SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        For Annual and Transition Reports
                     Pursuant to Sections 13 or 15(d) of the
                       Securities and Exchange Act of 1934

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2001

                           Commission File No. 0-25184

                               ENOVA SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

         California                                     95-3056150
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

             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: None

           Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. |_|

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the  registrant  as of March 28,  2002 was  $19,053,755.  For
purposes of this calculation only, (i) shares of Series A and Series B Preferred
Stock have been  included in the  calculation,  (ii) shares of Common  Stock and
Series A Preferred  Stock are deemed to have a market  value of $0.17 per share,
and the Series B Preferred  Stock is deemed to have a market  value of $0.34 per
share,  based on the  average  of the high bid and low ask  prices of the Common
Stock on March 8, 2002, and (iii) each of the executive officers,  directors and
persons holding 5% or more of the outstanding  Common Stock (including  Series A
and B Preferred Stock on an as-converted basis) is deemed to be an affiliate.

The  number  of  shares of Common  Stock  outstanding  as of March 28,  2002 was
302,502,000.

<PAGE>

                               ENOVA SYSTEMS, INC.

                          2001 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

                               ENOVA SYSTEMS, INC.

                          2001 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

Item 1.  Business ...........................................................  3
Item 2.  Properties ......................................................... 12
Item 3.  Legal Proceedings .................................................. 13
Item 4.  Submission of Matters to a Vote of Security Holders ................ 13

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related
          Stockholder Matters ............................................... 15
Item 6.  Selected Financial Data ............................................ 16

Item 7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations ......................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ......... 21
Item 8.  Financial Statements and Supplementary Data ........................ 21

Item 9   Changes in Disagreements with Accountants on Accounting and
          Financial Disclosure .............................................. 21

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ................. 22

Item 11. Executive Compensation ............................................. 24

Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 27

Item 13. Certain Relationships and Related Transactions ..................... 29

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ... 30

SIGNATURES .................................................................. 32


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<PAGE>

                                     PART I

     The matters  addressed in this report on Form 10-K,  with the  exception of
the  historical  information  presented,  may  contain  certain  forward-looking
statements  involving risks and  uncertainties.  Our actual results could differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of certain factors,  including those set forth under the heading "Certain
Factors  That May Affect  Future  Results" in the  Management's  Discussion  and
Analysis section and elsewhere in this report.

Item 1. Business

General

     In July 2000,  we changed  our name to Enova  Systems,  Inc.  Our  Company,
previously  known  as U.S.  Electricar,  Inc.,  a  California  corporation  (the
"Company"), was incorporated on July 30, 1976.

     Enova Systems  believes it is a leader in the development and production of
commercial  digital power  management and power conversion  systems.  We are now
producing, under contract with global vehicle and technology companies,  digital
power  processing  and energy  management  enabling  technologies  for electric,
hybrid  electric,  and  fuel  cell  powered  vehicles.  These  power  management
technologies  are now being  applied  to  commercialization  of fuel cell  power
generation for stationary non-automotive  applications.  Our business activities
continue to be focused on the  development of electric and hybrid electric drive
systems  and related  components,  fuel cell power  management  systems for both
mobile and stationary power  applications,  vehicle systems  integration and the
performance of various engineering contracts.

     Our  fiscal  year ends  December  31. All year  references  refer to fiscal
years.

     During 1999, we  concentrated  on creating new business in the mobile power
management  and  conversion  markets  as well as  reducing  operating  costs and
outstanding debt. Our business activities focused on the development of electric
and hybrid  electric  drive trains and related  components,  fuel cell  systems,
vehicle  systems   integration  and  the  performance  of  various   engineering
contracts.  Enova  completed  several key contracts  with the U.S.  Government's
Defense  Advanced  Research  Project  Agency  or  DARPA  and the  Department  of
Transportation  or DOT,  including  the  analysis of a new  plastic  lithium ion
vehicle battery concept,  testing of advanced vehicle  batteries and development
of an airport electric  passenger tram system. We have enhanced our relationship
with  Hyundai  Motor  Company  of  Korea or HMC,  the  world's  seventh  largest
automobile  manufacturer,  with several engineering contracts to design, develop
and test electric and hybrid  electric  drive systems and related  products.  We
completed  development  of an  advanced  charging  unit  and a  parallel  hybrid
production  vehicle,  and  continue to produce the family of  Panther(TM)  drive
systems for their electric vehicles. Our Company has also developed a high power
charger for use with our drive systems.  HMC has adapted a customized version of
the Panther(TM) 60 for their production  electric  vehicle,  the Santa Fe sports
utility vehicle.

     Beginning in 2000, we started working with Ecostar  Electric Drive Systems,
now known as Ballard  Power,  to develop and  manufacture  low voltage  electric
drive system  components for use in Ford's Global Th!nk City. Enova is designing
and  manufacturing  the  electronics  for the drive  system  as well as  certain
auxiliary  components.  The final  prototype  systems are  currently  undergoing
pre-production testing and validation in the Ford Th!nk vehicle. Enova continues
to develop our relationships with Hyundai,  Ballard and other Original Equipment
Manufacturers  or OEMs  and  Tier-One  suppliers  for  sales  of our  automotive
products.  We  continue  to offer our  modular  drive  systems to OEMs and other
customers. These drive systems have been installed in various vehicles operating
in North America, Europe and Asia.

     In 2001, Enova entered into several key additional  supplier agreements and
commenced  new  development  programs  with  automotive  and  transit  OEMs both
domestically and  internationally.  Additionally,  we completed various research
and  development   programs  sponsored  by  the  U.S.   Government  and  private
corporations.


                                       3
<PAGE>

Ford Motor Company Programs

     In July 2001,  we entered  into a  strategic  relationship  with Ford Motor
Company  under which Enova was selected by Ford Motor  Company's  Th!nk brand to
develop and manufacture a high power,  high voltage  conversion module "HEC" for
their upcoming fuel cell vehicle. The HEC module will convert high voltage power
from the fuel cell into a lower voltage.  Enova is currently in the second phase
of this  program  having  successfully  designed and tested the proof of concept
prototype.

     This  strategic  relationship  also grants Ford  warrants to purchase up to
4.6% of our  outstanding  common stock over the life of this  relationship.  The
vesting of these  warrants is dependent  upon Ford meeting  specific  milestones
with regards to new production programs between Ford and Enova. The relationship
will last for five  years  during  which  Ford will  evaluate  Enova for  future
programs.

     Our development  and production  program with Ballard Power for low voltage
electric  drive system  components for use in Ford's Global Th!nk City has moved
into its production phase.  Ford has announced that the all-electric  vehicle is
scheduled  to be  introduced  in 2002 for  markets in North  America and Europe.
Enova is  designing  and  manufacturing  the  electronics  for the drive  system
including  the power  inverter,  charger and  controller.  In  conjunction  with
Hyundai Autonet of Korea, our outsource manufacturer for these components, Enova
is finalizing production planning for initial production systems to be delivered
in mid 2002. Enova anticipates these systems to provide significant  revenues in
the upcoming years.

