##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 (Amendment
No. 1)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ending June 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file no. 1-33001
 ENOVA SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
 California
    
    95-3056150(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 1560 West 190th Street, Torrance, California 90501  (Address of principal executive offices, including zip code)
 (310) 527-2800  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



ENOVA SYSTEMS, INC.
 INDEX
 PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited)
    
    
    3Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008
    
    
    4Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23EX-31.1EX-31.2EX-32.1
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 ENOVA SYSTEMS, INC.
 
 BALANCE SHEETS
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,443,000
    
    
    $
    5,324,000Short term investments
    
    
    200,000
    
    
    
    2,000,000Accounts receivable, net
    
    
    418,000
    
    
    
    808,000Inventories and supplies, net
    
    
    8,015,000
    
    
    
    7,649,000Prepaid expenses and other current assets
    
    
    343,000
    
    
    
    215,000Total current assets
    
    
    14,419,000
    
    
    
    15,996,000Property and equipment, net
    
    
    1,647,000
    
    
    
    1,829,000Investment in non-consolidated joint venture
    
    
    
    
    
    
    1,352,000Intangible assets, net
    
    
    63,000
    
    
    
    65,000Total assets
    
    $
    16,129,000
    
    
    $
    19,242,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    849,000
    
    
    $
    592,000Deferred revenues
    
    
    670,000
    
    
    
    Accrued payroll and related expenses
    
    
    226,000
    
    
    
    295,000Other accrued liabilities
    
    
    1,089,000
    
    
    
    1,859,000Current portion of notes payable
    
    
    81,000
    
    
    
    98,000Total current liabilities
    
    
    2,915,000
    
    
    
    2,844,000Accrued interest payable
    
    
    1,033,000
    
    
    
    992,000Notes payable, net of current portion
    
    
    1,284,000
    
    
    
    1,263,000Total liabilities
    
    
    5,232,000
    
    
    
    5,099,000Stockholders equity:Series A convertible preferred stock  no par
value, 30,000,000 shares authorized; 2,652,000
issued and outstanding; liquidating preference
at $0.60 per share as of June 30, 2009 and
December 31, 2008
    
    
    530,000
    
    
    
    530,000Series 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, 2009
and December 31, 2008
    
    
    1,094,000
    
    
    
    1,094,000Common Stock  no par value, 750,000,000 shares
authorized; 20,961,000 and 20,817,000 shares
issued and outstanding as of June 30, 2009 and
December 31, 2008, respectively
    
    
    134,447,000
    
    
    
    134,233,000Additional paid-in capital
    
    
    8,179,000
    
    
    
    7,949,000Accumulated deficit
    
    
    (133,353,000
    )
    
    
    (129,663,000
    )Total stockholders equity
    
    
    10,897,000
    
    
    
    14,143,000Total liabilities and stockholders equity
    
    $
    16,129,000
    
    
    $
    19,242,000
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ENOVA SYSTEMS, INC.
 
 STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    576,000
    
    
    $
    3,370,000
    
    
    $
    1,264,000
    
    
    $
    5,648,000Cost of revenues
    
    
    613,000
    
    
    
    3,736,000
    
    
    
    1,192,000
    
    
    
    6,178,000Gross profit (loss)
    
    
    (37,000
    )
    
    
    (366,000
    )
    
    
    72,000
    
    
    
    (530,000
    )Operating expensesResearch and development
    
    
    335,000
    
    
    
    712,000
    
    
    
    589,000
    
    
    
    1,340,000Selling, general & administrative
    
    
    1,570,000
    
    
    
    1,935,000
    
    
    
    3,065,000
    
    
    
    3,849,000Total operating expenses
    
    
    1,905,000
    
    
    
    2,647,000
    
    
    
    3,654,000
    
    
    
    5,189,000Gross operating loss
    
    
    (1,942,000
    )
    
    
    (3,013,000
    )
    
    
    (3,582,000
    )
    
    
    (5,719,000
    )Other income and (expense)Interest and other income (expense)
    
    
    (98,000
    )
    
    
    69,000
    
    
    
    (104,000
    )
    
    
    154,000Gain (loss)
from non-consolidated joint venture
    
    
    6,000
    
    
    
