TIDMENV TIDMENVS
RNS Number : 0323K
Enova Systems, Inc.
15 August 2012
For Immediate release 14th of August 2012
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 and six month periods ended June 30, 2012.
Inquires:
Enova System
John Micek, Chief Executive Officer
and Chief Financial Officer +1(310) 527-2800 x103
Daniel Stewart & Company Plc
Jaime Barklem +44 (0) 20 7776 6550
HIGHLIGHTS
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2011 2011
Revenues $ 543,000 $ 2,531,000 $ 903,000 $ 5,476,000
Cost of revenues 746,000 1,948,000 1,582,000 4,674,000
Gross income (203,000) 583,000 (679,000) 802,000
Operating expenses
Research and development 338,000 441,000 804,000 1,004,000
Selling, general & administrative 1,145,000 1,414,000 2,398,000 2,862,000
Total operating expenses 1,483,000 1,855,000 3,202,000 3,866,000
Operating loss (1,686,000) (1,272,000) (3,881,000) (3,064,000)
Other income and (expense)
Interest and other income
(expense) (101,000) (78,000) (121,000) (93,000)
Total other income and
(expense) (101,000) (78,000) (121,000) (93,000)
Net loss $ (1,787,000) $ (1,350,000) $ (4,002,000) $ (3,157,000)
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2012 compared to Three and
Six Months Ended June 30, 2011
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. The decrease in revenue for the three and
six months ended June 30, 2012 compared to the same period in 2011
was mainly due to a decrease in deliveries to our core customer
base in the United States. Revenues in the first half of 2012 were
mainly attributed to continued shipments to First Auto Works in
China and the Optare Group in the U.K. We will have fluctuations in
revenue from quarter to quarter. Although we have seen indications
from our customers to support future production growth, 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 and six
months ended June 30, 2012 decreased primarily due to the decrease
in revenue for the three and six months ended June 30, 2012
compared to the same period in the prior year. We recorded a charge
of approximately $893,000 during the first half of 2012 increasing
our inventory obsolescence reserve after management updated its
estimate of the realizable value of inventory.
Gross Profit. The decrease in gross profit for the three and six
months ended June 30, 2012 compared to the same period in the prior
year is primarily attributable to the decrease in revenues and the
recording of an increase in the inventory obsolescence reserve in
the first half of 2012.
Research and Development ("R&D"). R&D costs decreased
for the three and six months ended June 30, 2012 compared to the
same periods in the prior year as we reduced resources devoted to
continued development of existing products and focused our
engineering personnel resources to the development of our next
generation Omni-series motor control unit and 10kW charger. We also
continued testing of new battery technologies and electric motors
as well as the development of upgraded proprietary control software
for specific customer applications.
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 and six months ended June 30, 2012 compared to the same
period in the prior year is attributable the Company's
implementation of staff reductions 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 net of other income
(expense) increased in the three and six months ended June 30, 2012
compared to the same period in the prior year due to $68,000 of
fixed asset impairment charge recorded in the second quarter of
2012 and a decrease in interest increase and miscellaneous
income.
Net Loss. The increase in the net loss for the three and six
months ended June 30, 2012 compared to the same period in the prior
year was mainly due to the decreased demand for our systems in
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 2011, 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 six
months ended June 30, 2012 were financed by product sales, equity
financing, as well as 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 facility is for a
period of 3 years and 6 months from July 1, 2010 to December 31,
2013. 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.
Net cash used in operating activities was $2,968,000 for the six
months ended June 30, 2012, a decrease of $2,037,000 compared to
$5,005,000 for the six months ended June 30, 2011. Operating cash
used in the first half of 2012 decreased compared to the prior year
period due mainly to decreases in our sales volume in 2012 and the
use of our existing cash resources to fund our current operations.
Non-cash items include expense for stock-based compensation,
depreciation and amortization, issuance of common stock for
employee services and other losses. These non-cash items increased
by $753,000 for the six months ended June 30, 2012 as compared to
the same period in the prior year primarily due to larger increase
in the inventory reserve. The increase in net loss was primarily
due to a decrease in gross profit related to an 84% decrease in
revenue and an increase in the inventory reserve when comparing the
six months ended 2012 and 2011. We increased measures to conserve
cash resources, including the reduction in our workforce by over
80% in June 2012 and by restricting administrative and general
expenditures. As of June 30, 2012, the Company had $233,000 of cash
and cash equivalents compared to $3,096,000 as of December 31,
2011.
Net cash used in investing activities for capital expenditures
was $16,000 for the six months ended June 30, 2012 compared to
$193,000 for the six months ended June 30, 2011. The decrease was
primarily attributable to a decrease in acquisitions of test
vehicles and equipment in the first six months of 2012.
Net cash provided by financing activities was $121,000 for the
six months ended June 30, 2012, compared to net cash provided in
financing activities of $9,000 for the six months ended June 30,
2011. The increase was primarily attributable to proceeds of
$132,000 from the issuance of Common Stock during second quarter of
2012 from the Lincoln Park facility, as explained in Note 8 -
Stockholders' Equity to the financial statements included in Item 1
of this Form 10-Q.
Net accounts receivable decreased by $45,000, or 6%, to $714,000
at June 30, 2012 compared to a balance of $759,000 at December 31,
2011. The decrease in the receivable balance was primarily due to
an increase in the Reserve for Doubtful Accounts due to financial
instability at a major customer, Smith Electric Vehicles. As of
June 30, 2012 and December 31, 2011, the Company maintained a
reserve for doubtful accounts receivable of $212,000 and $18,000,
respectively.
Net inventory and supplies decreased by $960,000, or 24%, to
$3,076,000 at June 30, 2012 compared to a balance of $4,036,000 at
December 31, 2011. The decrease resulted from net inventory
activity including receipts totaling $603,000, consumption of
$670,000 and an inventory reserve charge of $893,000.
Prepaid expenses and other current assets decreased by $39,000,
or 16%, to $203,000 at June 30, 2012 compared to a balance of
$242,000 at December 31, 2011. The decrease was primarily due to a
decrease in purchase order deposits for inventory received to
fulfill customer sales in the second quarter.
Long term accounts receivable decreased by $6,000, or 8%, to
$73,000 at June 30, 2012 compared to a balance of $79,000 at
December 31, 2011. 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
$290,000, or 31%, to $638,000 at June 30, 2012 compared to a
balance of $928,000 at December 31, 2011. The decrease is primarily
due to depreciation expense of $238,000 and an asset impairment
charge of $68,000, which was partially offset by additions to fixed
assets totaling $16,000 in the first six months of 2012.
Accounts payable increased by $92,000, or 26%, to $446,000 at
June 30, 2012 compared to a balance of $354,000 at December 31,
2011. The increase was primarily due to inventory purchases made in
the first half of 2012.