Hyundai Motor Company Programs

     We  continue to develop  hybrid and fuel cell based  systems  with  Hyundai
Motor  Company  of  Korea,   "HMC",  the  world's  seventh  largest   automobile
manufacturer.  Enova, having successfully  completed our hybrid drive system and
fuel  cell EV  program  will  work  with HMC on  advanced  hybrid  and fuel cell
applications  in 2002.  Furthermore,  we have delivered four series hybrid drive
system for use in  Hyundai's  county bus at World Cup Soccer in Seoul,  Korea in
June 2002.

     HMC continues to contract with Enova for the development of advanced hybrid
and fuel cell powered drive systems.  In regards to passenger  vehicle programs,
we continue in our efforts to develop a commercially  producible parallel hybrid
motor and  controller for HMC's new hybrid vehicle to be introduced in 2004. The
first  prototype for this program will be delivered in the first quarter of 2002
for evaluation.  This program is a result of Enova's ongoing development efforts
with HMC since 1995.

     We  anticipate  additional  contracts for  development  and purchase of our
components during 2002 for HMC's alternative vehicle applications.

Light-Duty Drive Systems

     In addition to the 30kW motor controller, charger and DC-DC converter which
we, in alliance with Hyundai Autonet, are manufacturing for Ballard, our company
is selling Panther 90kW drive systems. Our 90kW controller,  motor and gear unit
provide  outstanding  performance  for  light  duty  vehicles  such  as  midsize
automobiles  and delivery  vehicles.  We have received a purchase order for over
200 Panther 90kW drive  systems for  2002-2003  from an  integrator of specialty
vehicles  in the U.S.  Additionally,  we are  discussing  further  sales of this
system configuration to other domestic and international customers.

Heavy-Duty Drive Systems

     Sales of Panther 120kW drive systems continue to provide increased revenues
for our company.  We have entered into supplier agreements with manufacturers in
Europe and Japan as well as domestically.

     Eco Power Technology "EPT" in Italy purchased 15 Panther 120 electric drive
systems,  which were  delivered  during  the 2001,  as well as three of our Fast
Chargers.  Under the terms of our  supplier  agreement,  EPT has given notice of
their  production  requirements  for 2002,  which range from 25 - 30 Panther 120
systems and additional Fast Chargers.  EPT is one of the largest  integrators of
medium size transit buses for the European electric and hybrid-electric  shuttle
bus market with key customers in Italy. EPT's electric and hybrid-electric buses
are  manufactured  to European  Economic  Community  standards and are therefore
available to all of continental Europe.


                                       4
<PAGE>

     Wrights  Environment,  a  division  of  Wrights  Bus,  one of  the  largest
low-floor bus  manufacturers  in the United  Kingdom,  has integrated our hybrid
electric Panther(TM) 120kW drive system (utilizing the Capstone  Microturbine as
the power  source).  Wrights will begin  customer  demonstrations  in the second
quarter of 2002.  Wrights has purchased  additional  pure electric drive systems
for  their  midsize  buses  for  sale in the  United  Kingdom  and the  European
Continent.  Furthermore,  Wrights has begun discussions to purchase both our new
240kW drive system and our Fast Charger system. We anticipate  additional orders
for both electric and hybrid-electric P120 drive systems during 2002.

     Enova has entered the  Japanese  bus market with two new  customers,  Tomoe
Electro-Mechanical  Engineering  and  Manufacturing,  Inc.  "Tomoe"  and  Moriah
Corporation.  Both of these companies have entered into supplier agreements with
us. We  delivered  our first  Panther  120  system  to Tomoe  and  believe  both
companies will purchase additional systems during the second or third quarter of
2002.

     The development of the Southern California Edison utility vehicle utilizing
Enova's  120kW  drive  system and  Capstone's  30kW  microturbine  continues  on
schedule.  Enova is developing additional power management  accessories for this
vehicle  so it can run power  applications  such as drills and motors for use by
the technicians.  This line service truck is a demonstration vehicle, which will
potentially lead to sales to utility companies throughout the U.S.

     In the high performance heavy-duty drive system area, we have completed the
first prototype of our Panther 204kW drive system.  In conjunction  with Hyundai
Heavy  Industries  and  Ricardo,  Inc, of the United  Kingdom,  a developer  and
manufacturer of advanced transmissions, we have produced a robust, efficient and
powerful  drive system for  heavy-duty  applications  including  transit  buses,
heavy-duty  trucks  and other  applications.  We have been in  discussions  with
Wrights of the United  Kingdom,  Hyundai Motor  Company and a major  alternative
transit  bus  manufacturer  in the U.S.  regarding  the  purchase of these drive
systems in 2002.

Research and Development Programs

     Our  development  and  integration  contracts  with the U. S.  Government's
Department of Transportation, or DOT, and the State of Hawaii continue to create
new opportunities for our drive systems.

     During 2001, Enova, HMC and the State of Hawaii introduced 15 Hyundai Santa
Fe electric vehicles in Honolulu,  Hawaii for test and evaluation prior to their
entry into the U.S.  markets.  The program will utilize  Hawaii's rapid charging
stations, manufactured by AeroVironment.  The contract has two elements, one for
integration  of our Battery  Care Unit (BCU II) to allow the  vehicles to accept
fast  charging and a second  contract for  maintenance  of the vehicles over the
two-year  program.  The participants in the test program include state and local
offices as well as Hickam Air Force base. The vehicles are  performing  well and
initial reactions to their performance and handling is positive.

     Our  contract  with the  U.S.  DOT to  design  and  test a  three-car  tram
utilizing  the  Panther  120kW  drive  system  has been  completed  and has been
delivered to the High Technology  Development  Corporation's  (HTDC) facility in
Honolulu  Hawaii.  This tram,  capable of carrying 100  passengers,  will now be
delivered to the Honolulu International Airport for further test and evaluation.
We intend to market this tram system to international markets for application to
other airports,  national and recreational parks and other high capacity transit
applications.

     We completed  the  integration  of our drive  systems into several State of
Hawaii and DOT vehicles. Enova upgraded eight Chevrolet S-10 trucks owned by the
City of Honolulu to our Panther(TM) 60kW drive system,  including our BCU-II for
fast-charge  capability for Hawaii.  Also, we are converting an Eldorado 30-foot
bus utilizing our  Panther(TM)  120kW drive system for the Hickam Air Force base
in Honolulu.  All of these  programs are funded in  conjunction  with the Hawaii
Electric Vehicle Development Project, the DOT and State of Hawaii.

