##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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)   19850 South Magellan Drive, Torrance, California 90502
 (Address of principal executive
    offices, including zip code)
  (310) 527-2800
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, no par value

The American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




---



##### 



ENOVA
    SYSTEMS, INC.
  2006
    FORM 10-K
    ANNUAL REPORT
  TABLE OF
    CONTENTS
  
  PART IItem 1.


Business


3Item 1A.


Risk Factors and
    Cautionary Factors That May Impact Future Results


15Item 2.


Properties


19Item 3.


Legal
    Proceedings


19Item 4.


Submission of
    Matters to a Vote of Security Holders


19PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


20Item 6.


Selected Financial
    Data


23Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


23Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


31Item 8.


Financial
    Statements and Supplementary Data


31Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


31Item 9A.


Controls and
    Procedures


33Item 9B.


Other
    Information


34PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


34Item 11.


Executive
    Compensation


37Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


45Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


47Item 14.


Principal
    Accountant Fees and Services


47PART IVItem 15.


Exhibits and
    Financial Statement Schedules


48EXHIBIT 3.1EXHIBIT 3.2EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32   2




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##### Table of Contents



PART I  Item 1.
    Business  General
    back-up
          up-to-date
 3




---



##### Table of Contents




    On November 17, 2006, The Company promoted Mike Staran to
    the position of Executive Vice President. In that role,
    Mr. Staran is responsible for operations, engineering,
    sales and marketing, and investor relations.
    In January 2007, Corinne Bertrand resigned as Chief Financial
    Officer. In her place, Jarett Fenton was appointed as Chief
    Financial Officer.
    In February of 2007, John Dexter retired from his position as
    Director of Operations.       4




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##### Table of Contents



Customer

PercentHyundai Motor Company


39
%The State of Hawaii


16
%     2006


2005


2004United States

$
579,000


$
971,000


$
1,465,000Italy


5,000



152,000



30,000Korea


753,000



758,000



258,000Japan


43,000



3,038,000



176,000China


68,000



234,000



256,000Malaysia


21,000



91,000



0Ireland


115,000



0



166,000Canada






120,000



0United Kingdom


72,000



720,000



203,000Norway


10,000



0



0Total

$
1,666,000


$
6,084,000


$
2,554,000     HybridPowertmElectric and Hybrid-Electric Drive Systems
  Environmental
    Initiatives and Legislation
      Strategic
    Alliances, Partnering and Technology Developments
   5




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##### Table of Contents




    International Truck and Engine (IC Corp), who claims to be the
    nations largest School Bus manufacturer and Enova have
    supplied the nations first production Hybrid School
    Buses. IC Corp currently maintains 60% of the School Bus market.
    In addition to School Buses, IC Corp is teaming with Enova to
    supply hybrid buses to the Commercial Bus Market. There are no
    assurances, however that any purchase orders will be realized.
    WrightBus, the largest low-floor and Double Deck bus
    manufacturer in the United Kingdom, has taken delivery of our
    series hybrid diesel genset and integrated them into its medium
    and large bus applications. Six of these systems are now running
    seven days a week 18 hours a day in London. We to work with
    WrightBus on projects related to Enovas hybrid drive
    systems. There are no assurances, however that any purchase
    orders will be realized.
    Tanfield, the Worlds largest electric vehicle
    manufacturer, has signed an arrangement with Enova where Enova
    will supply electric drive systems for Tanfields 3.5, 7.5
    and 12 ton vehicles.
    First Auto Works, Chinas largest vehicle manufacturer, has
    indicated that it intends to purchase Enovas pre
    transmission hybrid system for FAWs bus applications.
    There are no assurances, however that any purchase orders will
    be realized.
    Th!nk and Phoenix Motorcars, Electric Vehicles OEMs have both
    utilized Enova as a supplier of primary components/systems for
    their vehicles.
    Verizon has recently taken receipt of thirteen (13) service
    vans incorporating Enovas technology. Verizon is the
    nations second largest fleet operator with 58,000
    vehicles. In addition to Verizon, we have begun development work
    with other large fleet operators in both the service van and
    pick up and delivery sectors. There are no assurances, however
    that any purchase orders will be realized.   6




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##### Table of Contents



Products
      
    30kW, 60kW, 90kW all-electric drives
    15/60kW
    hybrid drive
    25/80kW
    hybrid drive
    40/80kW hybrid drive
    90kW hybrid drive
    combinations of these systems based on customer requirements.    
    120kW all-electric drive
    120/60kW
    hybrid drive
    240/60kW hybrid drive
    90kW hybrid drive
    100kW hybrid drive
    100kW hybrid drive       7




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##### Table of Contents



Hybrid
    Drive Configurations
    Series Hybrid
    with Diesel Generator
  
   and/or
  Post
    Transmission Parallel Hybrid
  
    8




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##### Table of Contents



Pre
    Transmission Parallel Hybrid
  
     Definitions:
          Hybrid
    Drive Motors
      Hybrid
    Motor Controllers
  easy-to-install DC-to-DC AC-to-DC
   9




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##### Table of Contents



Hybrid
    Drive Systems
  120/60kW
  120/60
  120/60kW
  Drive
    System Accessories
      Battery
    Care Unit
  state-of-charge, kilowatt-hours.
      kilowatt-hours
 10




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##### Table of Contents



Hybrid
    Control Unit
    Safety
    Disconnect Unit
    High
    Voltage Disconnect Unit
    Wiring
    Harness Connector Kits
    Distributed
    Power Generation for Industrial/Commercial/Residential
    Applications
    20kW
    bi-directional Fuel Cell Power Conditioning System
       11




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##### Table of Contents



Fuel
    Cell Management Unit
    Research
    and Development Strategy
      Manufacturing
    Strategy
             12




---



##### Table of Contents



Competitive
    Conditions
    10-20%
            
    Providing a full product line of power management, power
    conversion, and system integration 13




---



##### Table of Contents




    Providing products that allow the hardware to be software
    programmable and configurable
    Offering a product line designed for the most advanced new fuel
    systems: electric, hybrid, fuel cell, microturbine powered
    vehicles, and battery, fuel cell, microturbine stationary power
    applications
    Providing fully integrated, drop-in energy
    management and conversion system in one box
    Providing scaleable modules
    Offering systems with reduced footprint and weight, high
    functionality and low cost  characteristics essential
    for all market applications  due to our aerospace
    engineering experience
    Being skilled, prepared and pro-active in meeting changing and
    sophisticated requirements of emerging alternative power markets
    and applications
    Our positioning as a strategic ally with our global customer
    base, manufacturers and our R&D partners. By building a
    business based on long-standing relationships with satisfied
    clients such as International Truck and Engine, First Auto
    Works, Wright Group, Tanfield, and Hyundai, we simultaneously
    build defenses against competition. Teaming with recognized
    global manufacturers allows Enova to avoid utilizing resources
    for manufacturing infrastructure as well as exploit
    Hyundais years of engineering expertise at relatively low
    costs.  Research
    and Development
    
    Power Control and Drive Systems and related technologies for
    vehicle applications;
    Stationary Power Management and Conversion and related
    technologies;
    Heavy Duty Drive System development for Buses; Trucks,
    Industrial, Military and Marine applications;
    Fuel Cell Generation system power management and process control;
    Systems Integration of these technologies;
    Technical and product development under DOE/DOT/DOD and Hyundai
    Group Contracts; and
    OEM Technical and Product development.    Intellectual
    Property
     14




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##### Table of Contents



Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors    This annual report on
    Form 10-K,
    including the documents that we incorporate by reference,
    contains statements indicating expectations about future
    performance and other forward-looking statements that involve
 15




