##### 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 March 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 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 March 31, 2009 and December 31, 2008
    
    
    3Statements of Operations for the Three Months Ended March 31, 2009 and 2008
    
    
    4Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 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
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ENOVA SYSTEMS, INC.
 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,090,000
    
    
    $
    5,324,000Short term investments
    
    
    2,000,000
    
    
    
    2,000,000Accounts receivable, net
    
    
    719,000
    
    
    
    808,000Inventories and supplies, net
    
    
    7,350,000
    
    
    
    7,649,000Prepaid expenses and other current assets
    
    
    173,000
    
    
    
    215,000Total current assets
    
    
    14,332,000
    
    
    
    15,996,000Property and equipment, net
    
    
    1,714,000
    
    
    
    1,829,000Investment in non-consolidated joint venture
    
    
    1,342,000
    
    
    
    1,352,000Intangible assets, net
    
    
    64,000
    
    
    
    65,000Total assets
    
    $
    17,452,000
    
    
    $
    19,242,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    562,000
    
    
    $
    592,000Deferred revenues
    
    
    51,000
    
    
    
    Accrued payroll and related expenses
    
    
    273,000
    
    
    
    295,000Other accrued liabilities
    
    
    1,434,000
    
    
    
    1,859,000Current portion of notes payable
    
    
    93,000
    
    
    
    98,000Total current liabilities
    
    
    2,413,000
    
    
    
    2,844,000Accrued interest payable
    
    
    1,013,000
    
    
    
    992,000Notes payable, net of current portion
    
    
    1,290,000
    
    
    
    1,263,000Total liabilities
    
    
    4,716,000
    
    
    
    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 March 31, 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 March 31, 2009 and
December 31, 2008
    
    
    1,094,000
    
    
    
    1,094,000Common Stock  no par value, 750,000,000 shares authorized; 20,897,000 and 20,817,000
shares issued and outstanding as of March 31, 2009 and December 31, 2008, respectively
    
    
    134,378,000
    
    
    
    134,233,000Additional paid-in capital
    
    
    8,053,000
    
    
    
    7,949,000Accumulated deficit
    
    
    (131,319,000
    )
    
    
    (129,663,000
    )Total stockholders equity
    
    
    12,736,000
    
    
    
    14,143,000Total liabilities and stockholders equity
    
    $
    17,452,000
    
    
    $
    19,242,000
  3




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ENOVA SYSTEMS, INC.
 
 STATEMENTS OF OPERATIONS
 (Unaudited)
 For the Three Months EndedMarch 31,2009
    
    
    2008Revenues
    
    $
    688,000
    
    
    $
    2,278,000Cost of revenues
    
    
    579,000
    
    
    
    2,442,000Gross profit (loss)
    
    
    109,000
    
    
    
    (164,000
    )Operating expensesResearch and development
    
    
    254,000
    
    
    
    628,000Selling, general & administrative
    
    
    1,495,000
    
    
    
    1,914,000Total operating expenses
    
    
    1,749,000
    
    
    
    2,542,000Operating loss
    
    
    (1,640,000
    )
    
    
    (2,706,000
    )Other income and (expense)Interest and other income (expense)
    
    
    (6,000
    )
    
    
    85,000Equity in losses of non-consolidated joint venture
    
    
    (10,000
    )
    
    
    (52,000
    )Total other income (expense)
    
    
    (16,000
    )
    
    
    33,000Net loss
    
    $
    (1,656,000
    )
    
    $
    (2,673,000
    )Basic and diluted loss per share
    
    $
    (0.08
    )
    
    $
    (0.16
    )Weighted average number of common shares
outstanding
    
    
    20,845,000
    
    
    
    17,162,000
  4




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ENOVA SYSTEMS, INC.
 
 STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (1,656,000
    )
    
    $
    (2,673,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    158,000
    
    
    
    105,000Loss on asset disposal
    
    
    2,000
    
    
    
    1,000Inventory reserve
    
    
    61,000
    
    
    
    Equity in losses of non-consolidated joint venture
    
    
    10,000
    
    
    
    52,000Issuance of common stock for director services
    
    
    45,000
    
    
    
    43,000Issuance of common stock for employee services
    
    
    100,000
    
    
    
    Stock option expense
    
    
    104,000
    
    
    
    89,000(Increase) decrease in:Accounts receivable
    
    
    89,000
    
    
    
    1,585,000Inventory and supplies
    
    
    238,000
    
    
    
    (3,245,000
    )Prepaid expenses and other current assets
    
    
    42,000
    
    
    
    (282,000
    )Increase (decrease) in:Accounts payable
    
    
    (30,000
    )
    