     We will continue to establish new development programs with the Hawaii HTDC
as well as other  state and  federal  government  agencies  as  funding  becomes
available in our areas of research.


                                       5
<PAGE>

Stationary Power Applications

     Enova's  stationary  power  programs  continue  to  attract  new  potential
partners  and  customers  from  both  fuel  cell   manufacturers  and  petroleum
companies.  It is our belief that  utilizing  our power  management  systems for
stationary applications for fuel cells will open new markets for Enova. Enova is
developing   applications  for  its  products  in  the   telecommunications  and
distributed generation markets as well.

     Enova's  Fuel Cell Care Unit "FCU" is being  delivered  to UTC Fuel Cell, a
division of United Technologies,  for use in their stationary fuel cell systems.
To date, we have delivered  approximately  20 FCUs to UTC Fuel Cell and Hamilton
Sundstrand.  The Hyundai companies have expressed interest in working with Enova
on the  development  of advanced fuel cell  management  technologies  as well as
other domestic energy companies. Enova believes this market will play a key role
in our future and continues to pursue  alliances with leading  manufacturers  in
this space.

     Enova views stationary power  applications of our power management  systems
as an important new strategy for product  development.  In the stationary  power
management  field,  Enova is  developing  applications  for our  products in the
telecommunications  and  distributed  generation  markets.  Enova  believes  our
approach of providing the enabling technology in power management and conversion
to power generation companies is key to early access to these markets. Our joint
marketing and development  efforts with Capstone Turbine,  Avestor of Canada and
UTC Fuel Cell have the potential to assist Enova in  penetrating  these markets.
As discussed earlier,  Enova is now producing and selling an advanced version of
our BCU and FCU for use with fuel cells in both  stationary and mobile  systems,
starting with IFC and ISE Research.

Debt Restructuring

     We completed our balance sheet restructuring  during 2001. Overall, we have
reduced  outstanding  indebtedness and liabilities by approximately  $10,000,000
since we began our restructuring program in 1999. We have also been reducing our
outstanding past due accounts payable and other accrued liabilities. At December
31,  2001,  we had  eliminated  all  of  our  antecedent  accounts  payable  and
non-current accrued liabilities.

Environmental Initiatives and Legislation

     Federal  legislation  was  enacted to promote the use of  alternative  fuel
vehicles,   including  electric  vehicles.  Several  states  have  also  adopted
legislation that sets deadlines for the  introduction of zero emission  vehicles
("ZEV").  The State of California  established a required  percentage of ZEV and
new  hybrid-electric  vehicles  for 2003 at 10% of total  new  vehicle  sales in
California from the six major automobile manufacturers.  The State of California
estimates  that a  combination  of  approximately  100,000  electric  and hybrid
electric  vehicles  will be  required  to meet the  State's  2003  mandate.  The
California Air Resources  Board  recently  confirmed  their  commitment to these
percentages,  adding that  hybrid-electric  vehicles may offset a portion of the
required  percentage.  Additionally,  the federal government  continues to offer
incentives  for the  purchase of  alternative  fuel  vehicles as do many states.
International legislation regarding alternative fuel vehicles has also increased
over the last few years. For instance, beginning in 1998 Italy has required that
a minimum of 10% of all diesel buses now in operation be replaced by alternative
fuel  buses.  Other  countries  also have  begun to  mandate  minimum  levels of
alternative  fuel  transit  vehicles  and  offer  subsidies  or  incentives  for
purchasers of electric and hybrid-electric vehicles. We have taken an aggressive
position in  diversifying  our product base to include  various  hybrid-electric
platforms in our product mix. The U.S.  Department of Energy also modified their
rules  governing how state fleets and utility fleets must comply with the Energy
Policy Act of 1992 on alternative fuel transportation programs.

Strategic Alliances, Partnering And Technology Developments

     Our strategy is to adapt  ourselves  to the  ever-changing  environment  of
alternative   power  markets  for  both  stationary  and  mobile   applications.
Originally  focusing on pure electric drive systems,  we are now positioned as a
global   supplier  of  drive  systems  for   electric,   hybrid  and  fuel  cell
applications.  Enova is now  entering  stationary  power  markets with its power
management  systems and intends to develop  other systems to monitor and control
the  complex  fuel  cell  and  ancillary  device  systems  being  developed  for
distributed generation and mobile applications.

     Enova  continues to seek and establish  alliances with major players in the
automotive,  stationary power and  telecommunication  fields. For instance,  the
Hyundai Group of Korea and Enova are  partnering in the  development of advanced
drive-train  technology and related  systems.  Additionally,  Enova has begun to
partner with Ford and Ballard on


                                       6
<PAGE>

other automotive programs and is looking to further develop these relationships.
We continue our strategy as a "systems integrator" by establishing relationships
to utilize other independently  developed technologies such as those provided by
UTC Fuel Cells and Capstone Turbine.  We have implemented our plans to outsource
manufacturing  of our components to companies such as Hyundai Heavy  Industries,
Ricardo,  Hyundai  Autonet and other Asian  manufacturers.  We believe  that our
competitive  advantage is our ability to  identify,  attract and  integrate  the
latest technology  available to produce state of the art products at competitive
prices.

     Our products are "production-engineered," meaning they are designed so they
can  be  commercially   produced:  all  formats  and  files  are  designed  with
manufacturability  in mind,  from the start.  For the automotive  market,  Enova
designs its products to QS9000  manufacturing and quality standards.  We believe
that our  redundancy  of systems,  robustness  of design,  and rigorous  quality
standards  result in high  performance and reduced risk. For every component and
piece of hardware, there are detailed performance specifications.  Each piece is
tested and evaluated against these  specifications,  which enhances the value of
the systems to OEM customers.

     Enova performs low-volume  production in-house and assembly and out-sources
manufacturing  for mass production.  Outsourcing  enables us to keep our capital
investment to a minimum,  reducing  expenditures for hardware,  installation and
training,  to  avoid  the  problems  of  manufacturing  equipment  obsolescence.
Outsourcing  also enables Enova to search out and work with a number of the best
QS 9000-certified  manufacturers worldwide. We believe our strategy ensures that
our OEM customers have confidence in our products, and receive quality products.

Products

     Enova's focus is digital power  management,  power  conversion,  and system
integration.  Our software,  firmware and hardware  manage and control the power
that drives a vehicle or device.  They  convert  the power into the  appropriate
forms required by the vehicle or device, whether DC to AC, AC to DC or DC to DC,
and they manage the flow of this energy to protect the  battery,  the vehicle or
device,  and the driver or operator.  Enova's  systems work "from drive train to
drive wheel" for both vehicle and stationary applications.