---



##### Table of Contents



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 the
    Form 10-K
    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 expansion plans, 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 annual
    report. 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 this
    Risk Factors section and elsewhere in this annual
    report.
  We cannot guarantee that any forward-looking statement will
    be realized, although we believe we have been prudent in our
    plans and assumptions. Achievement of future results is subject
    to risks, uncertainties and potentially inaccurate assumptions.
    Should known or unknown risks or uncertainties materialize, or
    should underlying assumptions prove inaccurate, actual results
    could differ materially from past results and those anticipated,
    estimated or projected. You should bear this in mind as you
    consider forward-looking statements.
  We undertake no obligation to publicly update forward-looking
    statements, whether as a result of new information, future
    events or otherwise. You are advised, however, to consult any
    further disclosures we make on related subjects in our
    10-Q and
    8-K reports
    to the SEC. Also note that we provide the following cautionary
    discussion of risks, uncertainties and possibly inaccurate
    assumptions relevant to our businesses. These are factors that,
    individually or in the aggregate, we think could cause our
    actual results to differ materially from expected and historical
    results. We note these factors for investors as permitted by the
    Private Securities Litigation Reform Act of 1995. You should
    understand that it is not possible to predict or identify all
    such factors. Consequently, you should not consider the
    following to be a complete discussion of all potential risks or
    uncertainties.
  We may
    not have net operating losses in the future against which to
    offset our future profits, if any
    We
    have experienced continued losses and may never become
    profitable
    The
    nature of our industry is dependent on technological advancement
    and highly competitive
  and/or and/or
   16




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##### Table of Contents



Our
    industry is affected by political and legislative
    changes
    We are
    subject to increasing emission regulations in a changing
    legislative climate
    There
    are substantial risks involved in the development of unproven
    products
    We may
    be unable to effectively compete with other companies who have
    significantly greater resources than we have
    Potential
    intellectual property, shareholder or other litigation could
    adversely impact our business
   17




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##### Table of Contents



We may
    be exposed to product liability or tort claims if our products
    fail, which could adversely impact our results of
    operations
    We are
    an early growth stage company
  start-up
  We are
    highly dependent on a few key personnel and will need to retain
    and attract such personnel in a labor competitive
    market
    There
    are minimal barriers to entry in our market
    We
    extend credit to our customers, which exposes us to credit
    risk
    We are
    exposed to risks relating to evaluations of our internal
    controls
   18




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##### Table of Contents



Form 10-K,
  Item 2.
    Properties  month-to-month month-to-month
  Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders      Bjorn AhlstromFor


6,689,549Withhold


771,876  19




---



##### Table of Contents



Malcolm R. CurrieFor


6,688,411Withhold


773,014   Sten LangeniusFor


6,689,529Withhold


771,896   Anthony N. RawlinsonFor


6,689,487Withhold


771,938   Edwin O. RiddellFor


6,689,487Withhold


771,938   John R. WallaceFor


6,685,869Withhold


775,556   Donald H. Dreyer (elected by
    Series B convertible preferred stock)For


698Withhold


0     For


7,460,957Against


977Abstain


190     For


7,395,642Against


14,181Abstain


52,301  PART II  Item 5.
    Market
    for Registrants Common Equity, Related Shareholder Matters
    and Issuer Purchases of Equity Securities  over-the-counter over-the-counter
 20




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##### Table of Contents



mark-up,
  Common Stock


Average DailyHigh Price


Low Price


VolumeCalendar 2006Fourth Quarter

$
5.10


$
2.95



7,105Third Quarter

$
5.85


$
3.40



4,624Second Quarter

$
4.85


$
3.65



4,338First Quarter

$
5.35


$
3.31



12,582Calendar 2005Fourth Quarter

$
4.50


$
3.25



7,976Second Quarter

$
5.18


$
3.38



4,164Third Quarter

$
5.90


$
2.50



6,461First Quarter

$
5.40


$
4.05



5,285     Stock
    Issuances
    Dividend
    Policy
   21




---



##### Table of Contents



Performance
    Graph
      
    22




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K.
  As of and for the Year Ended December 312006


2005


2004


2003


2002(In thousands,except per share data)Statement of Operations
    DataNet revenues


1,666


$
6,084


$
2,554


$
4,310


$
4,455Cost of revenues


2,900



6,001



2,239



3,304



3,784Gross margin


(1,234
)


83



315



1,006



671Operating expensesResearch and Development


1,363



804



925



799



1,152Asset Impairment














200Selling, general and administrative


4,178



2,870



2,325



2,919



2,837Total Operating Expense


5,541



3,674



3,250



3,918



3,989Other Income and ExpenseInterest and Financing Income and
    (Fees)


550



13



(255
)


(234
)


(199
)Equity in losses


(3
)


(118
)


(192
)


(40
)


Legal Settlements


















(81
)Gain on Debt Restructuring


1,392



1,569











Total Other Income and (Expense)


1,939



1,464



(447
)


(274
)


(280
)Net loss


(4,836
)

$
(2,127
)

$
(3,382
)

$
(3,186
)

$
(3,598
)Per common share:Net loss per common share

$
(0.33
)

$
(0.18
)

$
(0.38
)

$
(0.43
)

$
(0.49
)Weighted average number common
    shares outstanding


14,802,000



11,644,000



8,832,000



7,441,000



7,253,000Balance Sheet DataTotal assets

$
15,730


$
21,973


$
5,888


$
4,870


$
6,224Long-term debt

$
1,295


$
2,321


$
3,341


$
3,347


$
3,332Shareholders equity (deficit)

$
11,964


$
16,604


$
103


$
(864
)

$
287   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
   23




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##### Table of Contents



60-65%
            
    International Truck and Engine (IC Corp), who claims to be the
    nations largest School Bus manufacturer and Enova have
    supplied the nations first production Hybrid School
    Buses. IC Corp currently maintains 60% of the School Bus market.
    In addition to School Buses, IC Corp is teaming with Enova to
    supply hybrid buses to the Commercial Bus Market. There are no
    assurances, however that any purchase orders will be realized.
    WrightBus, the largest low-floor and Double Deck bus
    manufacturer in the United Kingdom, has taken delivery of our
    series hybrid diesel genset and integrated them into its medium
    and large bus applications. Six of these systems are now running
    seven days a week 18 hours a day in London. Enova with
    WrightBus on projects related to Enovas hybrid drive
    systems. There are no assurances, however that any purchase
    orders will be realized.
    Tanfield, the Worlds largest electric vehicle
    manufacturer, has signed an arrangement with Enova where Enova
    will supply electric drive systems for Tanfields 3.5, 7.5
    and 12 ton vehicles. 24




---



##### Table of Contents




    First Auto Works, Chinas largest vehicle manufacturer, has
    indicated that it intends to purchase Enovas pre
    transmission hybrid system for bus applications. There are no
    assurances, however that any purchase orders will be realized.
    Th!nk and Phoenix Motorcars, Electric Vehicles OEMs have both
    utilized Enova as a supplier of primary components/systems for
    their vehicles.
    Verizon has recently took receipt of thirteen (13) service
    vans incorporating Enovas technology. Verizon is the
    nations second largest fleet operator with 58,000
    vehicles. In addition to Verizon, Enova has begun development
    work with other large fleet operators in both the service van
    and pick up and delivery sectors. There are no assurances,
    however that any purchase orders will be realized.    state-of-the-art on-site on-site back-up
    Critical
    Accounting Policies
      
    The
    first-in,
    first-out (FIFO) method to value our inventories; 25




---



##### Table of Contents




    Review of customers receivables to determine the need for
    an allowance for credit losses based on estimates of
    customers ability to pay. If the financial condition of
    our customers were to deteriorate, an additional allowance may
    be required.
    Revenue recognition  We are required to make
    judgments based on historical experience and future
    expectations, as to the reliability of shipments made to its
    customers. These judgments are required to assess the propriety
    of the recognition of revenue based on Staff Accounting Bulletin
    (SAB) No. 104, Revenue Recognition,
    and related guidance. We make these assessments based on the
    following factors: i) customer- specific information,
    ii) return policies, and iii) historical experience
    for issues not yet identified. Under FAS Concepts
    No. 5, revenues are not recognized until earned. The
    percentage-of-completion
    method can be used to recognize revenues when estimates of costs
    to complete and the extent of progress toward completion of
    contracts are reasonably dependable. If reasonably dependable
    estimates are not available, the
    percentage-of-completion
    method should not be used.    Recent
    Accounting Pronouncements
         26