Deferred revenues decreased by $198,000, or 62%, to $122,000 at
June 30, 2012 compared to a balance of $320,000 at December 31,
2011. The balance at June 30, 2012 is anticipated to be realized
into revenue in the third quarter of 2012 and is associated with
prepayments on purchase orders from certain customers.
Accrued payroll and related expenses decreased by $248,000, or
93%, to $18,000 at June 30, 2012 compared to a balance of $266,000
at December 31, 2011. The decrease was primarily due to the
reduction in our workforce by over 80% in June 2012 which resulted
in a pay out of accrued vacation of approximately $143,000 and a
decrease in other accrued payroll expenses.
Other accrued liabilities decreased by $174,000, or 34%, to
$343,000 at June 30, 2012 compared to a balance of $517,000 at
December 31, 2011. The decrease was primarily due to a decrease in
the accrued warranty balance as costs for warranty claims were
greater than warranty accruals during the first six months of
2012.
Accrued interest payable increased by $40,000, or 3%, to
$1,277,000 at June 30, 2012 compared to a balance of $1,237,000 at
December 31, 2011. The increase was due to interest related to our
debt instruments, primarily the secured note payable in the amount
of $1,238,000 to the Credit Managers Association of California.
Lincoln Park Equity Facility
On April 23, 2012, the Company entered into a $6,600,000
purchase agreement (the "$6,600,000 Purchase Agreement"), together
with a registration rights agreement, with Lincoln Park Capital
Fund, LLC ("Lincoln Park"), pursuant to which the Company has the
right to sell to Lincoln Park up to $6,600,000 in shares of the
Company's common stock, subject to certain limitations. In
addition, on April 24, 2012, the Company entered into a purchase
agreement (the "$3,400,000 Purchase Agreement" and, together with
the $6,600,000 Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Company has the right to sell to Lincoln Park
up to $3,400,000 in shares of the Company's common stock, subject
to certain limitations.
Under the terms and subject to the conditions of the $6,600,000
Purchase Agreement, Lincoln Park will be obligated to purchase up
to $6,600,000 in shares of common stock (subject to certain
limitations) from time to time over the 36-month period commencing
on the date that a registration statement, which we agreed to file
with the Securities and Exchange Commission (the "SEC"), is
declared effective by the SEC and a final and complete prospectus
in connection therewith is filed. The Company may direct Lincoln
Park, from time to time, at its sole discretion and subject to
certain conditions, to purchase up to 200,000 shares of common
stock, and in addition we may require additional purchases in
accordance with the $6,600,000 Purchase Agreement. The purchase
price of shares of common stock related to the future funding will
be based on the prevailing market prices of such shares at the time
of sales without any fixed discount, and the Company will control
the timing and amount of any sales of common stock to Lincoln Park.
The Company's sales of shares of common stock to Lincoln Park may
be limited to the maximum number of shares of common stock under
applicable rules of the NYSE MKT or we may be required to obtain
stockholder approval under such rules. As consideration for its
commitment to purchase shares of common stock pursuant to the
$6,600,000 Purchase Agreement, the Company will issue to Lincoln
Park up to 556,440 shares pro rata, when and if, Lincoln Park
purchases at the Company's discretion the $6,600,000 funding.
Pursuant to the $3,400,000 Purchase Agreement, Lincoln Park
initially purchased shares of common stock for gross proceeds of
$250,000 and, on May 11, 2012, purchased additional shares of
common stock for gross proceeds of $34,000. The Company has the
right, from time to time, at its sole discretion and subject to
certain conditions to direct Lincoln Park to purchase up to 200,000
shares of common stock, which amount may be increased in accordance
with the $3,400,000 Purchase Agreement. The purchase price of
shares of common stock related to the future funding will be based
on the prevailing market prices of such shares at the time of sales
without any fixed discount, and the Company will control the timing
and amount of any sales of common stock to Lincoln Park.
Additionally, the $3,400,000 Purchase Agreement limits the
Company's sales of common stock to Lincoln Park to (i) the maximum
number of shares of common stock that the Company may issue without
breaching its obligations under applicable rules of the NYSE MKT or
obtaining stockholder approval under such rules, and (ii) the
maximum number of shares of Common Stock that the Company may issue
without exceeding the limitations set forth in General Instruction
I.B.6. of Form S-3 and the interpretive guidance of the SEC
applicable to these transactions.
As consideration for its commitment to purchase common stock
under the $3,400,000 Purchase Agreement, the Company issued to
Lincoln Park 281,030 shares of common stock and agreed to issue up
to 286,651 shares pro rata, when and if, Lincoln Park purchases at
the Company's discretion the $3,400,000 funding.
The $3,400,000 Purchase Agreement limits our sales of shares of
common stock to Lincoln Park to the lesser of: (a) the maximum
number of shares of our common stock that we may issue without
breaching our obligations under applicable rules of the NYSE MKT or
obtaining stockholder approval under such rules, and (b) the
maximum number of shares of our common stock that we may issue
without exceeding the limitations set forth in General Instruction
I.B.6. of Form S-3 and the interpretive guidance of the SEC. All
shares of Common Stock sold and to be sold to Lincoln Park under
the $3,400,000 Purchase Agreement are and will be issued pursuant
to the Company's effective shelf registration statement on Form S-3
(Registration No. 333-176480), filed with the SEC in accordance
with the provisions of the Securities Act and declared effective on
August 30, 2011.
It is anticipated that shares registered in this offering will
be sold over a period of up to 36 months. The sale by Lincoln Park
of a significant amount of shares registered in this offering at
any given time could cause the market price of our common stock to
decline and to be highly volatile. Lincoln Park may ultimately
purchase all, some or none of the shares of common stock offered
hereby. After it has acquired such shares, it may sell all, some or
none of such shares. Therefore, sales by us to Lincoln Park of the
shares registered in this offering may result in substantial
dilution to the interests of other holders of our common stock.
However, we have the right to control the timing and amount of any
sales of our shares to Lincoln Park.
The number of shares ultimately offered for sale by Lincoln Park
under the prospectus supplement is dependent upon the number of
shares purchased by Lincoln Park under the $3,400,000 Purchase
Agreement. The following table sets forth the amount of proceeds we
would receive from Lincoln Park from the sale of shares that are
registered in the offering at varying purchase prices (without
accounting for certain fees and expenses):
Percentage of
Outstanding Shares Proceeds from
Number of Registered After Giving Effect the Sale of Shares
Shares to be Issued to the Issuance to Lincoln Park
Assumed Average if Full Purchase to Lincoln Park Under the $3,400,000
Purchase Price (1) (2) Purchase Agreement
----------------- ---------------------- ---------------------- -----------------------
$ 0.13 (3) 26,153,846 (6) 37.64 $ 3,400,000
$ 0.20 (4) 17,000,000 (6) 28.18 $ 3,400,000
$ 0.23 (5) 14,782,609 (6) 25.43 $ 3,400,000
$ 1.00 3,400,000 7.28 $ 3,400,000
$ 2.00 1,700,000 3.78 $ 3,400,000
____________________
(1) Excludes the shares to be issued to Lincoln Park as
commitment shares, of which we issued 281,030 shares in connection
with entering into the $3,400,000 Purchase Agreement and an
additional 286,651 shares we agreed to issue pro rata when and if
Lincoln Park purchases the $3,400,000 funding.