     The latest state-of-the-art technologies such as hybrid vehicles, fuel cell
and micro turbine based  systems,  and stationary  power  generation all require
some type of power management and conversion  mechanism.  Utilizing our enabling
technologies, we supply these essential components. Our drive train systems work
with any kind of  fuel/power  source,  from  electric  to hybrid to fuel cell to
turbine,  and they are essential  components  for any vehicle,  system or device
that uses power.

     Enova is moving to expand its product base into new markets  outside of the
traditional  electric and  hybrid-electric  automotive  fields.  Key areas which
Enova has begun to penetrate include energy management in the telecommunications
industry,  distributed  generation in the utility industry,  and stand-by/backup
power  generation in the  commercial  electronics  industry.  All three of these
markets can be served with our  existing  energy  management  and power  control
products.  Enova has entered into agreements or begun  discussions  with various
alternative  power  generation   manufacturers  such  as  Capstone  Turbine  and
International   Fuel  Cells,  as  well  as  others.   We  believe  our  enabling
technologies  will  prove  beneficial  to  these  types  of  companies  in their
strategies to bring these new power systems to commercialization.

     Enova has embraced fuel cell  technology  and has begun to develop  various
power management and control systems to enable fuel cell manufacturers and their
ancillary industries to achieve greater  efficiencies from their systems.  These
systems are also designed to provide added reliability and safety by monitoring,
adjusting and reporting on operation of the unit.

Panther(TM) Electric and Hybrid-Electric Drive Systems

     Enova's Panther  electric drive system provides all the  functionality  one
would find under the hood of an internal combustion engine powered vehicle.  The
Panther  system  consists  of an  enhanced  electric  motor  and the  electronic
controls  that  regulate the flow of  electricity  to and from the  batteries at
various  voltages and power to propel the vehicle.  In addition to the motor and
controller, the system includes a gear  reduction/differential  unit. The system
is designed to be installed in a "drop in," fully integrated turnkey fashion, or
on a modular, "as-needed" basis for OEMs.


                                       7
<PAGE>

     Enova's  family of  light-duty  drive systems  includes  30kW,  60kW,  90kW
all-electric  drives,  90kW fuel cell powered  series-hybrid  drive,  and a 10kW
parallel-hybrid  drive unit.  Our family of  heavy-duty  electric  drive systems
includes a 120kW  all-electric  drive,  a 120kW turbine or diesel genset powered
series-hybrid drive, and a new 240kW turbine powered series-hybrid drive system.

Electric Drive Motors

     The electric drive unit is  essentially  an electric motor with  additional
features and functionality. The motor is liquid-cooled,  environmentally sealed,
designed to handle  automotive  shock and vibration,  and includes parking pawl,
which  stops  the  vehicle  when  the  driver  parks  the car.  It also  permits
regenerative  braking to provide power recovery,  in which the mechanical energy
of momentum  is  converted  into  electrical  energy as the motor  slows  during
braking or  deceleration.  The optional gear  reduction  unit takes the electric
motor's  high rpm and gears it down to the lower rpm  required by the  vehicle's
conventional drive shaft. As the rpm goes down, the torque of the electric motor
increases.

     The Panther drive systems exclusively utilize induction AC motors for their
high performance, power density, robustness and low cost. The AC drive system is
scaleable and can be customized  for  different  applications.  Due to the large
operating  range  that the  propulsion  systems  offer,  all  parameters  can be
optimized;  the user will not have to  choose  between  acceleration,  torque or
vehicle speed.

Electric Motor Controllers

     The controller houses all the components  necessary to control the powering
of a vehicle, in one easy-to-install package. Our main component is an inverter,
which  converts DC  electricity to AC  electricity.  Enova also offers  optional
controllers for the air conditioning,  power steering and heat pump, 12VDC/24VDC
DC-to-DC  converter  for vehicle  auxiliary  loads such as cell  phones,  radio,
lights, and a 6.6kW AC-to-DC on-board conductive charger which allows for direct
110 VAC or 220 VAC battery  charging.  These are located in the same  housing as
the  controller,  thus  extra  interconnects  are not  required.  This  approach
simplifies the vehicle wiring harness and increases system reliability.

     Using  our  proprietary   Windows(TM)  based  software   package,   vehicle
interfaces  and  control  parameters  can be  programmed  in-vehicle.  Real-time
vehicle performance parameters can be monitored and collected.

Hybrid Drive Systems

     The Enova Panther  hybrid-electric drive systems are based on the component
building  blocks of the electric drive family,  including the motor,  controller
and optional components.  As an example, the 120/30 kW series hybrid system uses
the 120kW  electric  drive  components  to propel the  vehicle,  and uses a 30kW
Capstone micro-turbine to generate power while the vehicle is in operation. This
synergy of design  reduces the  development  cost of Enova's  hybrid  systems by
taking  advantage of existing  designs.  Accessories  for these  drives  include
battery  management,  chargers and 12-volt power supplies for the electric drive
family.

     Enova's  hybrid systems are designed to work with a variety of hybrid power
generation  technologies.  In our 120/60kW hybrid system, an internal combustion
engine connected to a motor and motor controller  performs the power generation.
Other power options include liquid fueled turbines, such as the Capstone system,
fuel cells,  such as the IFC system,  or many others.  In all of these examples,
Enova's battery  management  system  provides the power  management to allow for
proper power control.

     We are pursuing a two-part market  penetration  strategy in the distributed
generation (DG) market.  Initial development is focusing on power management and
power  conditioning  components  to  be  marketed  directly  to  key  DG  System
suppliers.  By moving  aggressively,  we hope to capture early market share as a
key component supplier for these companies.

     The second  part of the  strategy  will be the  development  of complete DG
systems for first the  residential  market,  and then the  commercial/industrial
market in alliance  with a major energy or  consumer/manufacturing  partner.  We
anticipate  marketing  these systems  through  well-known  and  well-established
retail home  improvement  centers and stores.  These companies have the existing
infrastructure necessary to support the sale, installation,  and field servicing
of the units.


                                       8
<PAGE>

Battery Care Unit

     We place a great amount of focus on our power management  systems.  Enova's
Battery Care Unit "BCU" monitors,  manages,  protects,  and reports. It controls
and manages battery performance,  temperature, voltage and current to avoid harm
to the  batteries,  to the  entire  system,  and to  the  driver,  operator  and
passengers.  It also allows for  monitoring for service to the battery and drive
system. This battery management system is capable of providing  communication to
both inductive and conductive chargers  simultaneously and managing the on-board
and off-board  charging systems with multiple  technologies.  The versatility of
this system  allows us to adapt the hardware and software for a variety of power
sources such as batteries, turbines and fuel cells.

     The BCU  monitors the battery  pack  voltage and 28  additional  individual
voltages  with a range  of 0 to  18vDC.  Optional  expansion  modules  allow  28
additional inputs per module, with up to 16 modules permitted. The BCU has eight
user-programmable  outputs  and four  user-programmable  inputs  to  allow  full
integration  into the vehicle.  These can be used to customize  input and output
parameters, and to provide for other custom monitoring and battery pack control.