---



##### Table of Contents



available-for-sale held-to-maturity instrument-by-instrument
  Results
    of Operations
  Years
    Ended December 31, 2006 and 2005
       27




---



##### Table of Contents



Years
    Ended December 31, 2005 and 2004
       28




---



##### Table of Contents



Liquidity
    and Capital Resources
  and/or
     29




---



##### Table of Contents



Form 10-K. Form 10-K.
          Form 10-Q
   30




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess Than


1-3


3-5


More ThanTotal


1 Year


Years


Years


5 YearsLong-Term Debt Obligations

$
1,366


$
71


$
57


$



$
1,238Capital Lease Obligations


















Operating Lease Obligations

$
436


$
279


$
157







Purchase Obligations


















Accrued Interest

$
735














$
735Total

$
2,537


$
350


$
214


$



$
1,973   Hyundai-Enova
    Innovative Technology Center
  1-for-45
  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  form 10-K
  Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosures       31




---



##### Table of Contents



Form 8-K, Regulation S-K.
  Form 10-Q
    Regulation S-K
  Form 8-K Form 10-Q Form 8-K Form 10-Q
  Form 10-Q.
  year-to-date Form 10-Qs
    Regulation S-K:
  Form 10-Q, Form 10-Q
  Form 10-Q,
 32




---



##### Table of Contents



Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Form 10-K, Rules 13a-15(e) 15d-15(e)
    Form 10-Q Form 8-K Form 10-Q Form 10-Q Form 10-Q
  Form 10-Q 10-Q
  Form 10-Q
  Changes
    in Internal Controls over Financial Reporting
  Form 10-Q
 33




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Name

Age

PositionAnthony N. Rawlinson


52


Chairman of the Board of DirectorsEdwin O. Riddell


63


Chief Executive Officer,
    President, and DirectorJarett Fenton


30


Chief Financial OfficerBjorn Ahlstrom(1)(2)


73


DirectorDr. Malcolm Currie(1)


80


DirectorDonald H. Dreyer(2)


69


DirectorSten Langenius


72


DirectorJohn Wallace(2)(3)


58


DirectorMichael Staran


50


Executive Vice President     (1)
    
    Member of the Compensation Committee(2)
    
    Member of the Audit Committee(3)
    
    Financial Expert on Audit Committee  Anthony Rawlinson, Chairman of the Board of
    Directors.
  Edwin O. Riddell, Chief Executive Officer, President, and
    Director.
 34




---



##### Table of Contents



Jarett Fenton, Chief Financial Officer.
  Bjorn Ahlstrom, Director.
  Malcolm R. Currie, Ph.D,
    Director.
  Donald H. Dreyer, Director.
  Sten Langenius, Director.
 35




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##### Table of Contents



John R. Wallace, Director.
  Michael Staran, Executive Vice President.
  Relationships
    Among Directors or Executive Officers
    Board
    Composition
    Section 16(a)
    Beneficial Ownership Reporting Compliance
    Form 10-K.
  Code of
    Ethics
   36




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##### Table of Contents



Audit
    Committee
    Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
    Executive
    Compensation Philosophy
            The
    Compensation-Setting Process
   37




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##### Table of Contents




    to review at least annually the goals and objectives and the
    structure of Enovas plans for executive compensation,
    incentive compensation, equity-based compensation, and its
    general compensation plans and employee benefit plans (including
    retirement and health insurance plans);
    to evaluate annually the performance of the Chief Executive
    Officer in light of the goals and objectives of Enovas
    executive compensation plans, and to determine his or her
    compensation level based on this evaluation;
    to review annually and determine the compensation level of all
    other executive officers of Enova, in light of the goals and
    objectives of Enovas executive compensation plans;
    in consultation with the Chief Executive Officer, to oversee the
    annual evaluation of management of Enova, including other
    executive officers and key employees;
    periodically, as the Compensation Committee deems necessary or
    desirable and pursuant to the applicable equity-based
    compensation plan, to grant, or recommend that the Board of
    Directors grant, equity-based compensation awards to any officer
    or employee of Enova for such number of shares of common stock
    as the Compensation Committee, in its sole discretion, shall
    deem to be in the best interest of the Enova; and
    to review and recommend to the Board of Directors all
    equity-based compensation plans.      
    evaluating employee performance; and
    recommending salary levels and equity compensation awards.    
    background information regarding Enovas strategic
    objectives;
    his evaluation of the performance of the named executive
    officers and other key employees; and
    compensation recommendations as to the named executive officers
    (other than himself).  2006
    Compensation
    Executive
    Summary
    
    We increased base salaries for certain named executive officers.
    We paid one cash bonus of $10,000 to Michael Staran as part of
    his meeting certain non-financial goals set by the committee.
    In fiscal 2006, only one option grant was made to a named
    executive officer. All other grants related to performance in
    2006, were granted in 2005. The executives did not meet the 2006
    performance requirement. 38




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##### Table of Contents




    Base Salary;
    Cash Incentive (Bonus); and
    Equity Incentive  Base
    Salary
      Cash
    Incentive
      Revenue Target

Bonus$13,000,000

$15,000$14,500,000

$30,000$15,500,000

$45,000     Equity
    Incentive
       39




---



##### Table of Contents



Perquisites
    and Other Personal Benefits Compensation
    Summary
    Compensation Table
    Change inPensionValue andNonqualifiedName and











Non-Equity

DeferredPrincipal







Stock

Option

Incentive Plan

Compensation

All OtherPosition



Salary

Bonus

Awards

Awards

Compensation

Earnings

Compensation

Total(a)

Year

($)

($)

($)

($)

($)

($)

($)

($)Edwin Riddell,


2006



216,000























54,000
(3)


270,000Chief Executive Officer(1)Corinne Bertrand,


2006



119,000



5,000



















11,000
(4)


135,000Chief Financial Officer(1)Michael Staran,


2006



139,000



10,000



















17,000
(5)


166,000Executive Vice President(2)     (1)
    
    Ms. Bertrand was appointed to the position of Chief
    Financial Officer on April 3, 2006. She resigned her
    position effective January 31, 2007. Enova did not have a
    chief financial officer for the balance of 2006. The prior chief
    financial officer, Larry Lombard, resigned his position
    effective December 9, 2005. In the interim, our Chief
    Executive Office, Edwin Riddell, served as acting Chief
    Financial Officer.(2)
    
    Mr. Staran was appointed to this position on
    November 17, 2006. He previously was employed by Enova
    November 17, 2006 as a non-executive Vice President of
    Sales and Marketing. The amounts shown reflect his total 2006
    compensation as both executive and non-executive vice president.(3)
    
    The amount reflects $6,000 in insurance premiums and $48,000 in
    perquisites representing approximately $34,000 in living
    accommodations, $6,000 in automobile expenses, and $8,000 for
    other miscellaneous perquisites.(4)
    
    The amount reflects $11,000 in health and life insurance
    premiums.(5)
    
    The amount reflects $11,000 in health and life insurance
    premiums and $6,000 in office expense reimbursements, shown as
    perquisites. 40




---



##### Table of Contents



Grants of
    Plan-Based Awards
    All Other


All OtherStock


Option





Grant DateAwards:


Awards:


Exercise


FairEstimated Future


Number of


Number


or Base


Value ofEstimated Future


Payouts Under Equity


Shares of


of Securities


Price of


Stock andPayouts Under Non-Equity Incentive Plan Awards


Incentive Plan Awards


Stock


Underlying


Option


OptionName




Threshold


Target


Maximum


Threshold


Target


Maximum


or Units


Options


Awards


Awards(a)

