction,
and accordingly, gross margin related to each activity is
recognized as those separate services are rendered.
These accounting policies were applied consistently for all
periods presented. Our operating results would be affected if other
alternatives were used. Information about the impact on our
operating results is included in the footnotes to our financial
statements.
Several other factors related to the Company may have a
significant impact on our operating results from year to year. For
example, the accounting rules governing the timing of revenue
recognition related to product contracts are complex and it can be
difficult to estimate when we will recognize revenue generated by a
given transaction. Factors such as acceptance of services provided,
payment terms, creditworthiness of the customer, and timing of
delivery or acceptance of our products often cause revenues related
to sales generated in one period to be deferred and recognized in
later periods. For arrangements in which services revenue is
deferred, related direct and incremental costs may also be
deferred.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2013 compared to Three Months Ended
March 31, 2012
First Quarter of Fiscal 2013 vs. First Quarter of Fiscal
2012
Three Months Ended As a % of Revenues
March 31, March 31,
------------------------------------ ----------------------
2013 2012 % Change 2013 2012
--------- ----------- ---------- ------------ ----
Revenues $ 53,000 $ 360,000 -85% 100% 100%
Cost of revenues 56,000 835,000 -93% 106% 232%
-------- ---------- ------ ------------ ----
Gross income (loss) (3,000) (475,000) -99% -6% -132%
Operating expenses
Research and development - 466,000 -100% 0% 129%
Selling, general &
administrative 383,000 1,254,000 -69% 723% 348%
-------- ---------- ------ ------------ ----
Total operating expenses 383,000 1,720,000 -78% 723% 478%
-------- ---------- ------ ------------ ----
Operating loss (386,000) (2,195,000) -82% -728% -610%
-------- ---------- ------ ------------ ----
Other income (expense)
Interest and other
income (expense) (20,000) (20,000) 0% -38% -6%
-------- ---------- ------ ------------ ----
Total other income
(expense) (20,000) (20,000) 0% -38% -6%
-------- ---------- ------ ------------ ----
Net loss $(406,000) $(2,215,000) 82% -766% -615%
======== ========== ====== ============ ====
The sum of the amounts and percentages may not equal the totals
for the period due to the effects of rounding.
Computations of percentage change period over period are based
upon our results, as rounded and presented herein.
Revenues. Revenues in the current year were negatively affected
by continued uncertainty over battery performance and
non-recoverable engineering costs associated with battery
development. As a result, OEM and other customers have delayed
major all-electric vehicle marketing initiatives, resulting in
decreased demand for our systems. Additionally, due to our
restructuring in June 2012, our capacity to pursue new business has
been substantially reduced. The decrease in revenue for the three
months ended March 31, 2013 compared to the same period in 2012 was
mainly due to a decrease in deliveries to our core customer base in
Asia. Revenues in the first three months of 2013 were mainly
attributed to continued shipments to First Auto Works in China and
the Smith Electric Vehicles in the U.S. We will have fluctuations
in revenue from quarter to quarter. Although we have seen
indications from our customers to support future revenue, there can
be no assurance there will be continuing demand for our products
and services.
Cost of Revenues. Cost of revenues consists of component and
material costs, direct labor costs, integration costs and overhead
related to manufacturing our products as well as inventory
valuation reserve amounts. Cost of revenues for the three months
ended March 31, 2013 decreased primarily due to the decrease in
revenue compared to the same period in the prior year and, in
addition, we recorded a charge of approximately $558,000 during the
first three months of 2012 to increase our inventory obsolescence
reserve after management updated its estimate of the realizable
value of inventory.
Gross Profit. The decrease in gross loss for the three months
ended March 31, 2013 compared to the same period in the prior year
is primarily attributable to the recording of an increase in the
inventory obsolescence reserve in the first three months of
2012.
Research and Development ("R&D"). R&D costs decreased
for the three months ended March 31, 2013 compared to the same
periods in the prior year as our engineering staff was reduced in
June 2012 due to the Company's lack of financial resources. As a
result, the Company's development of its next generation
Omni-series motor control unit and 10kW charger was put on hold at
the end of the second quarter of 2012.
Selling, General, and Administrative Expenses ("S, G & A").
S, G & A is comprised of activities in the executive, finance,
marketing, field service and quality departments' compensation as
well as related payroll benefits, and non-cash charges for
depreciation and options expense. The decrease in S, G & A for
the three months ended March 31, 2013 compared to the same period
in the prior year is attributable the Company's implementation of
staff reductions, the termination of employment with the Company by
approximately 80% of the Company's workforce and other cost savings
measures. We continually monitor S, G & A in light of our
business outlook and are taking proactive steps to control these
costs.