(2) The denominator is based on 42,765,223 shares outstanding as
of April 24, 2012, adjusted to include the 281,030 shares to be
issued to Lincoln Park as commitment shares in connection with the
offering and the number of shares set forth in the adjacent column
which we would have sold to Lincoln Park and any related additional
shares which we would have issued pro rata, but excluding the
556,440 commitment shares that may be issued to Lincoln Park in
connection with the $6,600,000 Purchase Agreement. The numerator is
based on the number of shares issuable under the $3,400,000
Purchase Agreement at the corresponding assumed purchase price set
forth in the adjacent column. The number of shares in such column
does not include shares that may be issued to Lincoln Park which
are not registered in this offering.
(3) Under the $3,400,000 Purchase Agreement, we may not sell and
Lincoln Park may not purchase any shares in the event the purchase
price of such shares is below $0.13.
(4) Under the $3,400,000 Purchase Agreement, we may not sell and
Lincoln Park may not purchase any shares at the Accelerated
Purchase Price in the event the closing price of our common stock
on the NYSE MKT is less than $0.20 on the purchase date.
(5) The closing sale price of our shares on April 23, 2012.
(6) If we seek to issue shares, including shares from other
transactions but not included in the offering that may be
aggregated with the transaction under the applicable rules of NYSE
MKT, in excess of 8,500,000, or 19.99% of the total common stock
outstanding as of the date of the $3,400,000 Purchase Agreement, we
may be required to seek shareholder approval in order to be in
compliance with the NYSE MKT rules.
Going concern
To date, the Company has incurred recurring net losses and
negative cash flows from operations. At June 30, 2012, the Company
had an accumulated deficit of approximately $155.1 million, working
capital of approximately $3.4 million and shareholders' equity of
approximately $1.6 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 ongoing operations and anticipated growth 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, 2102, 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
potentially eliminate some or all of its development programs,
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 launch of the Company's product
candidates or its 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 June 30, 2012, the Company had approximately $0.2 million
in cash and cash equivalents currently and anticipates that its
existing cash and anticipated receivables collections will be
sufficient to meet its projected operating requirements through
year end to continue operations and market trading.
We have continued to closely scrutinize our cost structure in
2012 to reduce ongoing operating costs. Market acceptance of our
products in sufficiently profitable production volume is closely
tied to the development of a reliable and cost effective battery
solution by the industry. Further delays in battery availability,
in conjunction with unanticipated delays in OEM acceptance, could
result in further actions by Enova to focus on cash management.
We have also accessed the capital markets to obtain additional
operating funds. In December 2011, we raised approximately
$1,245,000, net of financing costs of $442,500 through an equity
issuance to certain accredited investors, which was disclosed in
our Form 10-K filed on March 29, 2012. In addition, as summarized
in the liquidity discussion in our Management Discussion and
Analysis of this Form 10-Q, we entered into two Purchase Agreements
(the facility) with Lincoln Park Capital Fund in April to issue up
$10,000,000 in shares of our common stock and received proceeds of
$132,000, net of financing costs of $152,000, from the initial
purchase of shares of Common Stock from Lincoln Park in the second
quarter. Access to funding under the facility is dependent upon our
share price maintaining a floor price of at least $0.15 per share.
Our share price decreased below that threshold in May 2012 and
until our share price increases above the threshold level, we
cannot raise additional funds from the facility.
The Company continues to pursue other options to raise
additional capital to fund its operations, including potential
strategic partnerships; however, there can be no assurance that we
can successfully raise additional funds through the capital
markets.
Off-Balance Sheet Arrangement
The Company has no off-balance sheet arrangements.
Overview
Enova believes it is 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 is to develop and
produce advanced proprietary software and hardware for applications
in these alternative power markets. Our focus is powertrain systems
including digital power conversion, power management and system
integration, focusing chiefly on vehicle power generation.
Specifically, we develop, design 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 centers 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.
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 June 30, 2012, we had an accumulated deficit of approximately
$155.1 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.
Following reductions in the Company's expense base, the Company
currently believes it has sufficient working capital in the short
term through year end to continue operations and market
trading.
Delisting Notification from the NYSE MKT
On April 17, 2012, Enova Systems, Inc. (the "Company") received
notice (the "April Notice") from the NYSE MKT (the "Exchange")
indicating that the Company was not in compliance with one of the
Exchange's continued listing standards as set forth in Part 10 of
the Exchange's Company Guide (the "Exchange Guide"), and the
Company was therefore subject to the procedures and requirements of
Section 1009 of the Exchange Guide. Specifically, the Company was
not in compliance with Section 1003(a) (iii) of the Exchange Guide
because the Company reported stockholders' equity of less than
$6,000,000 for 2011 and the Company had incurred a loss from
continuing operations and/or net losses for five consecutive
years.
As required by the April Notice, on May 17, 2012, pursuant to
Section 1009 of the Exchange Guide, the Company submitted a plan of
compliance (the "Plan of Compliance") advising the Exchange of
actions the Company would take to regain compliance with Section
1003(a)(iii) and 1003(a)(ii) of the Exchange Guide over the period
ending October 15, 2013 (the "Plan Period").
By letter dated May 22, 2012 (the "May Notice"), the Company
received an additional notice from the Exchange stating that a
review of the Company's Form 10-Q for the first quarter of fiscal
2012 indicated that the Company did not meet an additional listing
requirement. Specifically, the Company was not in compliance with
Exchange Guide Section 1003(a)(ii) because the Company reported
stockholders' equity of less than $4,000,000 and losses from
continuing operations and/or net losses in three of its four most
recent fiscal years. Due to the higher stockholders' equity
requirement identified in the April Notice, the Company was not
required by the Exchange to submit an additional plan of compliance
in connection with the deficiency identified in the May Notice.
On June 21, 2012, the Company filed a Form 8-K disclosing the
resignation of Chief Executive Officer and Director Michael Staran,
Chief Operating Officer John Mullins and Director Richard
Davies.