Grant Date


($)


($)


($)


(#)


(#)


(#)


(#)


(#)


($/Sh)


($)Edwin Riddell










































Corinne Bertrand


3-06-06















23,000



23,000



23,000











5.25




(1)Michael Staran










































     (1)
    
    These options vested based on the same 2006 revenue milestones
    that were established under the original executive equity
    compensation plan grant in 2005. At the time of the 2006
    executive grant, it had become apparent that the 2006
    performance target was unlikely. Consequently, these options
    were deemed by the Company to have zero value.  Employment
    Contracts, Termination of Employment and Change in Control
    Arrangements
      12-month
  12-month
 41




---



##### Table of Contents



12-month
  12-month
 42




---



##### Table of Contents



Outstanding
    Equity Awards at Fiscal Year-End
  Option Awards


Stock AwardsEquityIncentiveEquity


Plan Awards:Incentive


Market orEquity














Plan Awards:


PayoutIncentive














Number


Value ofPlan














of Unearned


UnearnedAwards:











Market


Shares,


Shares,Number of


Number of


Number of








Number of


Value of


Units or


Units orSecurities


Securities


Securities








Shares or


Shares or


Other


OtherUnderlying


Underlying


Underlying








Units of


Units of


Rights


RightsUnexercised


Unexercised


Unexercised


Option





Stock That


Stock That


That


ThatOptions


Options


Unearned


Exercise


Option


Have Not


Have Not


Have Not


Have NotName

(#)


(#)


Options


Price


Expiration


Vested


Vested


Vested


Vested(a)

Exerciseable


Unexercisable


(#)


($)


Date


(#)


($)


(#)


($)Edwin Riddell


23,000











4.35



9-21-15















15,000



7,000







4.95



2-15-10Corinne Bertrand


































Michael Staran


23,000











4.35



9-21-15















     Option
    Exercises and Stock Vested
    Pension
    Benefits Nonqualified Deferred Compensation
    Compensation
    of Directors
  out-of-pocket
     43




---



##### Table of Contents



Change inPensionValue andFees Earned








Non-Equity


Nonqualifiedor Paid


Stock


Option


Incentive Plan


Deferred


All OtherName

in Cash


Awards(1)


Awards


Compensation


Compensation


Compensation


Total(a)

($)


($)


($)


($)


Earnings


($)


($)Anthony Rawlinson

$
16,000


$
24,000


















$
40,000Malcom Currie

$
16,000


$
24,000


















$
40,000Sten Langenius

$
8,000


$
12,000


















$
20,000Bjorn Ahlstrom

$
21,000


$
24,000


















$
45,000John Wallace

$
21,000


$
24,000


















$
45,000Don Dreyer

$
26,000


$
24,000


















$
50,000     (1)
    
    Amounts determined in accordance with FAS 123R.
    Messrs. Rawlinson, Currie, Ahlstrom, Wallace and Dreyer
    received the following common stock grants during the first and
    second quarter of fiscal year 2006 (grant date fair value in
    parenthesis): 1,176 shares granted on March 31, 2006
    ($5,998) and 1,644 shares granted on June 30, 2006
    ($6,001). Messrs. Rawlinson, Currie, Langenius, Ahlstrom,
    Wallace and Dreyer received the following common stock grants
    during the third and fourth quarters of fiscal year 2006 (grant
    date fair value in parenthesis): 1,145 shares granted on
    September 29, 2006 ($6,000); and 2,000 shares granted
    on December 29, 2006 ($6,000).    Compensation
    Committee Interlocks and Insider Participation
    Report of
    the Compensation Committee
  Form 10-K:
  10-K. Form 10-K
  COMPENSATION
    COMMITTEE
      44




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    
    Each shareholder known to us to own more than 5% of our voting
    securities;
    Each director and named executive officer holding equity
    securities; and
    All directors and named executive officers together as a group
    holding equity securities.    Percentage ofShares

Shares

VotingBeneficially

Beneficially

PercentageName

Owned(1)

Owned(2)

(3)Jagen, Pty., Ltd.


3,222,222
(4)


21.75
%


21.59
%9 Oxford Street, South
    Ybarra 3141Melbourne, Victoria AustraliaHyundai Heavy Industries, Co.


764,716



5.16
%


5.12
%1 Cheona-Dong,
    Dong-Ku Ulsan, KoreaAnthony N. Rawlinson


578,615
(5)


3.90
%


3.97
%Edwin O. Riddell


55,824
(6)


*



*Corinne Bertrand


0
(7)


*



*Bjorn Ahlstrom


13,837



*



*Dr. Malcolm Currie


26,505



*



*Donald H. Dreyer


25,144



*



*Sten Langenius


3,145



*



*John R. Wallace


14,429



*



*Mike Staran


23,000
(8)


*



*Delphi Delco Electronics


28,406
(9)


*



*Jean Schulz


29,558
(10)


*



*All directors and executive
    officers as a group (9 persons)


740,499



4.98
%


4.7
%     *
    
    Indicates less than 1%(1)
    
    Number of Common Stock shares includes Series A Preferred
    Stock, Series B Preferred Stock and Common Stock shares
    issuable pursuant to stock options, warrants and other
    securities convertible into Common Stock beneficially held by
    the person or class in question which may be exercised or
    converted within 60 days after December, 31 2006.(2)
    
    The percentages are based on the number of shares of Common
    Stock, Series A Preferred Stock and Series B Preferred
    Stock owned by the shareholder divided by the sum of:
    (i) the total Common Stock outstanding, (ii) the
    Series A Preferred Stock owned by such shareholder;
    (iii) the Series B Preferred Stock owned by such
    shareholder; and (iv) Common Stock issuable pursuant to
    warrants, options and other convertible securities exercisable
    or convertible by such shareholder within sixty (60) days
    after December 31, 2006. 45




---



##### Table of Contents



(3)
    
    The percentages are based on the number of shares of Common
    Stock, Series A Preferred Stock
    and/or
    Series B Preferred Stock owned by the shareholder divided
    by the sum of: (i) the total Common Stock outstanding,
    (ii) the total Series A Preferred Stock outstanding
    and (iii) the total Series B Preferred Stock
    outstanding. This percentage calculation has been included to
    show more accurately the actual voting power of each of the
    shareholders, since the calculation takes into account the fact
    that the outstanding Series A Preferred Stock and
    Series B Preferred Stock are entitled to vote together with
    the Common Stock as a single class on certain matters to be
    voted upon by the shareholders.(4)
    
    Based upon the Schedule 13D filed August 6, 2002, each
    of Jagen Pty. Ltd., Jagen Nominees, Pty. Dtd., and the B.
    Liberman Family Trust share voting and dispositive ownership of
    the post-split common stock reflected in the table. The B.
    Liberman Family Trust is the controlling shareholder of Jagen
    Pty. Ltd. and Jagen Nominees, Pty. Ltd. Is the trustee of the B.
    Liberman Family Trust. Jagen Pty. Ltd. is managed by Boris
    Liberman and Justin Liberman, who are father and son, neither of
    whom directly own any shares of Enova Systems, Inc.(5)
    
    The total number of common stock beneficially owned by
    Mr. Rawlinson includes 578,615 shares he owns directly
    and 13,702 shares held by The Global Value Investment
    Portfolio Management Pte. Ltd.. Mr. Rawlinson is managing
    director of The Global Value Investment Portfolio Management
    Pte. Ltd., for which he is deemed to exercise investment
    control. Mr. Rawlinson disclaims beneficial ownership of
    the shares held by The Global Value Investment Portfolio
    Management Pte. Ltd. Of the shares he directly owns,
    Mr. Rawlinson has pledged 555,555 shares of stock as
    of March 9, 2007.  (6)
    
    Includes 30,000 shares of Common Stock issuable pursuant to
    stock options exercisable at a price of $4.35.(7)
    