Interest and Other Income (Expense). The interest and other
income (expense) had no change for the three months ended March 31,
2013 compared to the same period.
Net Loss. The decrease in the net loss for the three months
ended March 31, 2012 compared to the same period in the prior year
was mainly due to the reduction in our workforce in the second
quarter of 2012 which resulted in lower operating costs and a
decrease in the inventory obsolescence reserve compared to
2012.
Comparability of Quarterly Results. Our quarterly results have
fluctuated in the past and we believe they will continue to do so
in the future. Certain factors that could affect our quarterly
operating results are described in Part I, Item 1A-Risk Factors
contained in our Form 10-K for 2012, as updated by the disclosure
contained in Item 1A of Part II of this Form 10-Q. Due to these and
other factors, we believe that quarter-to-quarter comparisons of
our results of operations are not meaningful indicators of future
performance.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced losses primarily attributable to research,
development, marketing and other costs associated with our
strategic plan as an international developer and supplier of
electric drive and power management systems and components.
Historically cash flows from operations have not been sufficient to
meet our obligations and we have had to raise funds through several
financing transactions. At least until we reach breakeven volume in
sales and develop and/or acquire the capability to manufacture and
sell our products profitably, we will need to continue to rely on
cash from external financing sources. Our operations during the
three months ended March 31, 2013 were financed by product sales
and from working capital reserves.
On June 30, 2010, the Company entered into a secured a revolving
credit facility with a financial institution for $200,000 which was
secured by a $200,000 certificate of deposit. The interest rate on
a drawdown from the facility is the certificate of deposit rate
plus 1.25% with interest payable monthly and the principal due at
maturity. The financial institution also renewed the $200,000
irrevocable letter of credit for the full amount of the credit
facility in favor of Sunshine Distribution LP, with respect to the
lease of the Company's corporate headquarters at 1560 West 190th
Street, Torrance, California. During the fourth quarter of 2012,
the irrevocable letter of credit was fully drawn down by Sunshine
Distribution L.P. in order to pay rent on our corporate
headquarters, and the certificate of deposit was fully utilized to
fund draws on the secured facility. Therefore, the facility was
fully drawn and expired on December 31, 2012.
Net cash used in operating activities was $29,000 for the three
months ended March 31, 2013, a decrease of $1,687,000 compared to
$1,716,000 for the three months ended March 31, 2012. Operating
cash used in the first three months of 2013 decreased compared to
the prior year period primarily due to over 80% of our workforce
leaving the Company in June 2012 that decreased our ongoing
operational costs in 2013. Non-cash items include expense for
stock-based compensation, depreciation and amortization and other
losses. These non-cash items decreased by $731,000 for the three
months ended March 31, 2013 as compared to the same period in the
prior year primarily due to an increase in the inventory reserve in
the prior year period and lower depreciation expense in 2013 due to
the end of the lease at our former headquarters in January 2013.
The decrease in net loss was primarily due to a decrease in
administrative and R&D expenses related to over 80% of our
workforce leaving the Company in June 2012 and our restricting
other administrative expenditures to conserve cash resources. As of
March 31, 2013, the Company had $22,000 of cash and cash
equivalents compared to $57,000 as of December 31, 2012.
Net cash used in investing activities for capital expenditures
was $0 for the three months ended March 31, 2013 compared to
$16,000 for the three months ended March 31, 2012. The decrease was
primarily attributable to our eliminating all capital expenditure
after the reduction in our operations in the second quarter of
2012.
Net cash used in financing activities was $6,000 for the three
months ended March 31, 2013 and 2012. Finance activities were
limited to payments on existing vehicle notes in both periods.
Net accounts receivable decreased by $123,000, or 59%, to
$85,000 at March 31, 2013 compared to a balance of $208,000 at
December 31, 2012. The decrease in the receivable balance was
primarily due to collections of receivables due. As of March 31,
2013 and December 31, 2012, the Company maintained a reserve for
doubtful accounts receivable of $313,000 related to financial
instability at a major customer, Smith Electric Vehicles.
Net inventory and supplies increased by $29,000, or 1%, to
$2,232,000 at March 31, 2013 compared to a balance of $2,203,000 at
December 31, 2012. The increase resulted from net inventory
activity including receipts totaling $91,000, consumption of
$51,000 and an inventory reserve charge of $11,000.
Prepaid expenses and other current assets increased by $49,000,
or 20%, to $291,000 at March 31, 2013 compared to a balance of
$242,000 at December 31, 2012. The increase was primarily due to an
increase in deposits to vendors in support of a customer purchase
order to be delivered in the second quarter of 2013.
