##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ending September 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
    
    (I.R.S. Employerincorporation or organization)
    
    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 September 30, 2009 and December 31, 2008
    
    
    3Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
    
    
    4Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATION
    
    
    22Item 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity and Use of Proceeds
    
    
    22Item 3. Defaults upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23Signatures
    
    
    24EX-3.1EX-3.2EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 ENOVA SYSTEMS, INC.   
 BALANCE SHEETS
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,099,000
    
    
    $
    5,324,000Short term investments
    
    
    200,000
    
    
    
    2,000,000Accounts receivable, net of allowance for
doubtful accounts of $579,000 and $640,000 as
of September 30, 2009 and December 31, 2008,
respectively
    
    
    1,820,000
    
    
    
    808,000Inventories and supplies, net
    
    
    6,604,000
    
    
    
    7,649,000Prepaid expenses and other current assets
    
    
    412,000
    
    
    
    215,000Total current assets
    
    
    13,135,000
    
    
    
    15,996,000Property and equipment, net
    
    
    1,532,000
    
    
    
    1,829,000Investment in non-consolidated joint venture
    
    
    
    
    
    
    1,352,000Intangible assets, net
    
    
    61,000
    
    
    
    65,000Total assets
    
    $
    14,728,000
    
    
    $
    19,242,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    752,000
    
    
    $
    592,000Deferred revenues
    
    
    109,000
    
    
    
    Accrued payroll and related expenses
    
    
    301,000
    
    
    
    295,000Other accrued liabilities
    
    
    1,363,000
    
    
    
    1,859,000Current portion of notes payable
    
    
    71,000
    
    
    
    98,000Total current liabilities
    
    
    2,596,000
    
    
    
    2,844,000Accrued interest payable
    
    
    1,054,000
    
    
    
    992,000Notes payable, net of current portion
    
    
    1,293,000
    
    
    
    1,263,000Total liabilities
    
    
    4,943,000
    
    
    
    5,099,000Stockholders equity:Series A convertible preferred stock  no par
value, 30,000,000 shares authorized; 2,652,000
shares issued and outstanding; liquidating
preference at $0.60 per share as of September
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 September 30,
2009 and December 31, 2008
    
    
    1,094,000
    
    
    
    1,094,000Common Stock  no par value, 750,000,000 shares
authorized; 21,013,000 and 20,817,000 shares
issued and outstanding as of September 30, 2009
and December 31, 2008, respectively
    
    
    134,520,000
    
    
    
    134,233,000Additional paid-in capital
    
    
    8,278,000
    
    
    
    7,949,000Accumulated deficit
    
    
    (134,637,000
    )
    
    
    (129,663,000
    )Total stockholders equity
    
    
    9,785,000
    
    
    
    14,143,000Total liabilities and stockholders equity
    
    $
    14,728,000
    
    
    $
    19,242,000
  3




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ENOVA SYSTEMS, INC.   
 STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    2,890,000
    
    
    $
    163,000
    
    
    $
    4,154,000
    
    
    $
    5,811,000Cost of revenues
    
    
    2,532,000
    
    
    
    256,000
    
    
    
    3,724,000
    
    
    
    6,434,000Gross profit (loss)
    
    
    358,000
    
    
    
    (93,000
    )
    
    
    430,000
    
    
    
    (623,000
    )Operating expensesResearch and development
    
    
    310,000
    
    
    
    677,000
    
    
    
    899,000
    
    
    
    2,017,000Selling, general & administrative
    
    
    1,308,000
    
    
    
    2,847,000
    
    
    
    4,373,000
    
    
    
    6,696,000Total operating expenses
    
    
    1,618,000
    
    
    
    3,524,000
    
    
    
    5,272,000
    
    
    
    8,713,000Operating loss
    
    
    (1,260,000
    )
    
    
    (3,617,000
    )
    
    
    (4,842,000
    )
    
    
    (9,336,000
    )Other income and (expense)Interest and other income (expense)
    
    
    (24,000
    )
    
    
    54,000
    
    
    
    (128,000
    )
    
    
    208,000Loss from non-consolidated joint venture
    
    
    
    
    
    
    (25,000
    )
    
    
    (4,000
    )
    
    
    (83,000
    )Total other income (expense)
    
    
    (24,000
    )
    
    
    29,000
    
    
    
    (132,000
    )
    
    
    125,000Net loss
    
    $
    (1,284,000
    )
    
    $
    (3,588,000
    )
    
    $
    (4,974,000
    )
    
    $
    (9,211,000
    )Basic and diluted loss per share
    
    $
    (0.06
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )
    