    As of December 31, 2006, Ms. Bertrand held only
    unexercisable options to acquire shares of Common Stock. She
    resigned as Chief Financial Officer as January 31, 2007.(8)
    
    This amount reflects shares of Common Stock issuable pursuant to
    exercisable stock options.(9)
    
    The number of shares shown represents the ownership of
    639,360 shares of Series B Preferred Stock, each of
    which is convertible into 2/45 shares of Common Stock.
    These 639,360 shares represent 55% of the outstanding
    shares of Series B Preferred Stock.(10)
    
    The number of shares shown represents the ownership of
    1,329,111 shares of Series A Preferred Stock, each of
    which is convertible into 1/45 share of Common Stock. These
    1,329,111 shares represent 49% of the outstanding shares of
    Series A Preferred Stock.  Equity
    Compensation Plan Information
    Equity
    Compensation Plan Information
  Number of SecuritiesRemaining Available forFuture Issuance underNumber of Securities to


Weighted-Average


Equity Compensationbe Issued upon Exercise


Exercise Price of


Plans (Excludingof Outstanding Options,


Outstanding Options,


Securities Reflected inWarrants and Rights


Warrants and Rights


Column (a))Plan category

(a)


(b)


(c)Equity compensation plans approved
    by security holders


162,000


$
4.43



3,000,000Equity compensation plans not
    approved by security holders










Total


162,000


$
4.43



3,000,000  46




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence        Form 10-K.
  Director
    Independence
    Item 14.
    Principal
    Accountant Fees and Services    10-Q.
  Audit
    Fees
    10-Q
  Forms 10-Q Form 10-Q,
 47




---



##### Table of Contents



Audit-Related
    Fees
    Tax
    Fees
    All
    Other Fees
    Audit
    Committee Pre-Approval of Audit and Permissible Non-Audit
    Services of Independent Auditors
  case-by-case
 PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules, and Reports on
    Form 8-K  (a) 1.  Financial
    Statements
  page F-1.
  (a) 2.  Financial
    Statement Schedule
    (a)3.
    Exhibits
  Exhibit #

Description3
.1

Amended and Restated Articles of
    Incorporation of the Registrant*3
.2

Amended and Restated Bylaws of the
    Registrant*10
.1

Form of Indemnification Agreement
    (filed as Exhibit 10.26 to our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005, as filed on
    August 15, 2005, and incorporated herein by reference)10
.2

Form of Security Agreement made as
    of May 31, 1995, between Enova and Credit Managers
    Association of California, Trustee (filed as Exhibit 10.85
    to our Quarterly Report on
    Form 10-Q
    for the quarter ended April 30, 1996, as filed on
    June 14, 1996, and incorporated herein by reference).10
.3

Stock Purchase Agreement and
    Technology License Agreement dated February 27, 1997, by
    and between Enova and Hyundai Motor Company and Hyundai
    Electronics Industries Co., Ltd. (filed as Exhibit 10.98 to
    our Quarterly Report on
    Form 10-Q
    for fiscal quarter ended January 31, 1997, as filed on
    March 14, 1997, and incorporated herein by reference). 48




---



##### Table of Contents



Exhibit #

Description10
.4

Agreement (redacted) between Enova
    and Eco Power Technology, dated June 12, 2001, to produce
    and sell power drive systems (filed as Exhibit 10.19 to
    Amendment No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.5

Agreement (redacted) between Enova
    and Tomoe Electro-Mechanical Engineering and Manufacturing,
    Inc., dated November 19, 2001, to produce and sell power
    drive systems (filed as Exhibit 10.20 to Amendment
    No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.6

Agreement (redacted) between Enova
    and Moriah Corporation, dated January 22, 2002, to produce
    and sell power drive systems (filed as Exhibit 10.21 to
    Amendment No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.7

Joint Venture Agreement (redacted)
    to form advanced research and development corporation, dated as
    of March 18, 2003, by and between Enova and Hyundai Heavy
    Industries Co. Ltd. (filed as Exhibit 10.24 to our
    Quarterly Report on
    Form 10-Q
    for Three Months ended March 31, 2003 and incorporated
    herein by reference).10
.8

Warrant and Common Stock Purchase
    Agreement dated June 3, 2006 between Enova and Eruca
    Limited (filed as Exhibit 10.24 to our Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2005 and incorporated herein
    by reference)10
.9

Form of Warrant Agreement dated
    June 3, 2005 between Enova and Eruca Limited (filed as
    Exhibit 10.25 to our Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2005 and incorporated herein
    by reference)10
.10

Waiver and Termination of
    Shareholders Agreement dated July 16, 2005 between
    Enova and Jagen Pty, Ltd (filed as Exhibit 10.27 to our
    Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference)10
.11

Form of Employment Agreement dated
    May 1, 2005 between Registrant and Edwin Riddell, Chief
    Executive Officer and President of the Registrant (Filed as
    Exhibit 10.22 to our Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2005 and incorporated herein
    by reference)23
.1

Consents of Singer Lewak Greenbaum
    and Goldstein LLP23
.2

Consent of PMB Helin Donovan31
.1*

Certification of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    Of 200231
.2*

Certification of Chief Financial
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
*

Certification Pursuant to
    18 U.S.C. Section 1350     *
    
    Filed herewith. 49




---



##### Table of Contents



SIGNATURES
    ENOVA SYSTEMS, INC.
  By:
    /s/  Edwin
    O. Riddell  
    POWER OF
    ATTORNEY
  attorney-in-fact Form 10-K, attorney-in-fact attorney-in-fact
    Signature

Title

Date/s/  Edwin
    O. RiddellEdwin
    O. Riddell

Chief Executive Officer,
    President, and Director
    (Principal Executive Officer)

April 2, 2007/s/  Jarett
    FentonJarett
    Fenton

Chief Financial Officer 
    (Principal Financial Officer and
    Principal Accounting Officer)

April 2, 2007/s/  Anthony
    N. RawlinsonAnthony
    N. Rawlinson

Director, Chairman of the Board

April 2, 2007/s/  Bjorn
    AhlstromBjorn
    Ahlstrom

Director

April 2, 2007/s/  Malcolm
    CurrieMalcolm
    Currie

Director

April 2, 2007 50




---



##### Table of Contents



Signature

Title

Date/s/  Donald
    H. DreyerDonald
    H. Dreyer

Director

April 2, 2007/s/  Sten
    LangeniusSten
    Langenius

Director

April 2, 2007/s/  John
    R. WallaceJohn
    R. Wallace

Director

April 2, 2007  51




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
    FINANCIAL STATEMENTS
    FOR THE YEARS ENDED
    DECEMBER 31, 2006, 2005, AND 2004
  52




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  CONTENTS
 December 31,
    2006 and 2005
  PageREPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


F-1 and F-2FINANCIAL STATEMENTSBalance
    Sheets


F-3Statements of
    Operations


F-4Statements of
    Stockholders Equity


F-5Statements of Cash
    Flows


F-6Notes to Financial
    Statements


F-7SELECTED
    QUARTERLY DATA (Unaudited)


F-27  F-i




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
              F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                F-2




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  BALANCE
    SHEETS
 December 31,
    2006 and 2005
  2006


2005ASSETSCurrent assetsCash and cash equivalents

$
5,612,000


$
16,187,000Short term investment


5,000,000



Accounts receivable, net


358,000



2,173,000Inventories and supplies, net


1,704,000



1,016,000Prepaid expenses and other current
    assets


708,000



182,000Total current assets


13,382,000



19,558,000Property and equipment, net


627,000



576,000Ownership interest in joint
    venture company


1,647,000



1,649,000Intangible assets


74,000



190,000Total assets

$
15,730,000


$
21,973,000LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
382,000


$
1,396,000Deferred revenues


399,000



Accrued payroll and related expense


220,000



195,000Other accrued expenses


664,000



302,000Current portion of notes payable


71,000



42,000Total current liabilities


1,736,000



1,935,000Accrued interest payable


735,000



1,113,000Notes payable, net of current
    portion


1,295,000



2,321,000Total liabilities

$
3,766,000


$
5,369,000Stockholders
    equitySeries A convertible
    preferred stock  no par value 30,000,000 shares
    authorized 2,652,000 and 2,674,000 shares issued and
    outstanding Liquidating preference at $0.60 per share,
    aggregating $1,591,000 and $1,604,000