    
    299,000Deferred revenues
    
    
    51,000
    
    
    
    1,000Accrued payroll and related expense
    
    
    (22,000
    )
    
    
    (306,000
    )Accrued liabilities
    
    
    (425,000
    )
    
    
    1,706,000Accrued interest payable
    
    
    21,000
    
    
    
    33,000Net cash used in operating activities
    
    
    (1,212,000
    )
    
    
    (2,592,000
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,000
    )
    
    
    (1,250,000
    )Net cash used in investing activities
    
    
    (6,000
    )
    
    
    (1,250,000
    )Cash flows from financing activities:Payments on notes payable
    
    
    (16,000
    )
    
    
    (14,000
    )Net cash used in financing activities
    
    
    (16,000
    )
    
    
    (14,000
    )Net decrease in cash and cash equivalents
    
    
    (1,234,000
    )
    
    
    (3,856,000
    )Cash and cash equivalents, beginning of period
    
    
    5,324,000
    
    
    
    10,485,000Cash and cash equivalents, end of period
    
    $
    4,090,000
    
    
    $
    6,629,000Supplemental disclosure of cash flow informationInterest paid
    
    $
    1,000
    
    
    $
    3,000Assets acquired through financing arrangements
    
    $
    38,000
    
    
    
    
  5




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ENOVA SYSTEMS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 (Unaudited)
 Three months ended March 31, 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
  6




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
    
    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.
 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
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Stock Based Compensation
 
 Stock Based Compensation Plans
 3. Inventory
  March 31,
    
    
    December 31,2009
    
    
    2008Raw Materials
    
    $
    7,066,000
    
    
    $
    7,114,000Work In Progress
    
    
    429,000
    
    
    
    391,000Finished Goods
    
    
    819,000
    
    
    
    1,047,000Reserve for Obsolescence
    
    
    (964,000
    )
    
    
    (903,000
    )Total
    
    $
    7,350,000
    
    
    $
    7,649,000
 4. Other Accrued Liabilities
  March 31,
    
    
    December 31,2009
    
    
    2008Accrued Inventory Received
    
    $
    598,000
    
    
    $
    743,000Accrued Professional Services
    
    
    298,000
    
    
    
    571,000Accrued Warranty
    
    
    538,000
    
    
    
    545,000Total
    
    $
    1,434,000
    
    
    $
    1,859,000
 4. Property and Equipment
  March 31, 2009
    
    
    December 31, 2008Computers and software
    
    $
    528,000
    
    
    $
    598,000Machinery and equipment
    
    
    1,050,000
    
    
    
    1,470,000Furniture and office equipment
    
    
    98,000
    
    
    
    107,000Demonstration vehicles and buses
    
    
    384,000
    
    
    
    346,000Leasehold improvements
    
    
    1,348,000
    
    
    
    1,348,0003,408,000
    
    
    
    3,869,000Less accumulated depreciation
    
    
    (1,694,000
    )
    
    
    (2,040,000
    )Total
    
    $
    1,714,000
    
    
    $
    1,829,000
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5. Notes Payable, Long-Term Debt and Other Financing
  March 31,
    
    
    December 31,2009
    
    
    2008Secured note payable to Credit
Managers Association of California,
bearing interest at prime plus 3%
(8.25% as of March 31, 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
    
    
    19,000
    
    
    
    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
    
    
    10,000
    
    
    
    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
    
    
    14,000
    
    
    
    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
    
    
    25,000
    
    
    
    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
    
    
    37,000
    
    
    
    1,383,000
    
    
    
    1,361,000Less current portion
    
    
    (93,000
    )
    
    
    (98,000
    )Long-term portion
    
    $
    1,290,000
    
    
    $
    1,263,000
  6. Revolving Credit Agreement
  9




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7. Shareholders Equity
  2009
    
    
    2008Beginning balance
    
    $
    14,143,000
        
$
    14,177,000Increase in additional paid-in-capital for stock-based compensation
    
    
    104,000
        
    
89,000Increase in common stock for issuances of common shares to directors
    
    
    45,000
    
    
    
    43,000Increase in common stock for issuances of common shares to employees
    
    
    100,000
    
    
    
    Net loss
    
    
    (1,656,000
    )
    
    
    (2,673,000
    )End balance
    
    $
    12,736,000
    
    
    $
    11,636,000
 8. Related Party Transactions
  9. Subsequent Events
 Dissolution of Joint Venture  Hyundai-Enova Innovative Technology Center
     10




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10. Stock Options
 Stock Option Program Description
   Quarter ended March 31, 2009
   For the three months endedMarch 31,
    