    $
    (0.48
    )Weighted average number of common shares outstanding
    
    
    20,969,000
    
    
    
    20,598,000
    
    
    
    20,904,000
    
    
    
    19,302,000
  4




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ENOVA SYSTEMS, INC.   
 STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (4,974,000
    )
    
    $
    (9,211,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Reserve for doubtful accounts
    
    
    
    
    
    
    575,000Inventory reserve
    
    
    378,000
    
    
    
    157,000Depreciation and amortization
    
    
    463,000
    
    
    
    425,000Loss on asset disposal
    
    
    6,000
    
    
    
    Equity in losses of non-consolidated joint venture
    
    
    10,000
    
    
    
    83,000Gain from dissolution of non-consolidated joint venture
    
    
    (6,000
    )
    
    
    Issuance of common stock for director services
    
    
    135,000
    
    
    
    129,000Issuance of common stock for employee services
    
    
    148,000
    
    
    
    21,000Stock option expense
    
    
    329,000
    
    
    
    457,000(Increase) decrease in:Accounts receivable
    
    
    (1,022,000
    )
    
    
    3,018,000Inventory and supplies
    
    
    1,742,000
    
    
    
    (5,226,000
    )Prepaid expenses and other current assets
    
    
    (93,000
    )
    
    
    206,000Increase (decrease) in:Accounts payable
    
    
    237,000
    
    
    
    (715,000
    )Deferred revenues
    
    
    109,000
    
    
    
    (67,000
    )Accrued payroll and related expenses
    
    
    6,000
    
    
    
    (296,000
    )Other accrued liabilities
    
    
    (531,000
    )
    
    
    (360,000
    )Accrued interest payable
    
    
    62,000
    
    
    
    85,000Net cash used in operating activities
    
    
    (3,001,000
    )
    
    
    (10,719,000
    )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
    
    
    (111,000
    )
    
    
    (1,496,000
    )Net cash provided by (used in) investing activities
    
    
    1,826,000
    
    
    
    (3,496,000
    )Cash flows from financing activities:Payments on notes payable
    
    
    (54,000
    )
    
    
    (41,000
    )Net cash proceeds from the exercise of stock options
    
    
    4,000
    
    
    
    Net cash proceeds from the sale of common stock
    
    
    
    
    
    
    12,008,000Net cash provided by (used in) financing activities
    
    
    (50,000
    )
    
    
    11,967,000Net decrease in cash and cash equivalents
    
    
    (1,225,000
    )
    
    
    (2,248,000
    )Cash and cash equivalents, beginning of period
    
    
    5,324,000
    
    
    
    10,485,000Cash and cash equivalents, end of period
    
    $
    4,099,000
    
    
    $
    8,237,000Supplemental disclosure of cash flow information:Interest paid
    
    $
    5,000
    
    
    $
    5,000Assets acquired through financing arrangements
    
    $
    57,000
    
    
    $
    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 Nine months ended September 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;
 
    
    The fee for the arrangement is fixed or determinable; and
 
    
    Collectibility is reasonably assured.
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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
  September 30,
    
    
    December 31,2009
    
    
    2008Raw Materials
    
    $
    6,962,000
    
    
    $
    7,114,000Work In Progress
    
    
    138,000
    
    
    
    391,000Finished Goods
    
    
    384,000
    
    
    
    1,047,000Reserve for Obsolescence
    
    
    (880,000
    )
    
    
    (903,000
    )Total
    
    $
    6,604,000
    
    
    $
    7,649,000
 4. Property and Equipment
  September 30,
    
    
    December 31,2009
    
    
    2008Computers and software
    
    $
    552,000
    
    
    $
    598,000Machinery and equipment
    
    
    963,000
    
    
    
    1,470,000Furniture and office equipment
    
    
    98,000
    
    
    
    107,000Demonstration vehicles and buses
    
    
    507,000
    
    
    
    346,000Leasehold improvements
    
    
    1,348,000
    
    
    
    1,348,0003,468,000
    
    
    
    3,869,000Less accumulated depreciation and amortization
    
    
    (1,936,000
    )
    
    
    (2,040,000
    )Total
    
    $
    1,532,000
    
    
    $
    1,829,000
   5. Other Accrued Liabilities
  September 30,
    
    
    December 31,2009
    
    
    2008Accrued Inventory Received
    
    $
    560,000
    
    
    $
    743,000Accrued Professional Services
    
    
    121,000
    
    
    
    571,000Accrued Warranty
    
    
    682,000
    
    
    
    545,000Total
    
    $
    1,363,000
    
    
    $
    1,859,000
 8




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6. Notes Payable, Long-Term Debt and Other Financing
  September 30,
    