1,679,000



1,679,000Series B convertible
    preferred stock  no par value 5,000,000 shares
    authorized 1,185,000 and 1,217,000 shares issued and
    outstanding Liquidating preference at $2 per share


2,432,000



2,434,000Common Stock, no par value
    750,000,000 shares authorized 14,816,000 and
    14,783,000 shares issued and outstanding


109,460,000



109,323,000Common stock issuable


36,000



30,000Stock notes receivable


(1,176,000
)


(1,176,000
)Additional paid-in capital


6,955,000



6,900,000Accumulated deficit


(107,422,000
)


(102,586,000
)Total stockholders equity


11,964,000



16,604,000Total liabilities and
    stockholders equity

$
15,730,000


$
21,973,000    F-3




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  STATEMENTS
    OF OPERATIONS
 For the
    Years Ended December 31, 2006, 2005, 2004
  2006


2005


2004Net revenuesResearch and development contracts

$
439,000


$
1,555,000


$
1,070,000Production


1,227,000



4,529,000



1,484,000Total net revenues


1,666,000



6,084,000



2,554,000Cost of revenuesResearch and development contracts


1,046,000



1,188,000



499,000Production


1,854,000



4,813,000



1,627,000Writedown Ford Think program
    inventory










113,000Total cost of revenues


2,900,000



6,001,000



2,239,000Gross profit (loss)


(1,234,000
)


83,000



315,000Operating expensesResearch and development


1,363,000



804,000



925,000Selling, general &
    administrative


4,178,000



2,870,000



2,325,000Total operating expenses


5,541,000



3,674,000



3,250,000Other income and
    (expense)Interest and financing fees, net


550,000



13,000



(255,000
)Equity loss  share of
    joint venture company losses


(3,000
)


(118,000
)


(192,000
)Debt extinguishment


920,000



1,011,000



Interest extinguishment


472,000



558,000



Total other income and (expense)


1,939,000



1,464,000



(447,000
)Loss from
    operations


(4,836,000
)


(2,127,000
)


(3,382,000
)Net loss

$
(4,836,000
)

$
(2,127,000
)

$
(3,382,000
)Basic and diluted loss per
    share

$
(0.33
)

$
(0.18
)

$
(0.38
)Weighted-average number of
    shares outstanding


14,802,443



11,664,320



8,831,893    F-4




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  STATEMENTS
    OF STOCKHOLDERS EQUITY
 For
    the Years Ended December 31, 2006, 2005, 2004
  Convertible Preferred Stock








Common Stock


Stock


AdditionalSeries A


Series B


Common Stock


Subscribed


Notes


Paid-In


AccumulatedShares


Amount


Shares


Amount


Shares


Amount


Shares


Amount


Receivable


Capital


Deficit


TotalBalance, December 31, 2003


2,820,000


$
1,837,000



1,217,000


$
2,434,000



8,407,000


$
86,054,000



25,000


$
60,000


$
(1,203,000
)

$
7,031,000


$
(97,077,000
)

$
(864,000
)Conversion of Series A
    preferred stock


(73,000
)


(63,000
)










2,000



63,000























Issuance of common stock for Cash


















613,000



3,450,000











27,000











3,477,000Issuance of subscribed common stock


















8,000



60,000



(25,000
)


(60,000
)














Exercise of options


















188,000



783,000























783,000Stock option conversions


















7,000



39,000















(39,000
)






Services


















3,000



16,000



27,000



165,000







(92,000
)






89,000Net loss










































(3,382,000
)


(3,382,000
)Balance, December 31, 2004


2,747,000


$
1,774,000



1,217,000


$
2,434,000



9,228,000


$
90,465,000



27,000


$
165,000


$
(1,176,000
)

$
6,900,000


$
(100,459,000
)

$
103,000Conversion of Series A
    preferred stock


(73,000
)


(95,000
)










1,000



95,000























Issuance of common stock for Cash


















5,473,000



18,361,000























18,361,000Issuance of common stock for
    director services


















56,000



293,000



(27,000
)


(165,000
)














128,000Director bonus


















25,000



109,000























109,000Subscribed common stock


























8,000



30,000















30,000Net loss










































(2,127,000
)


(2,127,000
)Balance, December 31, 2005


2,674,000


$
1,679,000



1,217,000


$
2,434,000



14,783,000


$
109,323,000



8,000


$
30,000


$
(1,176,000
)

$
6,900,000


$
(102,586,000
)

$
16,604,000Conversion of Series A and
    Series B preferred stock


(22,000
)






(32,000
)


2,000



1,000



2,000Issuance of common stock for
    director services


















29,000



125,000



(8,000
)


(30,000
)














95,000Director bonus


















3,000



10,000























10,000Stock Option Expense






































55,000







55,000Subscribed common stock


























12,000



36,000















36,000Net Loss










































(4,836,000
)


(4,836,000
)Balance, December 31, 2006


2,652,000


$
1,679,000



1,185,000


$
2,432,000



14,816,000


$
109,460,000



12,000


$
36,000


$
(1,176,000
)

$
6,955,000


$
(107,422,000
)

$
11,964,000    F-5




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  STATEMENTS
    OF CASH FLOWS
 For the
    Years Ended December 31, 2006, 2005, 2004
  2006


2005


2004Cash flows from operating
    activitiesNet loss

$
(4,836,000
)

$
(2,127,000
)

$
(3,382,000
)Adjustments to reconcile net loss
    to net cash used in operating activitiesDebt extinguishment


(920,000
)


(1,011,000
)


Interest extinguishment


(472,000
)


(558,000
)


Depreciation and amortization


419,000



304,000



377,000Equity in losses of equity method
    investee


3,000



118,000



192,000Issuance of common stock for
    services


132,000



158,000



89,000Issuance of common stock for bonuses


10,000



109,000



Stock option expense


55,000(Increase) decrease inAccounts receivable


1,815,000



(1,651,000
)


281,000Inventory and supplies


(688,000
)


20,000



570,000Note receivable  related
    party










8,000Prepaid expenses and other current
    assets


(526,000
)


122,000



(226,000
)Other assets






(2,000
)


Increase (decrease) inAccounts payable


(1,014,000
)


1,330,000



(702,000
)Accrued expenses


387,000



290,000



(11,000
)Deferred revenues


399,000



(392,000
)


392,000Accrued interest payable


92,000



293,000



256,000Net cash used in operating
    activities


(5,144,000
)


(2,997,000
)


(2,156,000
)Cash flows from investing
    activitiesPurchases of short-term securities

$
(5,000,000
)

$



$
Purchases of property and equipment


(259,000
)


(384,000
)


(175,000
)Net cash used in investing
    activities


(5,259,000
)


(384,000
)


(175,000
)Cash flows from financing
    activitiesNet increase from line of credit

$



$



$
109,000Payment on notes payable and
    capital lease obligations


(172,000
)


(368,000
)


(33,000
)Proceeds from notes payable










40,000Net Proceeds from sales of common
    stock






18,361,000



2,450,000Proceeds from exercise of stock
    options










783,000Payments on stock notes receivable










27,000Net cash provided by (used in)
    financing activities


(172,000
)


17,993,000



3,376,000Net increase (decrease) in cash and
    cash equivalents


(10,575,000
)