     The BCU directly  interfaces  with the Panther  family of drive  systems as
well as others,  and  controls  the  Safety  Disconnect  Unit.  It is capable of
supporting  any  battery  technology,  and  provides  each type  with  optimized
charging and protection  algorithms.  An internal real-time clock allows the BCU
to  wake  up at  user-specified  times  to  initiate  battery  charging  or pack
monitoring.  A  precision  shunt  allows  it to offer a wide  dynamic  range for
monitoring  charging and motoring  current,  without errors commonly  associated
with other types of sensors.

     The on-board memory allows the BCU to update,  store and report key battery
pack parameters  such as amp hours,  kilowatt-hours  and state of change.  Using
Enova's  proprietary  Windows(TM)-based  diagnostic  software,  the BCU  control
parameters can be programmed in-vehicle.  Additionally,  battery performance can
be monitored in real-time. Reports can be output to a laptop computer.

Hybrid Control Unit

     We have  reconfigured  our  BCU to  perform  the  critical  role of  hybrid
controller. The Hybrid Control Unit "HCU" continuously monitors the condition of
the  battery  pack  through  communications  with the BCU,  monitors  the driver
commands through communications with the motor controller,  and the state of the
hybrid  generator.  Based upon the data  received,  the HCU provides  continuous
updates to the hybrid generator with instructions on mode of operation and power
level. The purpose of this innovative  control loop is to ensure that the entire
system is optimized to provide quick response to driver commands while providing
the best possible system efficiency.

Safety Disconnect Unit

     The  Safety  Disconnect  Unit "SDU" is under the  control  of the BCU,  and
allows vehicle  systems to seamlessly  connect and  disconnect  from the battery
pack when necessary to prevent damage or harm. It also  disconnects  the battery
pack during charging,  protects it from surges, and constantly verifies that the
battery  pack is  isolated  from  the  vehicle  chassis.  In the  event a ground
isolation  fault is  detected,  the BCU  commands  the SDU to break the  battery
connection. The SDU is available in two configurations to match the requirements
of the drive systems.

Fast Charger

     We have also  developed a 40kW rapid charger for electric  vehicles,  which
reduces  charging time from six to eight hours to 20 to 30 minutes.  The charger
was originally  developed in conjunction with HMC for Hyundai electric vehicles.
The Fast Charger is also ideal for small or shuttle buses,  trams and trucks. We
are currently selling rapid chargers to EPT of Italy.

Fuel Cell Power Conditioning Unit

     Enova has developed and is now  producing a 30kW  bi-directional  Fuel Cell
Power Conditioning  System. This system has been designed to meet the demands of
an automotive  Fuel Cell  propulsion  system.  This unique unit, not much larger
than a conventional briefcase, provides a transparent interface between the Fuel
Cell or Turbine,  the battery pack,  accessory  loads, and the output load. Fast
response time allows the output load to be serviced without  interruption  while
the Fuel Cell or Turbine ramps up.


                                       9
<PAGE>

     This unit is designed to interface  directly with the master  controller of
the vehicle over a CAN bus.  Other  communications  protocols  supported are SAE
J-1850,  RS-232, and RS-485.  This proprietary package allows all key parameters
of the Power Conditioner to be monitored and control boundaries to be adjusted.

50kW ICE Generator Unit

     Enova provides a complete 50kW Internal  Combustion  Engine  Generator Set.
This unit is powered  by a  4-cylinder  direct  injection  diesel  engine and is
controlled  over the common CAN bus shared with the rest of the Panther  product
line.  The same HCU that  controls  the  Capstone  micro-turbine  in other Enova
series hybrid  configurations  provides power command,  start command,  and stop
commands.

Fuel Cell Management Unit

     Enova has added a Fuel Cell Control Unit "FCU" to broaden its market in the
power management  field. The FCU is designed to manage fuel cell powered systems
whether  stationary  or mobile  such as  automobiles.  The FCU can be adapted to
regulate  the  input and  output  to and from the fuel cell as well as  regulate
temperature and  communications.  We continue to develop our current systems for
new products and markets.

     Enova has reconfigured its Battery Management Unit to perform the functions
required to monitor, manage, and report on the status of a Fuel Cell Stack. This
new unit,  the FCU,  is  currently  being used by UTC Fuel Cells as a Fuel Stack
Management System.

     An internal  real-time  clock  allows the FCU to wake up at  user-specified
times to initiate battery charging or pack monitoring.  A precision shunt allows
it to offer a wide dynamic range for monitoring  charging and motoring  current,
without errors  commonly  associated  with other types of sensors.  The built-in
memory  allows the FCU to update,  store and report key battery pack  parameters
such as amp hours, kilowatt-hours and state of change. Using Enova's proprietary
Windows(TM)-based  diagnostic  software,  the  FCU  control  parameters  can  be
programmed  in-system.  Additionally,  fuel cell performance can be monitored in
real-time. Reports can be output to a laptop computer.

Distributed   Power   Generation  for  Industrial  /  Commercial  /  Residential
Applications

     Enova's  distributed  generation products are virtually identical in system
configuration  to that of a series hybrid  vehicle,  including a controller  and
battery  management.  For this market  segment,  we will provide DC-DC and DC-AC
power conversion components to convert power supplied by batteries,  fuel cells,
generators  and  turbines  to AC power  that  will be used by the end  customer.
Additionally,  our BCU will provide  power  management  functions to control the
entire  system.  The main  difference  is that the  3-phase  AC power  typically
supplied  to the  motor for  propulsion  power  is,  in this  case,  sent to the
customer to supply power for their household or business.

Back-Up Power for Telecommunications

     As in the distributed  generation market,  telecommunications  products are
virtually  identical  in  system  configuration  to  a  series  hybrid  vehicle,
including a controller  and battery  management  unit.  For this market  segment
Enova will provide DC-DC and DC-AC power conversion  components to convert power
supplied by  batteries,  fuel cells,  generators,  and turbines to AC power that
will be used by the  communications  link. The BCU will provide power management
functions to control the entire  system.  When the grid goes down,  the AC power
typically  supplied to the motor for propulsion  power is, in this case, sent to
the communications link (or router) to supply backup power.

Competitive Conditions

     The  competition  to  develop  and  market  electric,  hybrid and fuel cell
powered  vehicles has increased during the last year and we expect this trend to
continue.  The  competition  consists of development  stage companies as well as
major  U.S.  and  international  companies.  Our  future  prospects  are  highly
dependent upon the successful  development and introduction of new products that
are  responsive  to market needs and can be  manufactured  and sold at a profit.
There can be no assurance that we will be able to successfully develop or market
any such products.