    
    December 31,2009
    
    
    2008Secured note payable to Credit
Managers Association of California,
bearing interest at prime plus 3% (6.25%
as of September 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
    
    
    
    
    
    
    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
    
    
    3,000
    
    
    
    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
    
    
    10,000
    
    
    
    15,000Secured note payable to 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
    
    
    20,000
    
    
    
    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
    
    
    34,000
    
    
    
    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
    
    
    19,000
    
    
    
    1,364,000
    
    
    
    1,361,000Less current portion
    
    
    (71,000
    )
    
    
    (98,000
    )Long-term portion
    
    $
    1,293,000
    
    
    $
    1,263,000
  7. Revolving Credit Agreement
   9




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8. Shareholders Equity
  2009
    
    
    2008Beginning balance
    
    $
    14,143,000
    
    
    $
    14,177,000Increase in additional paid-in-capital for stock-based compensation
    
    
    329,000
    
    
    
    457,000Increase in common stock for issuances of common shares to directors
    
    
    135,000
    
    
    
    129,000Increase in common stock for issuances of common shares to employees
    
    
    148,000
    
    
    
    20,000Net proceeds from the sale of common stock
    
    
    
    
    
    
    12,008,000Net proceeds from the exercise of stock options
    
    
    4,000
    
    
    
    Net loss
    
    
    (4,974,000
    )
    
    
    (9,211,000
    )End balance
    
    $
    9,785,000
    
    
    $
    17,580,000
 9. Related Party Transactions
  10. Subsequent Events
   11. Stock Options
 Stock Option Program Description
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For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Income from continuing operations before income taxes
    
    $
    99,000
    
    
    $
    184,000
    
    
    $
    329,000
    
    
    $
    457,000Income from continuing operations after income taxes
    
    $
    99,000
    
    
    $
    184,000
    
    
    $
    329,000
    
    
    $
    457,000Cash flows from operations
    
    $
    99,000
    
    
    $
    184,000
    
    
    $
    329,000
    
    
    $
    457,000Cash flows from financing activities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Basic and Diluted EPS
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.03
   Weighted AverageRemainingNumber of Share
    
    
    Weighted Average
    
    
    Contractual Term
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    in Years
    
    
    Intrinsic ValueOutstanding at December 31, 2008
    
    
    623,000
    
    
    $
    4.02
    
    
    
    7.09Granted
    
    
    515,000
    
    
    $
    0.63
    
    
    
    7.76Exercised
    
    
    (21,000
    )
    
    $
    0.21
    
    
    
    Forfeited
    
    
    (92,000
    )
    
    $
    3.67
    
    
    
    Outstanding at September 30, 2009
    
    
    1,025,000
    
    
    $
    2.43
    
    
    
    7.23
    
    
    $
    391,000Exercisable at September 30, 2009
    
    
    424,000
    
    
    $
    3.55
    
    
    
    5.97
    
    
    $
    64,000
   For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Expected life (in years)
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Average risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    3
    %Expected volatility
    
    
    
    
    
    
    
    
    
    
    194
    %
    
    111% to 113%Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    3
    %
  11




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12. Concentrations
   13. Recent Accounting Pronouncements
 Generally Accepted
Accounting Principles
     Subsequent Events
 12




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Earnings Per Share
 Revenue Recognition Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task
Force. Revenue
Recognition-Multiple Element Arrangements
 
 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/A 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/A for
the year ended December 31, 2008.
 Overview
   13




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Recent Developments
    14




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15




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Critical Accounting Policies
   Cash and cash equivalents
 Inventory
 Inventory reserve
 Allowance for doubtful accounts
 Stock-based Compensation
 Revenue recognition
   16




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RESULTS OF OPERATIONS
  Third Quarter of Fiscal 2009 vs. Third Quarter of Fiscal 2008
 Three Months Ended
    
    
    As a % of RevenuesSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008Revenues
    
    $
    2,890,000
    
    
    $
    163,000
    
    
    
    1,673
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    2,532,000
    
    
    
    256,000
    
    
    
    889
    %
    
    
    88
    %
    
    
    157
    %Gross profit (loss)
    
    
    358,000
    
    
    
    (93,000
    )
    
    
    485
    %
    
    
    12
    %
    
    
    -57
    %Operating expensesResearch and development
    
    
    310,000
    
    
    
    677,000
    
    
    
    -54
    %
    
    
    11
    %
    
    
    415
    %Selling, general & administrative
    
    
    1,308,000
    
    
    
    2,847,000
    
    
    