14,612,000



1,045,000Cash and cash equivalents,
    beginning of year


16,187,000



1,575,000



530,000Cash and cash equivalents, end of
    year

$
5,612,000


$
16,187,000


$
1,575,000Interest paid

$
1,400


$
2,000


$
10,000Income taxes paid

$
800


$



$
Conversion of preferred stock to
    common stock

$
2,000


$
94,000


$
63,000Acquired investment under common
    stock purchase

$



$



$
1,000,000Offering costs on common stock
    purchases

$



$



$
93,000Common Stock issued for purchase of
    options

$



$



$
39,000Assets acquired through a financing
    agreement

$
95,000


$



$
    F-6




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes
    to Financial Statements
 December 31,
    2006
  NOTE 1 
    Organization and Line of Business
  General
    Liquidity
    Joint
    Venture  Hyundai-Enova Innovative Technology
    Center
          NOTE 2 
    Summary of Significant Accounting Policies
  Revenue
    Recognition
   F-7




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
     
    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
    Performed
  The Fee for the Arrangement is Fixed or
    Determinable
  Collectibility is Reasonably Assured customer-by-customer
    00-21. 00-21 and/or 00-21 00-21
  percentage-of-completion
 F-8




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
    work-in-progress.
    Deferred
    Revenue
    Comprehensive
    Income
  available-for-sale
  Cash
    and Cash Equivalents
    Short-Term
    Investments
    Accounts
    Receivable
    Allowance
    for Doubtful Accounts
   F-9




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
    Inventories
    and Supplies
  (first-in,
  Property
    and Equipment
      Assets
    Held under Capital Leases
    Impairment
    of Long-Lived Assets
      Equity
    Method Investment
   F-10




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
   Patents
    Development
    Agreement
    Impairment
    of Intangible Assets
  6
  Fair
    Value of Financial Instruments
    Stock-Based
    Compensation
  Share-Based Payment
 F-11




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
      Accounting for Stock Issued to Employees
  Stock
    Based Compensation Issued to Third Parties
  No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling
    Goods or Services 01-9, Accounting for Consideration Given by a Vendor to a Customer
    (Including a Reseller of the Vendors Products). EITF 96-18, 01-9
  Advertising
    Expense
    Research
    and Development
    Income
    Taxes
   F-12




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
    Loss
    Per Share
      Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006


2005


2004Options to purchase common stock


162,000



436,000



164,000Options to purchase common
    stock  Outside plan










Warrants to purchase common stock






2,525,000



2,500,000Potential equivalent shares
    excluded


162,000



2,961,000



2,664,000   Commitments
    and Contingencies
      Estimates
   F-13




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
   Concentration
    of Credit Risk
    Major
    Customers
      Recently
    Issued Pronouncements
         F-14




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
    available-for-sale held-to-maturity instrument-by-instrument
  NOTE 3 
    Inventory
  (first-in,
  2006


2005Raw materials

$
1,285,000


$
1,072,000Work-in-process

$
482,000



24,000Reserve for obsolescence


(63,000
)


(80,000
)$
1,704,000


$
1,016,000    F-15




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
   NOTE 4 
    Property and Equipment
    2006


2005Computers

$
464,000


$
296,000Machinery and equipment


1,061,000



975,000Furniture and office equipment


246,000



242,000Demonstration vehicles and buses


421,000



324,000Software


94,000



94,000Leasehold improvements


70,000



70,0002,356,000



2,001,000Less accumulated depreciation and
    amortization


(1,729,000
)


(1,425,000
)Total

$
627,000


$
576,000     NOTE 5 
    Equity
    Method Investment  ITC      Financial positionCurrent assets

$
4,100,000Property and equipment, net


12,000Liabilities


(0
)Equity

$
4,112,000OperationsNet revenues

$
259,000Expenses


(458,000
)Interest income


192,000Net loss

$
(7,000
)Companys proportionate
    share of net loss

$
(3,000
)   NOTE 6 
    Intangible Assets
     F-16




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
      2006


2005Patents

$
93,000


$
93,000Valuation Participation Agreement


577,000



577,000670,000



670,000Less accumulated amortization


(596,000
)


(481,000
)Total

$
74,000


$
190,000     NOTE 7 
    Notes Payable
       F-17




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
     2006


2005Secured note payable to Credit
    Managers Association of California, bearing interest at prime
    plus 3% (currently 10.75%) and through maturity. Principal and
    unpaid interest due in April 2016. A sinking fund escrow is
    required to be funded with 10% of future equity financing, as
    defined in the agreement.

$
1,238,000


$
2,321,000Secured note payable to a
    financial institution in the original amount of $95,000, bearing
    interest at 6.21%, payable in 36 installments.

$
88,000



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 now

$
40,000


$
40,000Secured note payable to a
    financial institution in the original amount of $33,000, bearing
    interest at 8% per annum, payable in 36 equal monthly
    installments






2,0001,366,000



2,363,000Less current portion


(71,000
)


(42,000
)Long-term portion

$
1,295,000


$
2,321,000     Year EndingDecember 31,2007

$
71,0002008


33,0002009


24,0002010


2011


Thereafter


1,238,000Total

$
1,366,000   NOTE 8 
    Deferred Revenues
  SOP 81-1-
   F-18




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
  00-21
  NOTE 9 
    Commitments and Contingencies
  Leases
      Year Ending

OperatingDecember 31

Leases2007

$
279,0002008


80,0002009


38,0002010


39,0002011 and thereafter


Total

$
436,000   Employment
    Contracts
    NOTE 10 
    Stockholders Equity
  Common
    Stock
    Common
    Stock Issuable
    Series A
    Preferred Stock
  one-to-one
 F-19




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
      Series B
    Preferred Stock
  two-for-one
  Stock
    Options and Warrants
       F-20




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
   NOTE 11 
    Stock Options
  Stock
    Option Program Description
          in-the-money in-the-money
    WeightedShares


Number of


AverageAvailable


Shares


Exercise


Aggregatefor Grant


Granted


Price


PriceBalance at December 31, 2004


64,836,000



164,000



5.40



885,600Increase in planOptions granted


(332,000
)


332,000



4.39



1,457,000Options exercisedOptions cancelled


30,000



(30,000
)


7.64



(229,200
)Options expired


8,000



(8,000
)


7.64



(61,120
)Balance at December 31, 2005


64,542,000



458,000



4.48



2,052,760Increase in planOptions granted


(46,000
)


46,000



4.60



211,600Options exercisedOptions cancelled


4,000



(4,000
)


6.11



(24,440
)Options expired


338,000



(338,000
)


4.90



(1,656,200
)Balance at December 31, 2006


64,848,000



162,000



4.43



718,000Activity under the 2006 Plan is as
    follows:Balance at December 31, 2006


3,000,000  F-21




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
  Current
    year ended December 31, 2006
      Twelve MonthsEndedDecember 31,2006Income from continuing operations
    before income taxes

$
55,000Income from continuing operations
    after income taxes

$
55,000Cash flows from operations

$
55,000Cash flows from financing
    activities


Basic and Diluted EPS


            F-22




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
        WeightedWeighted


AverageNumber of


Average


Remaining


AggregateShare


Exercise


Contractual


IntrinsicOptions


Price


Term


ValueOutstanding at December 31,
    2005


458,000



4.48



6.8



Granted


46,000



4.60



10



Exercised














Forfeited or expired


(342,000
)


4.91







Outstanding at December 31,
    2006


162,000



4.43



7.96



Vested and expected to vest at
    December 31, 2006


153,000



4.43



7.89



Options exercisable at
    December 31, 2006


119,000



4.42



8.03



       Fiscal Year EndedDecember 312006


2005Total intrinsic value of stock
    options exercised

$



$
Cash received from stock option
    exercises

$



$
Gross income tax benefit from the
    exercise of stock options

$



$
    F-23




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
  in-the-money
  Valuation
    and Expense Information under SFAS 123
      2005


2004Expected life (in years)


5



5Average risk-free interest rate


4
%


4
%Expected volatility


75
%


73
%Expected dividend yield


0
%


0
%     2005


2004Loss applicable to common
    stockholders

$
(2,127,000
)