    (6,000
    )
    
    
    (4,000
    )
    
    
    (58,000
    )Total other income (expense)
    
    
    (92,000
    )
    
    
    63,000
    
    
    
    (108,000
    )
    
    
    96,000Net loss
    
    $
    (2,034,000
    )
    
    $
    (2,950,000
    )
    
    $
    (3,690,000
    )
    
    $
    (5,623,000
    )Basic and diluted loss per share
    
    $
    (0.10
    )
    
    $
    (0.15
    )
    
    $
    (0.18
    )
    
    $
    (0.30
    )Weighted average number of shares outstanding
    
    
    20,896,000
    
    
    
    20,054,000
    
    
    
    20,871,000
    
    
    
    18,623,000
  4




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ENOVA SYSTEMS, INC.
 
 STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,690,000
    )
    
    $
    (5,623,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Reserve for doubtful accounts
    
    
    
    
    
    
    70,000Inventory reserve
    
    
    240,000
    
    
    
    Depreciation and amortization
    
    
    318,000
    
    
    
    261,000Loss (gain) on asset disposal
    
    
    3,000
    
    
    
    (6,000
    )Equity in losses of non-consolidated joint venture
    
    
    10,000
    
    
    
    58,000Gain from dissolution of non-consolidated joint venture
    
    
    (6,000
    )
    
    
    Issuance of common stock for director services
    
    
    90,000
    
    
    
    84,000Issuance of common stock for employee services
    
    
    124,000
    
    
    
    21,000Stock option expense
    
    
    230,000
    
    
    
    273,000(Increase) decrease in:Accounts receivable
    
    
    380,000
    
    
    
    98,000Inventory and supplies
    
    
    469,000
    
    
    
    (3,190,000
    )Prepaid expenses and other current assets
    
    
    (24,000
    )
    
    
    156,000Increase (decrease) in:Accounts payable
    
    
    334,000
    
    
    
    (228,000
    )Deferred revenues
    
    
    670,000
    
    
    
    (67,000
    )Accrued payroll and related expense
    
    
    (69,000
    )
    
    
    (364,000
    )Accrued liabilities
    
    
    (805,000
    )
    
    
    290,000Accrued interest payable
    
    
    41,000
    
    
    
    59,000Net cash used in operating activities
    
    
    (1,685,000
    )
    
    
    (8,108,000
    )Cash flows from investing activities:Purchases of short-term investments
    
    
    (200,000
    )
    
    
    (2,000,000
    )Maturities of short-term investments
    
    
    2,000,000
    
    
    
    Proceeds from dissolution of non-consolidated joint venture
    
    
    137,000
    
    
    
    Purchases of property and equipment
    
    
    (100,000
    )
    
    
    (1,411,000
    )Net cash provided by (used in) investing activities
    
    
    1,837,000
    
    
    
    (3,411,000
    )Cash flows from financing activities:Payments on notes payable
    
    
    (33,000
    )
    
    
    (27,000
    )Net cash proceeds from the sale of common stock
    
    
    
    
    
    
    12,024,000Net cash provided by (used in) financing activities
    
    
    (33,000
    )
    
    
    11,997,000Net increase (decrease) in cash and cash equivalents
    
    
    119,000
    
    
    
    478,000Cash and cash equivalents, beginning of period
    
    
    5,324,000
    
    
    
    10,485,000Cash and cash equivalents, end of period
    
    $
    5,443,000
    
    
    $
    10,963,000Supplemental
disclosure of cash flow information:Interest paid
    
    $
    4,000
    
    
    $
    5,000Assets acquired through financing arrangements
    
    $
    38,000
    
    
    $
    Net assets acquired in exchange for Enovas interest in joint venture:Inventory
    
    $
    1,075,000
    
    
    $
    Prepaid expenses and other current assets
    
    $
    104,000
    
    
    $
    Reduction of related party payable, net of receivable
    
    $
    32,000
    
    
    $
    
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ENOVA SYSTEMS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
(Unaudited)
 Three and Six months ended June 30, 2009 and 2008
 1. Description of the Company and its Business
  2. Summary of Significant Accounting Policies
 Basis of Presentation  Interim Financial Statements
     Fair Value of Financial Instruments
  Revenue Recognition
  