    March 31,2009
    
    2008Income from continuing operations before income taxes
    
    $
    104,000
    
    
    $
    89,000Income from continuing operations after income taxes
    
    $
    104,000
    
    
    $
    89,000Cash flows from operations
    
    $
    104,000
    
    
    $
    89,000Cash flows from financing activities
    
    $
    
    
    
    $
    Basic and Diluted EPS
    
    $
    
    
    
    $
    
  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
    
    
    150,000
    
    
    $
    0.21
    
    
    
    9.95
    
    
    $
    114,000Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Forfeited
    
    
    (69,000
    )
    
    $
    4.00
    
    
    
    
    
    
    $
    Outstanding at March 31, 2009
    
    
    704,000
    
    
    $
    3.21
    
    
    
    7.49
    
    
    $
    114,000Exercisable at March 31, 2009
    
    
    373,000
    
    
    $
    3.93
    
    
    
    5.82
    
    
    $
    14,000
 11




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For the three months endedMarch 31,2009

    2008Expected life (in years)
    
    
    3
    
    
    
    4Average risk-free interest rate
    
    
    2
    %
    
    
    3
    %Expected volatility
    
    
    194
    %
    
    
    111
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    3
    %
    
    
    3
    %
  11. Recent Accounting Pronouncements
     12




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Guidance on Fair Value Measurements and Impairments
  Disclosures about Fair Value of Financial Instruments
   13




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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
      14




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Recent Developments
        15




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




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Revenue recognition 
    17




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RESULTS OF OPERATIONS
 First Quarter of Fiscal 2009 vs. First Quarter of Fiscal 2008
 For the Three Months Ended
    
    
    As a % of RevenuesMarch 31,
    
    
    March 31,2009
    
    
    2008
    
    
    % Change
    
    
    2009
    
    
    2008Revenues
    
    $
    688,000
    
    
    $
    2,278,000
    
    
    
    -70
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    579,000
    
    
    
    2,442,000
    
    
    
    -76
    %
    
    
    84
    %
    
    
    107
    %Gross profit (loss)
    
    
    109,000
    
    
    
    (164,000
    )
    
    
    +166
    %
    
    
    16
    %
    
    
    -7
    %Operating expensesResearch and development
    
    
    254,000
    
    
    
    628,000
    
    
    
    -60
    %
    
    
    37
    %
    
    
    28
    %Selling, general &
administrative
    
    
    1,495,000
    
    
    
    1,914,000
    
    
    
    -22
    %
    
    
    217
    %
    
    
    84
    %Total operating expenses
    
    
    1,749,000
    
    
    
    2,542,000
    
    
    
    -31
    %
    
    
    254
    %
    
    
    112
    %Operating loss
    
    
    (1,640,000
    )
    
    
    (2,706,000
    )
    
    
    +39
    %
    
    
    -238
    %
    
    
    -119
    %Other income and (expense)Interest and other income
(expense)
    
    
    (6,000
    )
    
    
    85,000
    
    
    
    -107
    %
    
    
    -1
    %
    
    
    4
    %Equity in losses of
non-consolidated joint
venture
    
    
    (10,000
    )
    
    
    (52,000
    )
    
    
    +81
    %
    
    
    -1
    %
    
    
    -2
    %Total other income (expense)
    
    
    (16,000
    )
    
    
    33,000
    
    
    
    -148
    %
    
    
    -2
    %
    
    
    1
    %Net loss
    
    $
    (1,656,000
    )
    
    $
    (2,673,000
    )
    
    
    +38
    %
    
    
    -241
    %
    
    
    -117
    %
 The sum of the amounts and percentages may not equal the totals for the period due to the
effects of rounding.
  Revenue.
 Cost of Revenues.
 Gross Margin.
 Research and Development (R&D).
 18




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Selling, General, and Administrative Expenses (S, G & A).
 Interest and Other Income (Expense).
 Net Loss.
 Comparability of Quarterly Results.
 LIQUIDITY AND CAPITAL RESOURCES
     19




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Off-Balance Sheet Arrangements
  20




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   21




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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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Item 6. Exhibits
  10.1
    
    Stock Purchase Agreement entered into April 6, 2009 between Enova and Hyundai-Enova Innovative
Technology Center (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K filed
April 10, 2009)10.2
    
    Joint Venture Dissolution and Termination Agreement entered into April 6, 2009 between Enova, Hyundai
Heavy Industries and Hyundai-Enova Innovative Technology Center (incorporated by reference to Exhibit
99.2 of our Current Report on Form 8-K filed April 10, 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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SIGNATURE
   ENOVA SYSTEMS, INC. (Registrant)/s/ Jarett FentonBy: Jarett Fenton, Chief Financial Officer 24