     The development of hybrid-electric  and alternative fuel vehicles,  such as
compressed natural gas, fuel cells and hybrid cars poses a competitive threat to
our  markets  for low  emission  vehicles  or  LEVs  but  not in  markets  where


                                       10
<PAGE>

government  mandates call for zero emission  vehicles or ZEVs. Enova is involved
in the  development  of hybrid  vehicles  and fuel cell systems in order to meet
future requirements and applications.

     Various  providers of electric  vehicles  have  proposed  products or offer
products  for sale in this  emerging  market.  These  products  encompass a wide
variety of  technologies  aimed at both  consumer and  commercial  markets.  The
critical  role of  technology  in this market is  demonstrated  through  several
product  offerings.  As the industry matures,  key technologies and capabilities
are  expected  to play  critical  competitive  roles.  Our  goal is to  position
ourselves as a long term  competitor  in this  industry by focusing on electric,
hybrid and fuel cell powered  drive  systems and related sub systems,  component
integration, technology application and strategic alliances. The addition of new
strategies to penetrate  stationary power markets with current technologies will
assist in creating a more diversified product mix. We believe that this strategy
will  enhance  our  position as a power  management  and  conversion  components
supplier to both the mobile and stationary power markets.

Research and Development

     Enova believes that timely  development and  introduction of new technology
and products are  essential  to  maintaining  a  competitive  advantage.  We are
currently focusing our development efforts primarily in the following areas:

     *    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 Shuttle and Transit Buses;
     *    Systems Integration of these technologies;
     *    Technical and product  development  under  DARPA/DOT and Hyundai Group
          Contracts
     *    OEM Technical and Product development.

     For the year  ended  December  31,  2001 and 2000,  we spent  $879,000  and
$626,000, respectively, on internal research and development activities. For the
five months ending December 31, 1999 and the fiscal year ended July 31, 1999, we
spent $262,000 and $499,000,  respectively, on internal research and development
activities.  Enova  continually  evaluating  and  updating  the  technology  and
equipment  used in developing  each of its products.  The power  management  and
conversion industry utilizes rapidly changing technology and we will endeavor to
modernize  our current  products as well as continue to develop new leading edge
technologies to maintain our competitive edge in the market.

Intellectual Property

     Enova currently  holds one patent for crash  management  safety,  which was
originally  issued in 1997, and has submitted  applications  for four additional
patents  and  several  trademarks  or  service  marks in the United  States.  We
continually  review and append our  protection of  proprietary  technology.  The
status of patents involves complex legal and factual questions,  and the breadth
of claims  allowed is  uncertain.  Accordingly,  there can be no assurance  that
patent  applications filed by us will result in patents being issued.  Moreover,
there can be no assurance  that third parties will not assert claims  against us
with respect to existing and future  products.  Although we intend to vigorously
protect  our  rights,  there can be no  assurance  that these  measures  will be
successful.  In the event of  litigation  to determine the validity of any third
party claims,  such  litigation  could result in  significant  expense to Enova.
Additionally,  the laws of certain countries in which our products are or may be
developed,  manufactured  or sold may not protect our products and  intellectual
property rights to the same extent as the laws of the United States.


                                       11
<PAGE>

Employees

     As of December 31, 2001, we had 39 employees,  of whom 38 are full-time and
1 part-time. Additionally, we employ six individuals as independent contractors,
engaged  on an hourly  basis,  two of whom are  domiciled  in South  Korea.  The
departmental  breakdown of these individuals includes 3 in administration,  1 in
sales, 30 in engineering and research and development, and 11 in production.

Item 2. Properties

     Enova's  corporate offices are located in Torrance,  California,  in leased
office space of  approximately  20,000  square feet.  This  facility  houses our
various departments,  including  engineering,  operations,  executive,  finance,
planning,  purchasing,  investor  relations  and  human  resources.  This  lease
terminates in February,  2003. The monthly lease expense is $13,500.  Enova also
has a leased  office  in Hawaii  which is  rented  on a month to month  basis at
$1,500 per month.


                                       12
<PAGE>

Item 3. Legal Proceedings

     We may  from  time to time  become  a party to  various  legal  proceedings
arising in the ordinary  course of  business.  However,  we are not  currently a
party to any material legal proceedings.

     We have settled a lawsuit  brought  against us by Fontal  International  in
June 2000, which was filed in the United States District Court, Central District
of California  as previously  disclosed in our March 31, 2000 Form 10Q. The suit
alleged  breach of  contract  with  respect  to  certain  warrants  to  purchase
10,833,332  shares of Enova  System's  common stock.  The  settlement  agreement
requires us to issue 6,000,000 shares of common stock which are to be registered
and freely tradable on, or before, March 31, 2002.

Item 4. Submission of Matters to a Vote of Security Holders.

We held our annual  meeting of  stockholders  on November 13, 2001, at which the
following matters were voted upon:

1.   Our stockholders voted upon and approved a proposal to approve an amendment
     to our Certificate of  Incorporation to effect a reverse stock split of our
     Common  Stock in a ratio of  one-for-twenty,  at any  time  until  the next
     Annual Meeting of Shareholders. The results of the voting were as follows:

               Number of Shares voted FOR:                   185,534,693
               Number of Shares voted AGAINST:                 3,007,569
               Number of Shares ABSTAINING:                      159,877
               Number of Broker NON-VOTES:                         8,800

2.   Our stockholders voted upon and approved a proposal to approve an amendment
     to our Certificate of  Incorporation to effect a reverse stock split of our
     Common  Stock in a ratio of  one-for-fifteen,  at any time  until  the next
     Annual Meeting of Shareholders. The results of the voting were as follows:

               Number of Shares voted FOR:                   186,525,681
               Number of Shares voted AGAINST:                 1,996,821
               Number of Shares ABSTAINING:                      167,841
               Number of Broker NON-VOTES:                        34,500

3.   Our stockholders voted upon and approved a proposal to approve an amendment
     to our Certificate of  Incorporation to effect a reverse stock split of our
     Common Stock in a ratio of  one-for-ten,  at any time until the next Annual
     Meeting of Shareholders. The results of the voting were as follows:

               Number of Shares voted FOR:                   186,765,090
               Number of Shares voted AGAINST:                 1,774,383
               Number of Shares ABSTAINING:                      162,666
               Number of Broker NON-VOTES:                         8,800

4.   Our stockholders voted upon and approved a proposal to approve an amendment
     to our Certificate of  Incorporation to effect a reverse stock split of our
     Common Stock in a ratio of one-for-five,  at any time until the next Annual
     Meeting of Shareholders. The results of the voting were as follows:

               Number of Shares voted FOR:                   186,912,531
               Number of Shares voted AGAINST:                 1,614,567
               Number of Shares ABSTAINING:                      172,541
               Number of Broker NON-VOTES:                        11,300