$
(3,382,000
)Compensation under APB Opinion 25






Stock-based employee compensation
    expense determined under fair value presentation for all options


(222,000
)


(94,000
)Pro forma net loss

$
(2,349,000
)

$
(3,476,000
)Basic and diluted loss per common
    shareAs reported

$
(0.18
)

$
(0.38
)Pro forma

$
(0.20
)

$
(0.39
)       Number


Weighted


NumberOutstanding


Average


ExercisableOption

as of


Remaining


as ofExercise

December 31


Contractual life


December 31Price

2005


(Years)


20054.48


458,000



6.8



262,000     Number


Weighted


NumberOutstanding


Average


ExercisableOption

as of


Remaining


as ofExercise

December 31


Contractual Life


December 31Price

2006


(Years)


20064.43


162,000



7.98



119,000  F-24




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
  NOTE 12 
    Income Taxes
    2006


2005Deferred tax assetsFederal tax loss carry-forward

$
34,650,000


$
33,135,000State tax loss carry-forward


1,548,000



1,154,000Basis difference


1,610,000



1,610,000Other, net


(114,000
)


(648,000
)37,694,000



35,251,000Less valuation allowance


(37,694,000
)


(35,251,000
)Net deferred tax
    assets

$



$
       December 31,


December 31,


December 31,2006


2005


2004Tax benefit computed at 34%

$
1,644,000


$
723,000


$
1,150,000Change in valuation allowance


(2,444,000
)


(1,302,000
)


214,000Change in carryovers and tax
    attributes


800,000



579,000



(1,364,000
)Net tax benefit

$



$



$
   NOTE 13 
    Related Party Transactions
      NOTE 14 
    Employee Benefit Plan
   F-25




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
   NOTE 15 
    Geographic Area Data
    2006


2005


2004United States

$
579,000


$
971,000


$
1,465,000Italy


5,000



152,000



30,000Korea


753,000



758,000



258,000Japan


43,000



3,038,000



176,000China


68,000



234,000



256,000Malaysia


21,000



91,000



Ireland


115,000







166,000Canada






120,000United Kingdom


72,000



720,000



203,000Norway


10,000







Total

$
1,666,000


$
6,084,000


$
2,554,000   NOTE 16 
    Subsequent Events
   F-26




---



##### Table of Contents



ENOVA
    SYSTEMS, INC.
  Notes to
    Financial Statements  (Continued)
 SELECTED
    QUARTERLY FINANCIAL DATA  March 31


June 302006


2005


2006


2005Net revenues


309,000



692,000



452,000



1,322,000Cost of revenues


460,000



570,000



914,000



1,024,000Gross profit (loss)


(151,000
)


122,000



(462,000
)


298,000Operating expensesResearch and development


325,000



217,000



308,000



178,000Selling, general and administrative


924,000



608,000



1,035,000



550,000Total operating expenses


1,249,000



825,000



1,343,000



728,000Other income and (expense)Interest and financing fees, net


179,000



(69,000
)


151,000



(72,000
)Equity in losses 
    shares of joint venture company losses


(26,000
)


(40,000
)


(16,000
)


(26,000
)Debt extinguishment


920,000











Interest extinguishment


472,000











Total other income(expense)


1,545,000



(109,000
)


135,000



(98,000
)Net income (loss)


145,000



(812,000
)


(1,670,000
)


(528,000
)Basic loss per share


0.01



(0.09
)


(0.11
)


(0.06
)Weighted average number of shares
    outstanding


14,783,000



9,238,000



14,797,000



9,263,000   September 30


December 312006


2005


2006


2005Net revenues


312,000



857,000



593,000



3,213,000Cost of revenues


620,000



729,000



906,000



3,678,000Gross profit (loss)


(308,000
)


128,000



(313,000
)


(465,000
)Operating expensesResearch and development


297,000



197,000



433,000



212,000Selling, general and administrative


1,154,000



765,000



1,065,000



947,000Total operating expenses


1,451,000



962,000



1,498,000



1,159,000Other income and (expense)Interest and financing fees, net


118,000



59,000



102,000



95,000Equity in losses 
    shares of joint venture company losses






(7,000
)


39,000



(45,000
)Debt extinguishment














1,011,000Interest extinguishment










448,000



558,000Total other income(expense)


118,000



52,000



589,000



1,619,000Net income (loss)


(1,641,000
)


(782,000
)


(1,222,000
)


(5,000
)Basic loss per share


(0.11
)


(0.06
)


(0.08
)


(0.00
)Weighted average number of shares
    outstanding


14,800,000



13,373,000



14,802,000



11,664,000   F-27




---



##### Table of Contents



EXHIBIT
    INDEX
  Exhibit #

Description3
.1

Amended and Restated Articles of
    Incorporation of the Registrant*3
.2

Amended and Restated Bylaws of the
    Registrant*10
.1

Form of Indemnification Agreement
    (filed as Exhibit 10.26 to our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005, as filed on
    August 15, 2005, and incorporated herein by reference)10
.2

Form of Security Agreement made as
    of May 31, 1995, between Enova and Credit Managers
    Association of California, Trustee (filed as Exhibit 10.85
    to our Quarterly Report on
    Form 10-Q
    for the quarter ended April 30, 1996, as filed on
    June 14, 1996, and incorporated herein by reference).10
.3

Stock Purchase Agreement and
    Technology License Agreement dated February 27, 1997, by
    and between Enova and Hyundai Motor Company and Hyundai
    Electronics Industries Co., Ltd. (filed as Exhibit 10.98 to
    our Quarterly Report on
    Form 10-Q
    for fiscal quarter ended January 31, 1997, as filed on
    March 14, 1997, and incorporated herein by reference).10
.4

Agreement (redacted) between Enova
    and Eco Power Technology, dated June 12, 2001, to produce
    and sell power drive systems (filed as Exhibit 10.19 to
    Amendment No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.5

Agreement (redacted) between Enova
    and Tomoe Electro-Mechanical Engineering and Manufacturing,
    Inc., dated November 19, 2001, to produce and sell power
    drive systems (filed as Exhibit 10.20 to Amendment
    No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.6

Agreement (redacted) between Enova
    and Moriah Corporation, dated January 22, 2002, to produce
    and sell power drive systems (filed as Exhibit 10.21 to
    Amendment No. 6 to our Registration Statement on
    Form S-1,
    No. 333-85308,
    and incorporated herein by reference).10
.7

Joint Venture Agreement (redacted)
    to form advanced research and development corporation, dated as
    of March 18, 2003, by and between Enova and Hyundai Heavy
    Industries Co. Ltd. (filed as Exhibit 10.24 to our
    Quarterly Report on
    Form 10-Q
    for Three Months ended March 31, 2003 and incorporated
    herein by reference).10
.8

Warrant and Common Stock Purchase
    Agreement dated June 3, 2006 between Enova and Eruca
    Limited (filed as Exhibit 10.24 to our Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2005 and incorporated herein
    by reference)10
.9

Form of Warrant Agreement dated
    June 3, 2005 between Enova and Eruca Limited (filed as
    Exhibit 10.25 to our Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2005 and incorporated herein
    by reference)10
.10

Waiver and Termination of
    Shareholders Agreement dated July 16, 2005 between
    Enova and Jagen Pty, Ltd (filed as Exhibit 10.27 to our
    Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference)10
.11

Form of Employment Agreement dated
    May 1, 2005 between Registrant and Edwin Riddell, Chief
    Executive Officer and President of the Registrant (Filed as
    Exhibit 10.22 to our Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2005 and incorporated herein
    by reference)23
.1

Consent of Singer Lewak Greenbaum
    and Goldstein LLP23
.2

Consent of PMB Helin Donovan31
.1*

Certification of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    Of 200231
.2*

Certification of Chief Financial
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
*

Certification Pursuant to
    18 U.S.C. Section 1350     *
    
    Filed herewith.