On July 5, 2012, the Company received a further notice (the
"July Notice") from the Exchange indicating that the Company no
longer complied with the Exchange's continued listing standards as
set forth in Section 1003 of the Exchange Guide and that its
securities are, therefore, subject to being delisted from the
Exchange. The July Notice stated that the financial projections
provided in connection with the Plan of Compliance did not
demonstrate an ability to regain compliance with the minimum
requirements by the end of the Plan Period and the resignations of
Messrs. Staran, Mullins and Davies further reinforced the
conclusion that the Company would be unable to regain such
compliance by the end of the plan Period. The July Notice further
stated that, on June 25, 2012, the Company notified the Exchange
that the financial projections provided with the Plan were no
longer accurate and did not provide the staff of the Exchange (the
"Staff") with updated projections. Following a review of the
above-described facts, the Staff advised the Company that the
Exchange did not accept the proposed Plan of Compliance and that
the Company is therefore subject to delisting pursuant to Section
1009 of the Exchange Guide.
In accordance with Sections 1203 and 1009(d) of the Exchange
Guide, the Company exercised its right to appeal the determination
of the Staff by requesting a hearing with the Listing
Qualifications Panel. The Company was granted a hearing date in
September 2012. There can be no assurance that the Company's
request for continued listing will be granted or that, if granted,
the Company will be able to continue to meet the minimum listing
requirements.
Customer Highlights
FREIGHTLINER CUSTOM CHASSIS CORPORATION (FCCC) - Enova and FCCC
began deploying new and retrofit all-electric vehicles to major
fleet customers in 2011. The resulting integration of our
all-electric drive system into the MT-45 chassis provides FCCC an
all-electric product offering: the FCCC MT-EV. The MT-EV (the FCCC
model name) chassis boasts a GVWR of 14,000 to 19,500 lbs. Enova
and FCCC also jointly announced, in November 2011, intentions to
deploy 3000 vehicles via the Green for Free(TM) Program, which is
designed to allow fleet executives to operate full 100% electric
commercial vehicles (EVs) and/or Hybrid Electric Vehicles (HEVs)
for similar life cycle costs as those of diesel-powered commercial
vehicles. The anticipated savings fleets are expected to realize
from the reduced maintenance and fuel cost of electricity of the
electric vehicles are used over a period of time to cover the
incremental expense for the technology. FCCC had begun, in early
2011, showcasing the Enova/FCCC EV step van at numerous events on
the West Coast, as well as the recent NTEA Work Truck show in
Indianapolis. This program is currently on hold, pending Enova's
ability to continue operations and FCCC's decision on battery
sourcing, which has been delayed due to concerns over recent
negative reports regarding battery reliability.
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.
FAW has historically ordered systems in increments of 25-50 with
very little (if any) visibility.
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.
CSR CORPORATION LIMITED (CSR) - Enova completed initial scope
with CSR to integrate our all electric drive system into its
commercial bus applications. CSR is approved by the State-owned
Assets Supervision and Administration Commission of the State
Council and was co-founded by China South Locomotive and Rolling
Stock Industry Group Corporation and Beijing Railway Industry
Economic and Trade Company with a total equity capital of $7
billion USD. The company was established in December 2007 with
sixteen (16) fully funded holding companies and over 80,000
employees distributed in 10 provinces and cities around the
country.
OPTARE PLC - Enova fulfilled an order in the second quarter of
2012 for eight 120kW systems for integration into Optare's Solo
Electric Bus. 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. Recently Optare announced that its long term future has
been secured due to a refinancing agreement with Ashok Leyland
increasing its holding in Optare to 75.1%. Optare anticipates being
fully integrated in Ashok's global bus strategy which seeks to
improve on its position amongst the world's bus makers. Ashok
Leyland has annual turnover of approximately $2.5 billion and is a
market leader in the medium and heavy commercial vehicle segment in
India with a market share of about 25.7% in 2010/2011. Ashok is a
market leader in the Indian bus market selling over 23,000 buses
annually and including overseas plants, has current global capacity
of over 150,000 buses and trucks.
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. We continued development of our new Omni-series
10kW on-board battery charger for plug-in hybrid-electric and
all-electric vehicles. CAN control based, the new Omni charger
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 will continue development and marketing
of these two products, which we believe can gain broad market
acceptance.
Enova recently participated in the Electric Vehicle Symposium
(EVS) 26 Conference in Los Angeles, the Alternative Clean
Transportation (ACT) 2012 Expo in Long Beach and the 7th Annual
Energy Showcase in San Diego in the second quarter of 2012. Enova
displayed multiple vehicles all powered with its drive systems at
all three events and attendees were able to test drive Enova
Systems' powered light and medium duty full electric vehicles in
the events Ride and Drives.
We continue to receive recognition from both governmental and
private industry with regards to both commercial and military
application of our all-electric and hybrid drive systems and fuel
cell power management technologies. Although we believe that
current negotiations with above named parties may result in
additional production contracts during 2012 and beyond, there are
no assurances that such additional agreements will be realized.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
December
June 30, 31,
2012 2011
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 233,000 $ 3,096,000
Certificate of deposit,
restricted 200,000 200,000
Accounts receivable, net 714,000 759,000
Inventories and
supplies, net 3,076,000 4,036,000
Prepaid expenses and other current assets 203,000 242,000
Total current
assets 4,426,000 8,333,000
Long term accounts
receivable 73,000 79,000
Property and equipment,
net 638,000 928,000
Total assets $ 5,137,000 $ 9,340,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 446,000 $ 354,000
Deferred revenues 122,000 320,000
Accrued payroll and related expenses 18,000 266,000
Other accrued liabilities 343,000 517,000
Current portion
of notes payable 62,000 62,000
Total current
liabilities 991,000 1,519,000
Accrued interest
payable 1,277,000 1,237,000
Notes payable, net of current portion 1,275,000 1,286,000
Total liabilities 3,543,000 4,042,000
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 June 30, 2012 and December
31, 2011 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 June 30, 2012 and December 31,
2011 1,094,000 1,094,000
Common Stock - no par value, 750,000,000
shares authorized; 44,520,000 and 42,765,000shares
issued and outstanding as of June 30,
2012 and December 31, 2011, respectively 145,512,000 145,380,000
Additional paid-in
capital 9,574,000 9,408,000
Accumulated
deficit (155,114,000) (151,112,000)
Total stockholders'
equity 1,594,000 5,298,000
Total liabilities and stockholders'
equity $ 5,137,000 $ 9,340,000
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
Revenues $ 543,000 $ 2,531,000 $ 903,000 $ 5,476,000
Cost of revenues 746,000 1,948,000 1,582,000 4,674,000
Gross income (203,000) 583,000 (679,000) 802,000
Operating expenses