                                       13
<PAGE>

5.   Our stockholders  voted upon and elected seven (7) individuals to the Board
     of  Directors.  The  following  Directors  will serve until the next Annual
     Meeting of  Shareholders or until their  respective  successors are elected
     and qualified:

          Re-elected Directors:                       FOR             WITHHELD
          ---------------------                       ---             --------

          Anthony Rawlinson                      162,855,773      25,215,931(a)
          Carl D. Perry                          187,858,332         207,131
          Edwin Riddell                          187,858,332         212,231
          Dr. Malcolm Currie                     187,858,332         202,031
          James Strock                           187,845,905         214,191
          John J. Micek, III (Preferred B)           639,135               0
          Donald Dreyer (Preferred B)                639,135               0

6.   Our stockholders voted upon and approved a proposal to ratify the action of
     the  Board  of  Directors  appointing  Moss  Adams  LLP as the  independent
     auditors for Enova for the year ended December 31, 2001. The results of the
     voting were as follows:

               Number of Shares voted FOR:                   188,261,507
               Number of Shares voted AGAINST:                   210,584
               Number of Shares ABSTAINING:                      232,548
               Number of Broker NON-VOTES:                         6,300

(a) - 25,208,873 shares held by Anthony Rawlinson and ineligible for voting.


                                       14
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters

     Our Common Stock is  presently  traded in the  over-the-counter  market and
quoted on the National Association of Securities Dealers (NASD) "Bulletin Board"
under the symbol  "ENVA."  The  following  table sets forth the high and low bid
prices  of the  Common  Stock  as  reported  on the NASD  Bulletin  Board by the
National  Quote  Bureau  for  the  fiscal  quarters  indicated.   The  following
over-the-counter  market quotations reflect inter-dealer prices,  without retail
mark-up,  markdown  or  commission,  and may not  necessarily  represent  actual
transactions.

                                            Common Stock           Average Daily
                                       High Price     Low Price       Volume
                                       ----------     ---------       ------

Calendar 1999
First Quarter ....................        $0.03         $0.03          62,842
Second Quarter ...................        $0.13         $0.03         338,623
Third Quarter ....................        $0.13         $0.08         263,886
Fourth Quarter ...................        $0.81         $0.12         814,770

Calendar 2000
First Quarter ....................        $0.77         $0.31       1,337,885
Second Quarter ...................        $0.47         $0.23         476,538
Third Quarter ....................        $0.44         $0.20         476,523
Fourth Quarter ...................        $0.42         $0.16         332,731

Calendar 2001
First Quarter ....................        $0.31         $0.17         237,760
Second Quarter ...................        $0.31         $0.15         245,504
Third Quarter ....................        $0.26         $0.13         116,110
Fourth Quarter ...................        $0.31         $0.13         197,554

     On March 8, 2002,  the last reported high bid price of the Common Stock was
$0.17 and the last  reported  low asking  price was $0.15.  As of March 8, 2002,
there were  approximately  9,842  holders of record of our Common  Stock.  As of
March 8, 2002, approximately 113 shareholders, many of who are also Common Stock
shareholders,  held our Series A Preferred Stock.  Approximately 34 shareholders
as of March 8, 2002 held our Series B Preferred  Stock. The number of holders of
record excludes beneficial holders whose shares are held in the name of nominees
or trustees.

Dividend Policy

     To date, we have neither  declared nor paid any cash dividends on shares of
our Common Stock or Series A or B Preferred Stock. We presently intend to retain
all  future  earnings  for our  business  and does not  anticipate  paying  cash
dividends  on  our  Common  Stock  or  Series  A or B  Preferred  Stock  in  the
foreseeable  future.  We are  required  to pay  dividends  on our Series A and B
Preferred  Stock before  dividends may be paid on any shares of Common Stock. At
December 31, 2001, Enova had an accumulated deficit of approximately $90,293,000
and, until this deficit is eliminated,  will be prohibited from paying dividends
on any class of stock except out of net profits,  unless it meets  certain asset
and other tests under Section 500 et. seq. of the California Corporations Code.


                                       15
<PAGE>

Item 6. Selected Financial Data

     The following  selected  financial data tables set forth selected financial
data for the year ended  December 31, 2001 and 2000, the five month period ended
December 31, 1999 and the fiscal years ended July 31, 1999,  1998 and 1997.  The
five-month  period  is  related  to a change  in the  fiscal  year end which was
effective December 31, 1999. The statement of income data and balance sheet data
for and as of the end of the year ended  December  31,  2001 and 2000,  the five
month period ended December 31, 1999 and the three years ended July 31, 1999 are
derived from the audited Financial  Statements of Enova. The following  selected
financial data should be read in conjunction with  "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations"  and the Financial
Statements, including the notes thereto, appearing elsewhere in this 10K.

<TABLE>
<CAPTION>
As of and for the year ended December 31, (in thousands,                         Five Months     Fiscal Years ending
except per share data)                                                           ended Dec 31    July 31,
                                                            2001         2000         1999         1999         1998        1997
                                                            ----         ----         ----         ----         ----        ----
<S>                                                      <C>          <C>          <C>          <C>          <C>          <C>
NET SALES                                                $   3,780    $   2,883    $     629    $   2,774    $   1,938    $   4,484
COST OF SALES                                                2,783        2,013          377        1,460        2,765        2,042
                                                         --------------------------------------------------------------------------
GROSS MARGIN                                                   997          870          252        1,314         (827)       2,442
                                                         --------------------------------------------------------------------------
OTHER COSTS AND EXPENSES
        Research and Development                               879          626          262          499          445        1,218
        Selling, general and administrative                  2,894        1,999          796        1,141        1,697        3,116
        Interest and financing fees                            113          174          724          724          665          792
        Other expense (income)                                  (7)           6                       (41)         (67)         274
        Acquisition of research and
        development                                                                                                           1,630
        Gain on Warranty Reevaluations                                                               (474)
        Legal Settlements                                      900          755          125
                                                         --------------------------------------------------------------------------
        Total other costs and expenses                       4,779        2,880        1,427        1,849        2,740        7,030
                                                         --------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS                             (3,782)      (2,010)      (1,175)        (535)      (3,567)      (4,588)
GAIN ON DEBT RESTRUCTURING                                     354        1,551          214          140           42           53
                                                         --------------------------------------------------------------------------

NET LOSS                                                 $  (3,428)   $    (459)   $    (961)   $    (395)   $  (3,525)   $  (4,535)
                                                         ==========================================================================

PER COMMON SHARE:

        Loss from continuing operations                  $   (0.01)   $   (0.01)   $   (0.01)   $   (0.01)   $   (0.02)   $   (0.03)

        Gain on debt restructuring                                         0.01
                                                         --------------------------------------------------------------------------