    
    Persuasive evidence of an arrangement exists;
 
    
    Delivery has occurred or services have been rendered;
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
    
    The fee for the arrangement is fixed or determinable; and
 
    
    Collectibility is reasonably assured.
 Persuasive Evidence of an Arrangement
 Delivery Has Occurred or Services Have Been Rendered
 The Fee for the Arrangement is Fixed or Determinable
 Collectibility is Reasonably Assured
       7




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Stock Based Compensation
 
 Stock Options
 3. Inventory
  June 30,
    
    
    December 31,2009
    
    
    2008Raw Materials
    
    $
    7,716,000
    
    
    $
    7,114,000Work In Progress
    
    
    320,000
    
    
    
    391,000Finished Goods
    
    
    747,000
    
    
    
    1,047,000Reserve for Obsolescence
    
    
    (768,000
    )
    
    
    (903,000
    )Total
    
    $
    8,015,000
    
    
    $
    7,649,000
 4. Property and Equipment
  June 30, 2009
    
    
    December 31, 2008Computers and software
    
    $
    550,000
    
    
    $
    598,000Machinery and equipment
    
    
    959,000
    
    
    
    1,470,000Furniture and office equipment
    
    
    98,000
    
    
    
    107,000Demonstration vehicles and buses
    
    
    485,000
    
    
    
    346,000Leasehold improvements
    
    
    1,348,000
    
    
    
    1,348,0003,440,000
    
    
    
    3,869,000Less accumulated depreciation
    
    
    (1,793,000
    )
    
    
    (2,040,000
    )Total
    
    $
    1,647,000
    
    
    $
    1,829,000
   5. Other Accrued Liabilities
  June 30,
    
    
    December 31,2009
    
    
    2008Accrued Inventory Received
    
    $
    389,000
    
    
    $
    743,000Accrued Professional Services
    
    
    170,000
    
    
    
    571,000Accrued Warranty
    
    
    530,000
    
    
    
    545,000Total
    
    $
    1,089,000
    
    
    $
    1,859,000
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6. Notes Payable, Long-Term Debt and Other Financing
  June 30,
    
    
    December 31,2009
    
    
    2008Secured note payable to Credit
Managers Association of California,
bearing interest at prime plus 3%
(6.25% as of June 30, 2009), 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
    
    
    $
    1,238,000Secured note payable to a financial
institution in the original amount
of $95,000, bearing interest at
6.21%, payable in 36 equal monthly
installments of principal and
interest through October 1, 2009
    
    
    10,000
    
    
    
    27,000Secured note payable to a financial
institution in the original amount
of $35,000, bearing interest at
10.45%, payable in 30 equal monthly
installments of principal and
interest through November 1, 2009
    
    
    7,000
    
    
    
    14,000Secured note payable to a financial
institution in the original amount
of $23,000, bearing interest at
11.70%, payable in 36 equal monthly
installments of principal and
interest through October 1, 2010
    
    
    12,000
    
    
    
    15,000Secured 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
    
    
    
    40,000Secured note payable to a financial
institution in the original amount
of $39,000, bearing interest at
4.99% per annum, payable in 48 equal
monthly installments of principal
and interest through September 1,
2011
    
    
    23,000
    
    
    
    27,000Secured 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
    
    
    35,000
    
    
    
    1,365,000
    
    
    
    1,361,000Less current portion
    
    
    (81,000
    )
    
    
    (98,000
    )Long-term portion
    
    $
    1,284,000
    
    
    $
    1,263,000
  7. Revolving Credit Agreement
   8. Shareholders Equity
  2009
    
    
    2008Beginning balance
    
    $
    14,143,000
    
    
    $
    14,177,000Increase in additional paid-in-capital for stock-based compensation
    
    
    230,000
    
    
    
    273,000Increase in common stock for issuances of common shares to directors
    
    
    90,000
    
    
    
    84,000Increase in common stock for issuances of common shares to employees
    
    
    124,000
    
    
    
    21,000Net proceeds from the sale of common stock
    
    
    
    
    
    
    12,024,000Net loss
    
    
    (3,690,000
    )
    