Research and development 338,000 441,000 804,000 1,004,000
Selling, general & administrative 1,145,000 1,414,000 2,398,000 2,862,000
Total operating expenses 1,483,000 1,855,000 3,302,000 3,866,000
Operating loss (1,686,000) (1,272,000) (3,881,000) (3,064,000)
Other income and (expense)
Interest and other income
(expense) (101,000) (78,000) (121,000) (93,000)
Total other income and
(expense) (101,000) (78,000) (121,000) (93,000)
Net loss $ (1,787,000) $ (1,350,000) $(4,002,000) $ (3,157,000)
Basic and diluted loss
per share $ (0.04) $ (0.04) $ (0.09) $ (0.10)
Weighted average number
of common shares outstanding 43,977,000 31,513,000 43,371,000 31,497,000
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
Cash flows from operating activities: 2012 2011
Net loss $(4,002,000) $ (3,157,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Reserve for doubtful accounts 196,000 53,000
Inventory reserve 893,000 204,000
Depreciation and amortization 238,000 253,000
Loss on asset disposal - 49,000
Loss on asset impairment 68,000 -
Loss on litigation settlement - 41,000
Stock option expense 166,000 208,000
(Increase) decrease in:
Accounts receivable (151,000) 42,000
Inventory and supplies 67,000 (254,000)
Prepaid expenses and other current assets 39,000 271,000
Long term accounts receivable 6,000 (45,000)
Increase (decrease) in:
Accounts payable 92,000 (1,435,000)
Deferred revenues (198,000) 67,000
Accrued payroll and related expense (248,000) (329,000)
Other accrued liabilities (174,000) (1,013,000)
Accrued interest payable 40,000 40,000
----------------- -----------------
Net cash used in operating activities (2,968,000) (5,005,000)
Cash flows from investing activities:
Purchases of property and equipment (16,000) (193,000)
Net cash used in investing activities (16,000) (193,000)
Cash flows from financing activities:
Payment on notes payable and capital
lease obligations (11,000) (14,000)
Net proceeds from the issuance of common
stock 132,000 -
Net proceeds from the exercise of stock
options - 23,000
Net cash provided by (used in) financing
activities (6,000) 9,000
Net (decrease) in cash and cash equivalents (2,863,000) (5,189,000)
Cash and cash equivalents, beginning
of period 3,096,000 8,431,000
Cash and cash equivalents, end of period $ 233,000 $ 3,242,000
Supplemental disclosure of cash flow
information:
Interest paid $ 2,000 $ 3,000
Assets acquired through financing arrangements $ - $ 25,000
Supplemental disclosure o non cash investing and financing:
Assets acquired through financing arrangements $ 62,000 $ -
The accompanying notes are an integral part of 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 NYSE MKT under the trading symbol "ENA" and on the London
Stock Exchange under the symbol "ENV" or "ENVS". The Company is 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.
2. Summary of Significant Accounting Policies
Basis of Presentation - Interim Financial Statements
The financial information as of and for the three and six months
ended June 30, 2012 and 2011 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 fiscal year. These interim financial statements
should be read in conjunction with the audited financial statements
for the year ended December 31, 2011, which are included in the
Company's Annual Report on Form 10-K for the year then ended.
Delisting Notification from the NYSE MKT
On April 17, 2012, Enova Systems, Inc. (the "Company") received
notice (the "April Notice") from the NYSE MKT (the "Exchange")
indicating that the Company was not in compliance with one of the
Exchange's continued listing standards as set forth in Part 10 of
the Exchange's Company Guide (the "Exchange Guide"), and the
Company was therefore subject to the procedures and requirements of
Section 1009 of the Exchange Guide. Specifically, the Company was
not in compliance with Section 1003(a) (iii) of the Exchange Guide
because the Company reported stockholders' equity of less than
$6,000,000 for 2011 and the Company had incurred a loss from
continuing operations and/or net losses for five consecutive
years.
As required by the April Notice, on May 17, 2012, pursuant to
Section 1009 of the Exchange Guide, the Company submitted a plan of
compliance (the "Plan of Compliance") advising the Exchange of
actions the Company would take to regain compliance with Section
1003(a)(iii) and 1003(a)(ii) of the Exchange Guide over the period
ending October 15, 2013 (the "Plan Period").
By letter dated May 22, 2012 (the "May Notice"), the Company
received an additional notice from the Exchange stating that a
review of the Company's Form 10-Q for the first quarter of fiscal
2012 indicated that the Company did not meet an additional listing
requirement. Specifically, the Company was not in compliance with
Exchange Guide Section 1003(a)(ii) because the Company reported
stockholders' equity of less than $4,000,000 and losses from
continuing operations and/or net losses in three of its four most
recent fiscal years. Due to the higher stockholders' equity
requirement identified in the April Notice, the Company was not
required by the Exchange to submit an additional plan of compliance
in connection with the deficiency identified in the May Notice.
On June 21, 2012, the Company filed a Form 8-K disclosing the
resignation of Chief Executive Officer and Director Michael Staran,
Chief Operating Officer John Mullins and Director Richard
Davies.
On July 5, 2012, the Company received a further notice (the
"July Notice") from the Exchange indicating that the Company no
longer complied with the Exchange's continued listing standards as
set forth in Section 1003 of the Exchange Guide and that its
securities are, therefore, subject to being delisted from the
Exchange. The July Notice stated that the financial projections
provided in connection with the Plan of Compliance did not
demonstrate an ability to regain compliance with the minimum
requirements by the end of the Plan Period and the resignations of
Messrs. Staran, Mullins and Davies further reinforced the
conclusion that the Company would be unable to regain such
compliance by the end of the plan Period. The July Notice further
stated that, on June 25, 2012, the Company notified the Exchange
that the financial projections provided with the Plan were no
longer accurate and did not provide the staff of the Exchange (the
"Staff") with updated projections. Following a review of the
above-described facts, the Staff advised the Company that the
Exchange did not accept the proposed Plan of Compliance and that
the Company is therefore subject to delisting pursuant to Section
1009 of the Exchange Guide.
In accordance with Sections 1203 and 1009(d) of the Exchange
Guide, the Company exercised its right to appeal the determination
of the Staff by requesting a hearing with the Listing
Qualifications Panel. The Company was granted a hearing date in
September 2012. There can be no assurance that the Company's
request for continued listing will be granted or that, if granted,
the Company will be able to continue to meet the minimum listing
requirements.
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 June 30, 2012, the Company
had an accumulated deficit of approximately $155.1 million, cash
and cash equivalents of $233,000 and working capital of
approximately $3.4 million and shareholders' equity of
approximately $1.6 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 ongoing operations and anticipated growth 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. To do so, we will need to continue to
look for 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 potentially eliminate some or all of its
development programs, 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 launch of the
Company's product candidates or its 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.