Long term accounts receivable decreased by $25,000, or 66%, to
$13,000 at March 31, 2013 compared to a balance of $38,000 at
December 31, 2012. The decrease is primarily due to
reclassification of amounts that will be due within one year to
current accounts receivable. The Company agreed to defer collection
of certain accounts receivable as requested by a customer for the
term of the Company's warranty guarantee. The Company continues to
remedy all warranty claims and therefore anticipates collection of
this receivable.
Property and equipment, net of depreciation, decreased by
$68,000, or 22%, to $239,000 at March 31, 2013 compared to a
balance of $307,000 at December 31, 2012. The decrease is primarily
due to depreciation expense of $58,000 and a loss on disposed
assets of $10,000.
Accounts payable decreased by $96,000, or 17%, to $462,000 at
March 31, 2013 compared to a balance of $558,000 at December 31,
2012. The decrease was primarily due to payments made on inventory
purchases made in 2012.
Deferred revenues increased by $315,000, or 267%, to $433,000 at
March 31, 2013 compared to a balance of $118,000 at December 31,
2012. The Company received prepayments on purchase orders from
certain customers, which are expected to be recognized as revenue
in the second quarter of 2013.
Accrued payroll and related expenses decreased by $23,000, or
23%, to $75,000 at March 31, 2013 compared to a balance of $98,000
at December 31, 2012. The decrease was primarily due to payment of
compensation accrued as of the prior year end.
Accrued loss for litigation settlement was unchanged at March
31, 2013 compared to the balance at December 31, 2012. As disclosed
in Item 1. Legal Proceedings, on December 12, 2012, a judgment was
entered in favor of Arens Controls Company, L.L.C. by the United
States District Court Northern District of Illinois in the amount
of $2,014,169 in the case of Arens Controls Company, L.L.C. v.
Enova Systems, Inc. See Item 1 of Part II of this report on Form
10-Q.
Other accrued liabilities increased by $20,000, or 8%, to
$275,000 at March 31, 2013 compared to a balance of $255,000 at
December 31, 2012. The increase was primarily due to an increase in
the accrual for professional services incurred in the first quarter
of 2013.
Accrued interest payable increased by $21,000, or 2%, to
$1,339,000 at March 31, 2013 compared to a balance of $1,318,000 at
December 31, 2012. The increase was due to interest related to our
debt instruments, primarily the secured note payable in the amount
of $1,306,000 to the Credit Managers Association of California.
Going concern
To date, the Company has incurred recurring net losses and
negative cash flows from operations. At March 31, 2013, the Company
had an accumulated deficit of approximately $159.8 million, working
capital of approximately negative $0.7 million and shareholders'
deficit of approximately $3.0 million. Until the Company can
generate significant cash from its operations, the Company expects
to continue to fund its operations with existing cash resources,
proceeds from one or more private placement agreements, as well as
potentially through debt financing or the sale of equity
securities. However, the Company may not be successful in obtaining
additional funding. In addition, the Company cannot be sure that
its existing cash and investment resources will be adequate or that
additional financing will be available when needed or that, if
available, financing will be obtained on terms favorable to the
Company or its shareholders.
Our operations will require us to make necessary investments in
human and production resources, regulatory compliance, as well as
sales and marketing efforts. We do not currently have adequate
internal liquidity to meet these objectives in the long term. On
June 21, 2012, we reported in a Form 8-K filing that, as part of
cost cutting measures in response to our decrease in revenue amid
continued delays in industry adoption of EV technology resulting
from ongoing battery cost and reliability concerns, in excess of
80% of our workforce left our Company, including the resignation of
members of our senior management. We continue to evaluate strategic
partnering opportunities and other external sources of liquidity,
including the public and private financial markets and strategic
partners. Having insufficient funds may require the Company to
delay or eliminate some or all of its product develop, relinquish
some or even all rights to product candidates at an earlier stage
of development or negotiate less favorable terms than it would
otherwise choose. Failure to obtain adequate financing also may
adversely affect the Company's ability to continue in business. If
the Company raises additional funds by issuing equity securities,
substantial dilution to existing stockholders would likely result.
If the Company raises additional funds by incurring debt financing,
the terms of the debt may involve significant cash payment
obligations, as well as covenants and specific financial ratios
that may restrict its ability to operate its business.
As of March 31, 2013, the Company had approximately $22,000 in
cash and cash equivalents and we do not anticipate that our
existing cash and anticipated receivables collections will be
sufficient to meet projected operating requirements through the end
of 2013 to continue operations and market trading.