    
    (5,623,000
    )End balance
    
    $
    10,897,000
    
    
    $
    20,956,000
 9




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9. Related Party Transactions
  10. Subsequent Events
  11. Stock Options
 Stock Option Program Description
     For the three months ended
    
    For the six months endedJune  30,
    
    June 30,
    
    June 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Income from continuing operations before income taxes
    
    $
    126,000
    
    
    $
    184,000
    
    
    $
    230,000
    
    
    $
    273,000Income from continuing operations after income taxes
    
    $
    126,000
    
    
    $
    184,000
    
    
    $
    230,000
    
    
    $
    273,000Cash flows from operations
    
    $
    126,000
    
    
    $
    184,000
    
    
    $
    230,000
    
    
    $
    273,000Cash flows from financing activities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Basic and Diluted EPS
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
  10




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Weighted AverageRemainingNumber of Share
    
    
    Weighted Average
    
    
    Contractual Term
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    in Years
    
    
    Intrinsic ValueOutstanding at December 31, 2008
    
    
    623,000
    
    
    $
    4.02
    
    
    
    7.09
    
    
    $
    Granted
    
    
    515,000
    
    
    $
    0.63
    
    
    
    8.10
    
    
    $
    74,000Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Forfeited
    
    
    (82,000
    )
    
    $
    3.82
    
    
    
    
    
    
    $
    Outstanding at June 30, 2009
    
    
    1,056,000
    
    
    $
    2.38
    
    
    
    7.33
    
    
    $
    74,000Exercisable at June 30, 2009
    
    
    409,000
    
    
    $
    3.64
    
    
    
    6.02
    
    
    $
    18,000
   For the three months ended
    
    For the six months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Expected life (in years)
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Average risk-free interest rate
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %Expected volatility
    
    
    194
    %
    
    
    113
    %
    
    
    194
    %
    
    111% to 113%Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
  12. Recent Accounting Pronouncements
 Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Recognition and Presentation of Other-Than-Temporary Impairments
  Accounting for Transfers of Financial Assets an
amendment to SFAS No. 140
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Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles The Hierarchy of Generally Accepted Accounting Principles
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Quarterly Report on Form 10-Q contains statements indicating expectations about future
performance and other forward-looking statements that involve risks and uncertainties. We usually
use words such as may, will, should, expect, plan, anticipate, believe, estimate,
predict, future, intend, potential, or continue or the negative of these terms or similar
expressions to identify forward-looking statements. These statements appear throughout this
Quarterly Report on Form 10-Q and are statements regarding our current intent, belief or
expectation, primarily with respect to our operations and related industry developments. Examples
of these statements include, but are not limited to, statements regarding the following: our future
operating expenses, our future losses, our future expenditures for research and development and the
sufficiency of our cash resources. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Quarterly Report on Form 10-Q . Our actual
results could differ materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us and described in our Annual Report on Form 10-K for the
year ended December 31, 2008.
 The following discussion and analysis should be read in conjunction with the unaudited interim
financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form
10-Q and with the financial statements and notes thereto and Managements Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for
the year ended December 31, 2008.
 Overview
  12




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Recent Developments
     13




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Dissolution of Joint Venture  Hyundai-Enova Innovative Technology Center
   14




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AmountCash received at settlement
    
    $
    137,000Inventory received during the second quarter in settlement of
purchase orders with HHI for Enovas share in joint venture
    
    
    1,075,000Open purchase orders with HHI to be received in the third quarter
    
    
    104,000Related party receivables and payables settled for Enovas share
in joint venture
    
    
    32,000Settlement amount
    
    
    1,348,000Less: Joint venture investment balance as of April 6, 2009
    
    
    (1,342,000
    )Net gain resulting from dissolution of the joint venture
    
    $
    6,000
  Critical Accounting Policies
   Cash and cash equivalents
 Inventory
 Inventory reserve
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Allowance for doubtful accounts
 Stock-based Compensation
 Revenue recognition
    16




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RESULTS OF OPERATIONS
  Second Quarter of Fiscal 2009 vs. Second Quarter of Fiscal 2008
 Three Months Ended
    
    
    As a % of RevenuesJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008Revenues
    
    $
    576,000
    
    
    $
    3,370,000
    
    
    
    -83
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    613,000
    
    
    