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. We continue to
evaluate strategic opportunities to leverage our resources and
assist with continuing operations.
As of June 30, 2012, the Company had approximately $0.2 million
in cash and cash equivalents currently and anticipates that its
existing cash and anticipated receivables collections will be
sufficient to meet its projected operating requirements through
December 2012 to continue operations and market trading.
We have also accessed the capital markets to obtain additional
operating funds. In December 2011, we raised approximately
$1,245,000, net of financing costs of $442,500, through an equity
issuance to certain accredited investors, which was disclosed in
our Form 10-K filed on March 29, 2012. In addition, as summarized
in the liquidity discussion in our Management Discussion, we
entered into two Purchase Agreements (the facility) with Lincoln
Park Capital Fund in April 2012 to issue up $10,000,000 in shares
of our common stock and received proceeds of $132,000, net of
financing costs of $152,000, from the initial purchase of shares of
Common Stock from Lincoln Park in the second quarter. Access to
funding under the facility is dependent upon our share price
maintaining a floor price of at least $0.15 per share. Our share
price decreased below that threshold in May 2012 and, until our
share price increases above the threshold level, we cannot raise
additional funds from the facility.
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.
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 and six months
ended June 30, 2012 compared to what was previously disclosed in
the Company's Annual Report on Form 10-K for the year ended
December 31, 2011.
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.
See Note 9 Stock Options for further information on stock-based
compensation expense.
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:
June 30, December 31,
2012 2011
Raw Materials $ 4,303,000 $ 4,431,000
Work In Progress 155,000 144,000
Finished Goods 618,000 644,000
Reserve for Obsolescence (2,000,000) (1,183,000)
Total $ 3,076,000 $ 4,036,000
Inventory write-offs were $76,000 and $179,000 for the six
months ended June 30, 2012 and 2011, respectively.
4. Property and Equipment
Property and equipment consisted of the following at:
December
June 30, 31,
2012 2011
-----------------------
Computers and
software $ 618,000 $ 618,000
Machinery and
equipment 947,000 892,000
Furniture and
office equipment 98,000 98,000
Demonstration
vehicles and
buses 675,000 774,000
Leasehold improvements 1,348,000 1,348,000
Construction
in process - 39,000
Sub-total 3,686,000 3,769,000
Less accumulated
depreciation (3,048,000) (2,841,000)
Total 638,000 928,000
Depreciation and amortization expense was $238,000 and $253,000
for the six months ended June 30, 2012 and 2011, respectively, and
within those total expenses, the amortization of leasehold
improvements was $131,000 for the six months ended June 30, 2012
and 2011. Depreciation and amortization expense was $119,000 and
$129,000 for the three months ended June 30, 2012 and 2011,
respectively, and within those total expenses, the amortization of
leasehold improvements was $65,000 for the three months ended June
30, 2012 and 2011. In addition, the company recorded an impairment
loss of $68,000 for the three and six months ended June 30, 2102
and a loss on disposal of fixed assets in the amount of $49,000 was
recorded in the three and six months ended June 30, 2011.
5. Other Accrued Liabilities
Other accrued liabilities consisted of the following at:
June
30
December
2012 31, 2011
Accrued inventory
received....................................................................................
............................................ $ 15,000 $ 2,000
Accrued professional
services....................................................................................
........................................ 81,000 150,000
Accrued
warranty....................................................................................
.............................................................. 140,000 227,000
Other.......................................................................................
................................................................................. 107,000 138,000
Total......................................................................................
.................................................................................. $343,000 $ 517,000
Accrued warranty consisted of the following activities during
the six months ended June 30:
2012 2011
Balance at beginning of
quarter................................................................
......................................... $ 227,000 $ 510,000
Accruals for warranties issued during the
period.................................................................
.......... 80,000 285,000
Warranty
claims.................................................................
.................................................................. (167,000) (387,000)
Balance at end of
quarter................................................................
.................................................... $ 140,000 $ 408,000
Accrued warranty consisted of the following activities during
the three months ended June 30:
2012 2011
Balance at beginning of
quarter....................................................................
..................................... $ 186,000 $ 467,000
Accruals for warranties issued during the
period.....................................................................
...... 55,000 160,000
Warranty
claims.....................................................................
.............................................................. (101,000) (219,000)
Balance at end of
quarter....................................................................
................................................ $ 140,000 $ 408,000
6. Notes Payable, Long-Term Debt and Other Financing
Notes payable consisted of the following at:
June 30, December
2012 31, 2011
Secured note payable to Credit Managers Association
of California, bearing interest at prime plus 3%
(6.25% as of June 30, 2012), 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................................................................................................... 14,000 18,000
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..................................................................................................... 10,000 12,000
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............................................................................................................ 16,000 18,000
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....................................................................................................... 19,000 22,000
1,337,000 1,348,000
Less current portion of notes
payable............................................................................................... (62,000) (62,000)
Notes payable, net of current
portion............................................................................................... $ 1,275,000 $1,286,000
As of June 30, 2012 and December 31, 2011, the balance of long
term interest payable with respect to the Credit Managers
Association of California note amounted to $1,248,000 and
$1,209,000, respectively. Interest expense on notes payable
amounted to $42,000 and $44,000 during the six months ended June
30, 2012 and 2011, respectively. Interest expense on notes payable
amounted to $21,000 and $22,000 during the three months ended June
30, 2012 and 2011, respectively.
7. Revolving Credit Agreement
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 facility is for a
period of 3 years and 6 months from July 1, 2010 to December 31,
2013. 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.
8. Stockholders' Equity
On April 23, 2012, the Company entered into a $6,600,000
purchase agreement with Lincoln Park Capital Fund pursuant to which
the Company has the right to sell to Lincoln Park up to $6,600,000
in shares of the Company's common stock, and on April 24, 2012, the
Company entered into another purchase agreement with Lincoln Park
Capital Fund pursuant to which the Company has the right to sell to
Lincoln Park up to $3,400,000 in shares of the Company's common
stock, subject to certain limitations. We received proceeds of
$132,000, net of financing costs of $152,000, under the $3,400,000
Purchase Agreement and issued a total of 1,754,974 shares of common
stock in the second quarter of 2012. As consideration for its
commitment to purchase common stock under the $3,400,000 Purchase
Agreement, the Company issued to Lincoln Park 281,030 shares of
common stock.
During the three and six months ended June 30, 2012 and 2011,
the Company did not issue any shares of common stock to directors
or employees as compensation. During the six months ended June 30,
2011, 10,000 shares of the Company's Series A Preferred Stock were
converted into 222 shares of its common stock. There were no
conversions of the Company's Series A Preferred Stock for the
comparable period in 2012.