Judgment entered in Arens Controls Litigation
On December 12, 2012, a judgment was entered by the United
States District Court Northern District of Illinois in favor of
Arens Controls Company, L.L.C. in the amount of $2,014,169
regarding claims for two counts. In 2008, Arens Controls Company,
L.L.C. ("Arens") filed claims against Enova with the United States
District Court Northern District of Illinois. A Partial Settlement
Agreement, as amended on January 14, 2011, resolved certain claims
made by Arens. However, the claims were preserved under two
remaining counts concerning i) anticipatory breach of contract by
Enova for certain purchase orders that resulted in lost profit to
Arens and ii) reimbursement for engineering and capital equipment
costs incurred by Arens exclusively for the fulfillment of certain
purchase orders received from Enova.
The Company filed a notice of appeal on January 15, 2013. The
Company believes the court committed errors leading to the verdict
and judgment, and the Company is evaluating its options on appeal.
However, there can be no assurance that the appeal will be
successful or a negotiated settlement can be attained or that Arens
will assert its claim in the state of California, and thereby cause
the Company to go into bankruptcy.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures which
are designed to provide reasonable assurance that information
required to be disclosed in the Company's periodic Securities and
Exchange Commission ("SEC") reports is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
As required by SEC Rule 13a-15(b) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company carried
out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange
Act) as of March 31, 2013. Based on that evaluation, our
management, including the Chief Executive Officer and Chief
Financial Officer, concluded that as of March 31, 2013, our
disclosure controls and procedures were not effective to ensure the
information required to be disclosed by an issuer in the reports it
files or submits under the Securities Exchange Act of 1934, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules
and forms relating to us, and was accumulated and communicated to
our management, including our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required
disclosure. There are inherent limitations to the effectiveness of
any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of
the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of
achieving their control objectives.
As required by Rule 13a-15(b) under the Securities and Exchange
Act of 1934, as amended, the Company carried out an evaluation,
under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures for
the period covered by this report. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer has
concluded that the Company's internal control over disclosure
controls and procedures was not effective as of March 31, 2013.
Changes in Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in
Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. We
maintain internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
In June 2012, all but two of the Company's employees resigned,
and such staff reduction resulted in our inability to complete
documentation of proper accounting procedures and management
review. Not all fully implemented fundamental elements of an
effective control were present as of March 31, 2013, including
formalized monitoring procedures. Based on this evaluation,
management has concluded that the aforementioned factors
constituted a material weakness in the Company's internal control
over financial reporting as of March 31, 2013.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As reported in our Form 10-K for the fiscal year 2012, six of
the eight counts in the litigation between Enova and Arens Controls
Company, L.L.C. were settled. The two counts that were not settled
remained outstanding. The two remaining counts concerned i)
anticipatory breach of contract by Enova for certain purchase
orders that resulted in lost profit to Arens and ii) reimbursement
for engineering and capital equipment costs incurred by Arens
exclusively for the fulfillment of certain purchase orders received
from Enova.
On December 12, 2012, a judgment was entered under the two
remaining counts by the United States District Court Northern
District of Illinois in favor of Arens Controls Company, L.L.C. in
the amount of $2,014,169. The Company filed an appeal of the
judgment in the 7th Circuit Court of Appeals on January 15, 2013.
The Company believes the court committed errors leading to the
verdict and judgment. However, there can be no assurance that the
appeal will be successful, a negotiated settlement can be attained,
or that Arens will enforce its claim in the state of California and
thereby cause the Company to go into bankruptcy.
From time to time, we are subject to legal proceedings arising
out of the conduct of our business, including matters relating to
commercial transactions. We recognize a liability for any
contingency that is probable of occurrence and reasonably
estimable. We continually assess the likelihood of adverse outcomes
in these matters, as well as potential ranges of probable losses
(taking into consideration any insurance recoveries), based on a
careful analysis of each matter with the assistance of outside
legal counsel and, if applicable, other experts.
Given the uncertainty inherent in litigation, we do not believe
it is possible to develop estimates of the range of reasonably
possible loss for these matters. Considering our past experience,
we do not expect the outcome of these matters, either individually
or in the aggregate, to have a material adverse effect on our
consolidated financial position. Because most contingencies are
resolved over long periods of time, potential liabilities are
subject to change due to new developments, changes in settlement
strategy or the impact of evidentiary requirements, which could
cause us to pay damage awards or settlements (or become subject to
equitable remedies) that could have a material adverse effect on
our results of operations or operating cash flows in the periods
recognized or paid.
ITEM 1A. Risk Factors
Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2012 lists risk factors for the Company. There have
been no material changes from the risk factors as previously
disclosed in such Annual Report on Form 10-K.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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