    3,736,000
    
    
    
    -84
    %
    
    
    106
    %
    
    
    111
    %Gross profit (loss)
    
    
    (37,000
    )
    
    
    (366,000
    )
    
    
    90
    %
    
    
    -6
    %
    
    
    -11
    %Operating expensesResearch and development
    
    
    335,000
    
    
    
    712,000
    
    
    
    -53
    %
    
    
    58
    %
    
    
    21
    %Selling, general & administrative
    
    
    1,570,000
    
    
    
    1,935,000
    
    
    
    -19
    %
    
    
    273
    %
    
    
    57
    %Total operating expenses
    
    
    1,905,000
    
    
    
    2,647,000
    
    
    
    -28
    %
    
    
    331
    %
    
    
    79
    %Gross operating loss
    
    
    (1,942,000
    )
    
    
    (3,013,000
    )
    
    
    36
    %
    
    
    -337
    %
    
    
    -89
    %Other income and (expense)Interest and other income (expense)
    
    
    (98,000
    )
    
    
    69,000
    
    
    
    -242
    %
    
    
    -17
    %
    
    
    2
    %Gain (loss)
from non-consolidated joint venture
    
    
    6,000
    
    
    
    (6,000
    )
    
    
    -200
    %
    
    
    1
    %
    
    
    0
    %Total other income (expense)
    
    
    (92,000
    )
    
    
    63,000
    
    
    
    -246
    %
    
    
    -16
    %
    
    
    2
    %Net loss
    
    $
    (2,034,000
    )
    
    $
    (2,950,000
    )
    
    
    31
    %
    
    
    -353
    %
    
    
    -88
    %
 First Six Months of Fiscal 2009 vs. First Six Months of Fiscal 2008
 Six Months Ended
    
    
    As a % of RevenuesJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008Revenues
    
    $
    1,264,000
    
    
    $
    5,648,000
    
    
    
    -78
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    1,192,000
    
    
    
    6,178,000
    
    
    
    -81
    %
    
    
    94
    %
    
    
    109
    %Gross profit (loss)
    
    
    72,000
    
    
    
    (530,000
    )
    
    
    114
    %
    
    
    6
    %
    
    
    -9
    %Operating expensesResearch and development
    
    
    589,000
    
    
    
    1,340,000
    
    
    
    -56
    %
    
    
    47
    %
    
    
    24
    %Selling, general & administrative
    
    
    3,065,000
    
    
    
    3,849,000
    
    
    
    -20
    %
    
    
    242
    %
    
    
    68
    %Total operating expenses
    
    
    3,654,000
    
    
    
    5,189,000
    
    
    
    -30
    %
    
    
    289
    %
    
    
    92
    %Gross operating loss
    
    
    (3,582,000
    )
    
    
    (5,719,000
    )
    
    
    37
    %
    
    
    -283
    %
    
    
    -101
    %Other income and (expense)Interest and other income (expense)
    
    
    (104,000
    )
    
    
    154,000
    
    
    
    -168
    %
    
    
    -8
    %
    
    
    3
    %Gain (loss)
from non-consolidated joint venture
    
    
    (4,000
    )
    
    
    (58,000
    )
    
    
    -93
    %
    
    
    0
    %
    
    
    -1
    %Total other income (expense)
    
    
    (108,000
    )
    
    
    96,000
    
    
    
    -213
    %
    
    
    -9
    %
    
    
    2
    %Net loss
    
    $
    (3,690,000
    )
    
    $
    (5,623,000
    )
    
    
    34
    %
    
    
    -292
    %
    
    
    -100
    %
 
 The sum of the amounts and percentages may not equal the totals for the period due to the effects
of rounding.
  Revenue
 17




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##### Table of Contents



Cost of Revenues
 Gross Margin
 Research and Development (R&D).
 Selling, General, and Administrative Expenses (S, G & A).
 Interest and Other Income (Expense)
 Net Loss.
 Comparability of Quarterly Results
 18




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
          19




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   20




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  21




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##### Table of Contents



Item 6. Exhibits
  31.1
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.*31.2
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    - Filed herewith 22




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##### Table of Contents



SIGNATURE
    /s/ Jarett Fenton
 23