9. Stock Options
Stock Option Program Description
As of June 30, 2012, 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 2006 Plan has a total of 3,000,000 shares reserved for
issuance, of which 608,000 shares were available for grant as of
June 30, 2012. All stock options 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.
As of June 30, 2012, the total compensation cost related to
non-vested awards not yet recognized is $150,000. The weighted
average period over which the future compensation cost is expected
to be recognized is 20 months.
The following table summarizes information about stock options
outstanding and exercisable at June 30, 2012:
Weighted
Average
Remaining
Number of Weighted Average Contractual Aggregate
Share Exercise Term Intrinsic
Options Price in Years Value(1)
Outstanding at December
31, 2011 2,529,000 $ 1.07 6.09 $ -
Granted 20,000 $ 0.18 - $ -
Exercised - $ - - $ -
Forfeited or Cancelled (198,000) $ 1.80 - $ -
Outstanding at June
30, 2012 2,351,000 $ 1.00 5.55 $ -
Exercisable at June
30, 2012 1,838,000 $ 1.17 4.53 $ -
Vested and expected
to vest (2) 1,883,000 $ 1.15 6.03 $ -
(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 June 30, 2012
ranged from $0.18 to $4.35. The weighted average grant-date fair
value of option s granted during the six months ended June 31, 2012
and 2011 were $0.15 and $0.79, respectively. The Company's policy
is to issue shares from its authorized shares upon the exercise of
stock options.
Unvested share activity for the six months ended June 30, 2012
is summarized below:
Unvested Weighted-
Number Average
of Grant
Options Date
Fair
Value
Unvested balance at December 31,
2011....................................................................................................... 1,403,000 $ 0.26
Granted.............................................................................................................
................................................. 20,000 $ 0.15
Vested..............................................................................................................
.................................................. (866,000) $ 0.20
Forfeited...........................................................................................................
................................................. (44,000) $ 0.35
Unvested balance at June 30,
2012................................................................................................................. 513,000 $ 0.29
The fair values of all stock options granted during the nine
months ended June 30, 2012 were estimated on the date of grant
using the Black-Scholes option-pricing model with the following
range of assumptions:
For the six months
ended
June 30, June 30,
2012 2011
Expected life (in years) 6.5 2.5 - 6.5
Average risk-free interest rate 1.66% 2.00%
Expected volatility 108% 107 - 132%
Expected dividend yield 0% 0%
Forfeiture rate 3% 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.
10. Concentrations
The Company's trade receivables are concentrated with few
customers. The Company performs credit evaluations on its
customers' financial condition. Concentrations of credit risk, with
respect to accounts receivable, exist to the extent of amounts
presented in the financial statements. Two customers represented
51% and 43%, respectively, of gross accounts receivable at June 30,
2012, and two customers represented 62% and 37%, respectively, of
gross accounts receivable at December 31, 2011.
The Company's revenues are concentrated with few customers. For
the three and six months ended June 30, 2012, two customers
represented 52% and 40% of gross revenues and two customers
represented 66% and 24% of gross revenues, respectively. For the
three and six months ended June 30, 2011, one customer represented
80% of gross revenues and three customers represented 54%, 19% and
11% of gross revenues, respectively.
11. Recent Accounting Pronouncements
Effective January 1, 2012, the Company adopted revised guidance
related to the presentation of comprehensive income that increases
comparability between U.S. GAAP and International Financial
Reporting Standards. This guidance eliminates the current option to
report other comprehensive income (OCI) and its components in the
statement of changes in stockholders' equity. The Company adopted
this guidance during the first quarter of 2012, which had no impact
on the Company's financial position, operations, or cash flows. The
Company currently does not have any components of other
comprehensive income or loss.
In May 2011, the Financial Accounting Standards Board ("FASB")
issued new guidance to achieve common fair value measurement and
disclosure requirements between GAAP and International Financial
Reporting Standards. This new guidance amends current fair value
measurement and disclosure guidance to include increased
disclosures regarding valuation inputs and investment
categorization. The adoption of this new accounting guidance in
2012 did not have a material impact on the Company's financial
position, operations or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, 2011.
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
June 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
None.
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 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 effective as of June 30, 2012.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the six months ended June 30, 2012 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As reported in our Form 10-K for the fiscal year 2011, 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
remain outstanding and there have been no material developments
with respect thereto during the period covered by this report. We
intend to continue to contest the remaining unresolved counts.
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
The additional risk factors included below supplement and update
the risk factors previously discussed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2011. There have been
no other material changes from the risk factors as previously
disclosed in such Annual Report on Form 10-K.
Our common stock is subject to delisting from the NYSE MKT
The NYSE MKT, where our common stock trades, has established
standards for continued listing of a security on the NYSE MKT. On
July 5, 2012, Enova Systems, Inc. (the "Company") received notice
(the "July Notice") from the NYSE MKT (the "Exchange") indicating
that the Company no longer complies with the Exchange's continued
listing standards as set forth in Section 1003 of the NYSE MKT
Company Guide (the "Company Guide"), and that its securities are,
therefore, subject to being delisted from the Exchange.
By a series of letters, the Exchange previously notified the
Company that it was not in compliance with the following sections
of the Company Guide: (a) Section 1003(a)(iii) insofar as the
Company reported stockholders' equity of less than $6,000,000 and
has incurred losses from continuing operations and/or net losses in
five consecutive fiscal years; (b) Section 1003(a)(ii) insofar as
the Company reported stockholders' equity of less than $4,000,000
and has incurred losses from continuing operations and/or net
losses in three out of its four most recent fiscal years; and (c)
Section 1003(f)(v) insofar as its Common Stock has been trading at
a low price per share for a significant period of time.
On May 17, 2012, pursuant to Section 1009 of the Company Guide,
the Company submitted a plan of compliance (the "Plan") advising
the Exchange of actions the Company would take to regain compliance
with Section 1003(a)(iii) and 1003(a)(ii) of the Company Guide by
October 15, 2013. The July Notice stated that the financial
projections provided in connection with the Plan did not
demonstrate an ability to regain compliance with the minimum
requirements by October 15, 2013. The July Notice further stated
that, on June 25, 2012, the Company notified the Exchange that the
financial projections provided with the Plan were no longer
accurate and did not provide the staff of the Exchange (the
"Staff") with updated projections.
On June 25, 2012, the Company filed a Form 8-K disclosing the
resignation of Chief Executive Officer and Director Michael Staran,
Chief Operating Officer John Mullins and Director Rich Davies,
reinforcing the Staff's conclusion that the Company will be unable
to regain compliance by October 15, 2013.
Following a review of the above-described facts, the Staff
advised the Company that the Exchange did not accept the proposed
Plan and that the Company is therefore subject to delisting
pursuant to Section 1009 of the Company Guide.