    -54
    %
    
    
    45
    %
    
    
    1,747
    %Total operating expenses
    
    
    1,618,000
    
    
    
    3,524,000
    
    
    
    -54
    %
    
    
    56
    %
    
    
    2,162
    %Gross operating loss
    
    
    (1,260,000
    )
    
    
    (3,617,000
    )
    
    
    65
    %
    
    
    -44
    %
    
    
    -2,219
    %Other income and (expense)Interest and other income (expense)
    
    
    (24,000
    )
    
    
    54,000
    
    
    
    -144
    %
    
    
    -1
    %
    
    
    33
    %Loss from non-consolidated joint venture
    
    
    
    
    
    
    (25,000
    )
    
    
    100
    %
    
    
    0
    %
    
    
    -15
    %Total other income (expense)
    
    
    (24,000
    )
    
    
    29,000
    
    
    
    -183
    %
    
    
    -1
    %
    
    
    18
    %Net loss
    
    $
    (1,284,000
    )
    
    $
    (3,588,000
    )
    
    
    64
    %
    
    
    -44
    %
    
    
    -2,201
    %
 First Nine Months of Fiscal 2009 vs. First Nine Months of Fiscal 2008
 Nine Months Ended
    
    
    As a % of RevenuesSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008Revenues
    
    $
    4,154,000
    
    
    $
    5,811,000
    
    
    
    -29
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    3,724,000
    
    
    
    6,434,000
    
    
    
    -42
    %
    
    
    90
    %
    
    
    111
    %Gross profit (loss)
    
    
    430,000
    
    
    
    (623,000
    )
    
    
    169
    %
    
    
    10
    %
    
    
    -11
    %Operating expensesResearch and development
    
    
    899,000
    
    
    
    2,017,000
    
    
    
    -55
    %
    
    
    22
    %
    
    
    35
    %Selling, general & administrative
    
    
    4,373,000
    
    
    
    6,696,000
    
    
    
    -35
    %
    
    
    105
    %
    
    
    115
    %Total operating expenses
    
    
    5,272,000
    
    
    
    8,713,000
    
    
    
    -39
    %
    
    
    127
    %
    
    
    150
    %Gross operating loss
    
    
    (4,842,000
    )
    
    
    (9,336,000
    )
    
    
    48
    %
    
    
    -117
    %
    
    
    -161
    %Other income and (expense)Interest and other income (expense)
    
    
    (128,000
    )
    
    
    208,000
    
    
    
    -162
    %
    
    
    -3
    %
    
    
    4
    %Loss from non-consolidated joint venture
    
    
    (4,000
    )
    
    
    (83,000
    )
    
    
    95
    %
    
    
    0
    %
    
    
    -1
    %Total other income (expense)
    
    
    (132,000
    )
    
    
    125,000
    
    
    
    -206
    %
    
    
    -3
    %
    
    
    2
    %Net loss
    
    $
    (4,974,000
    )
    
    $
    (9,211,000
    )
    
    
    46
    %
    
    
    -120
    %
    
    
    -159
    %
 
 The sum of the amounts and percentages may not equal the totals for the period due to the effects
of rounding.  Revenue
 18




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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
 19




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
          20




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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
   21




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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
  22




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##### Table of Contents



ITEM 6.
    
    Exhibits
  3.1
    
    Amendment to our Amended and Restated Bylaws *3.2
    
    Our Amended and Restated Bylaws (reflecting the amendment set forth in Exhibit 3.1)*10.1
    
    Purchase Agreement (incorporated by reference to Exhibit 99.1 of our Current Report on Form
8-K filed October 30, 2009)10.2
    
    Form of Registration Rights Agreement (incorporated by reference to Exhibit 99.2 of our
Current Report on Form 8-K filed October 30, 2009)10.3
    
    Placing Agreement (incorporated by reference to Exhibit 99.3 of our Current Report on Form
8-K filed October 30, 2009)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 23




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##### Table of Contents



SIGNATURE
    /s/ Jarett Fenton
 24




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##### Table of Contents



3.1
    
    Amendment to our Amended and Restated Bylaws3.2
    
    Our Amended and Restated Bylaws (reflecting the amendment set forth in Exhibit 3.1)10.1
    
    Purchase Agreement (incorporated by reference to Exhibit 99.1 of our Current Report on Form
8-K filed October 30, 2009)10.2
    
    Form of Registration Rights Agreement (incorporated by reference to Exhibit 99.2 of our
Current Report on Form 8-K filed October 30, 2009)10.3
    
    Placing Agreement (incorporated by reference to Exhibit 99.3 of our Current Report on Form
8-K filed October 30, 2009)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.