In accordance with Sections 1203 and 1009(d) of the Company
Guide, the Company exercised its right to appeal the determination
of the Staff by requesting a hearing with the Listing
Qualifications Panel. The Company was granted a hearing date in
September 2012. There can be no assurance that the Company's
request for continued listing will be granted or that, if granted,
the Company will be able to continue to meet the minimum listing
requirements. If our common stock were to be delisted from the NYSE
MKT, it would materially adversely affect the price and liquidity
of our common stock, and our ability to raise funds from the sale
of equity in the future.
The sale or issuance of our common stock to Lincoln Park may
cause dilution and the sale of the shares of common stock acquired
by Lincoln Park, or the perception that such sales may occur, could
cause the price of our common stock to fall
On April 24, 2012, we entered into the $3,400,000 Purchase
Agreement with Lincoln Park pursuant to which we may issue to
Lincoln Park from time to time over a 36-month period up to
$3,400,000 worth of our common stock subject to certain limitations
defined in the prospectus supplement and 567, 681 shares to be
issued to Lincoln Park at no cost as a fee for its commitment to
purchase such shares. In addition, on April 23, 2012, we entered
into the $6,600,000 Purchase Agreement with Lincoln Park, pursuant
to which Lincoln Park committed to purchase an additional
$6,600,000 worth of our common stock, from time to time over a
36-month period commencing after the SEC has declared effective a
registration statement for the resale of such shares that we must
file with the SEC within 120 business days after the date of such
agreement.
Other than Lincoln Park's initial purchase under the $3,400,000
Purchase Agreement of 1,250,000 shares of our common stock at a
price per share of $0.20 for an aggregate amount of $250,000, or
the Initial Purchase, the purchase price for the shares that we may
sell to Lincoln Park will fluctuate based on the price of our
common stock. It is anticipated that shares will be sold over a
period of up to 36 months after the date of the prospectus
supplement. Depending on market liquidity at the time, sales of
shares we issue to Lincoln Park may cause the trading price of our
common stock to fall.
We generally have the right to control the timing and amount of
any sales of our shares to Lincoln Park, except that, pursuant to
the terms of our agreements with Lincoln Park, we would be unable
to sell shares to Lincoln Park if and when the market price of our
common stock is below $0.15 per share. Sales of our common stock,
if any, to Lincoln Park will depend upon market conditions and
other factors to be determined by us. As such, other than the
Initial Purchase, Lincoln Park may ultimately purchase all, some or
none of the shares of our common stock offered pursuant to this
prospectus supplement and, after it has acquired shares, Lincoln
Park may sell all, some or none of those shares. Therefore, sales
to Lincoln Park by us pursuant to either the $3,400,000 Purchase
Agreement or the $6,600,000 Purchase Agreement could result in
substantial dilution to the interests of other holders of our
common stock. Additionally, the sale of a substantial number of
shares of our common stock to Lincoln Park, or the anticipation of
such sales, could make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales.
Raising additional funds by issuing securities, engaging in debt
financings or through licensing arrangements may cause substantial
dilution to existing stockholders, restrict our operations or
require us to relinquish proprietary rights.
To the extent that we raise additional capital by issuing equity
securities as we did in 2011, April 2012 and May 2012, our existing
stockholders' ownership may be substantially diluted. Any debt
financing we enter into may involve covenants that restrict our
operations or our ability to enter into other funding arrangements.
These restrictive covenants may include limitations on additional
borrowing and specific restrictions on the use of our assets, as
well as prohibitions on our ability to create liens, pay dividends,
redeem our stock or make investments. In addition, if we raise
additional funds through licensing arrangements, it may be
necessary to relinquish potentially valuable rights to our
potential products or proprietary technologies, or grant licenses
on terms that are not favorable to us.
One group of our shareholders holds a large percentage of our
outstanding common stock, and, should they choose to do so, may
have significant influence over the outcome of corporate actions
requiring stockholder approval.
Approximately 26.5% of our outstanding common stock is held by a
group of 17 shareholders (the "Low-Beer Managed Accounts") who
invested in our December 2011 placement of 11,250,000 shares of
common stock together with warrants to purchase up to 11,250,00
shares of common stock. 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 NYSE MKT
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. Accordingly,
the Low-Beer Managed Accounts, should they choose to do so, may be
able to significantly influence the outcome of any corporate
transaction or other matter submitted to our stockholders for
approval, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets or
any other significant corporate transaction, and such group of
investors could delay or prevent a change of control of our
company, even if such a change of control would benefit our other
stockholders. The interests of the Low-Beer Managed Accounts may
differ from the interests of our other stockholders.
Funding from our equity lines of credit may be limited or be
insufficient to fund our operations or to implement our
strategy.
Under our purchase agreements with Lincoln Park, we may direct
Lincoln Park to purchase up to $3,400,000 of shares of common stock
over a 36 month period, and, upon effectiveness of a registration
statement for resale of the shares and subject to other conditions,
we also may direct Lincoln Park to purchase up to $6,600,000 of our
shares of common stock over a 36 month period. The amounts
available for purchase is limited under each purchase agreement.
The extent to which we rely on Lincoln Park as a source of funding
will depend on a number of factors including, the amount, if any,
of additional working capital needed, the prevailing market price
of our common stock and the extent to which we are able to secure
working capital from other sources. If we are unable to sell enough
of our products to finance our working capital requirements and if
sufficient funding from Lincoln Park were to prove unavailable or
prohibitively dilutive, we would need to secure another source of
funding. Even if we sell all $10,000,000 under the aggregate
purchase agreements to Lincoln Park, there can be no assurance this
would be sufficient to support our operations or implement our
growth plans in all cases.
We may need to secure adequate funding to complete the
development program for Omni Product Line and Green For Free
(GFF).
Our current cash reserves may not be sufficient to fully fund
GFF development and commence production of the Omni product line,
and as a result, we may need additional funding to complete the
development of these product initiatives and to fund operations
generally. We may seek to enter potential strategic partnerships
related to both GFF and Omni production to provide funding for
continued development of the Omni platform, support of our
commercialization operations with respect to GFF and support
funding of general operations. However, there can be no assurance
that such a strategic partnership would be completed or on terms
that are favorable to us. If we are unable to reach agreement with
a potential strategic partner or if a strategic partnership does
not provide adequate funding, we may need to obtain additional
funding to complete the development of GFF. Raising additional
equity capital may be difficult due to our share price trading at
near historical lows and the potential delisting of our common
shares from the NYSE MKT. If we are unable to raise sufficient
capital to fund our development programs and operations generally,
we may be unable to proceed with the development of GFF and our
business and financial condition may be adversely affected.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GMGMRGKFGZZG
Enova Systems (LSE:ENVS)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Enova Systems (LSE:ENVS)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024