        Net loss per common share                        $   (0.01)   $    0.00    $   (0.01)   $   (0.01)   $   (0.02)   $   (0.03)
                                                         ==========================================================================

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                         275,189      235,199      251,994      152,077      151,265      133,806
                                                         ==========================================================================

        Total Assets                                     $   4,340    $   3,094    $   2,697    $   3,940    $   1,658    $   4,513
                                                         ==========================================================================

        Long-term debt                                   $   3,332    $   3,332    $   3,332    $   3,332    $   3,332    $   3,639
                                                         ==========================================================================

        Shareholders' equity (deficit)                   $    (232)   $  (1,648)   $  (5,015)   $   7,316)   $ (12,615)   $  (9,095)
                                                         ==========================================================================
</TABLE>


                                       16
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     You should read this  Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations  in  conjunction  with our 2001  Financial
Statements  and  Notes  thereto.  The  matters  addressed  in this  Management's
Discussion and Analysis of Financial  Condition and Results of Operations,  with
the  exception  of  the  historical   information   presented  contains  certain
forward-looking statements involving risks and uncertainties. Our actual results
could  differ  materially  from  those  anticipated  in  these   forward-looking
statements as a result of certain  factors,  including those set forth under the
heading  "Certain  Factors That May Affect Future Results" and elsewhere in this
report.

OVERVIEW

     Enova  Systems  develops  and  produces  advanced  software,  firmware  and
hardware for applications in the growing  alternative power industry.  Our focus
is digital power conversion,  power management, and system integration,  for two
broad market  applications  - vehicle  power  generation  and  stationary  power
generation.

     Enova's  products  and  systems  are the  enabling  technologies  for power
systems.  Without  them,  power cannot be converted  into the  appropriate  form
required  by the  vehicle or device;  and without  them,  power is not  properly
managed to protect the battery, vehicle or device, and user.

     Specifically,  we  develop,  design and produce  drive  systems and related
components  for electric,  hybrid-electric,  fuel cell and  microturbine-powered
vehicles.  We also  develop,  design  and  produce  power  management  and power
conversion components for stationary power generation - both on-site distributed
power  and  on-site   telecommunications   back-up  power  applications.   These
stationary  applications  also  employ fuel cells,  microturbines  and  advanced
batteries  for  power  storage  and  generation.  Additionally,  Enova  performs
significant  research  and  development  to augment and support  others' and our
internal related product development efforts.

     Our  product  development  strategy  is to design and  introduce  to market
successively   advanced   products,   each  based  on  Enova's  core   technical
competencies.  In each of our product / market segments, Enova provides products
and  services to leverage our core  competencies  in digital  power  management,
power  conversion  and  system  integration.  We  believe  that  the  underlying
technical  requirements  shared among the market  segments will allow us to more
quickly  transition  from one  emerging  market  to the  next,  with the goal of
capturing early market share.

     The financial  statements present the financial condition of Enova Systems,
Inc. as of December 31, 2001 and 2000,  the results of operations and cash flows
for the year ended  December  31, 2001 and 2000 and the five month  period ended
December  31, 1999 as well as the three  preceding  fiscal  years ended July 31,
1999,  1998 and 1997.  All  references to the 1999 fiscal year denote the twelve
months ended July 31, 1999.

     During  2001,  we  expanded  our sales and  development  efforts to capture
additional global market share for our product line and our technical expertise.
Enova expanded into European and Asian markets with our heavy duty drive systems
and  continued  to  progress on our  development  programs  with Ford,  Ballard,
Hyundai  and  the  U.S.   Department  of   Transportation.   Our  balance  sheet
strengthened,  we are now focusing on building our product line,  increasing our
market share and developing the next generation of advanced power management and
conversion systems.

     Our  operations  during the year ended  December 31, 2001 were  financed by
development  contracts  and  product  sales,  as  well as an  additional  equity
infusion of an aggregate of $3,000,000 from Jagen Pty, Ltd and Anthony Rawlinson
for the purchase of 50,000,000 shares of common stock, as previously reported.

     We have completed the  restructuring of our prior  liabilities and debt. It
is our  intention  to  continue to seek  additional  financing  through  private
placements  and other  means to  increase  research  and  development  spending,
procure  inventory and seek additional  alliances to market our products.  As of
March 22, 2002, we had no firm commitments for additional financing.


                                       17
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Enova has experienced cash flow shortages due to operating losses primarily
attributable to research, development, marketing and other costs associated with
our  strategic  plan to become an  international  manufacturer  and  supplier of
electric  propulsion  and  power  management  systems  and  components.  Due  to
increased research and development spending, cash flows from operations have not
been  sufficient.  We therefore  have to raise funds through  private  financial
transactions.  At least  until we reach  breakeven  volume in sales and  develop
and/or acquire the capability to manufacture  and sell our products  profitably,
we will need to continue to rely on cash from external financing.  We anticipate
that we will require  additional  outside financing for at least the next twelve
months.

     Enova is seeking new  investment  capital to fund research and  development
and  create  new  market  opportunities.  In  order to fuel  our  growth  in the
stationary  power  market,  we will need  additional  capital to  further  these
development programs and augment our intellectual properties. In May 2001, Jagen
Pty, Ltd  exercised  warrants to purchase  41,666,666  shares of common stock at
$0.06 per share for a total of $2,500,000.  In July 2001, Anthony Rawlinson, our
chairman,  exercised  warrants to purchase  8,333,334  shares of common stock at
$0.06 per share for a total of  $500,000.  Jagen and Mr.  Rawlinson  represented
that they were accredited  investors.  We relied on Rule 506 of Regulation D and
Section 4(2) of the Securities  Act of 1933, as amended,  for the exemption from
registration of the sale of such shares.

     In June 2001, we issued  warrants to purchase  15,000,000  shares of common
stock of Enova  Systems to Ford Motor  Company with  respect to a  participation
program.  We  relied  on  Rule  506 of  Regulation  D and  Section  4(2)  of the
Securities Act of 1933, as amended,  for the exemption from  registration of the
sale of such shares.

     In early  2001,  we retained  Merrill  Lynch as our  investment  advisor to
pursue equity financing options and other strategic alternatives.  Enova intends
to vigorously  pursue obtaining  additional  equity capital in order to fund new
product  development  and  enhance  our NASDAQ  listing to the  National  NASDAQ
Market, although there is no assurance that such equity capital will be obtained
or that such listing will occur.

     During the year ended December 31, 2001, our operations required $3,023,000
more in cash then were  generated.  Enova  continues  to increase  research  and
development spending,  as well as increased sales,  marketing and administrative
expenses  necessary for expansion to meet customer demand.  Accounts  receivable
increased by $233,000 from  $1,004,000,  or 23% from the balance at December 31,
2000, as we continued to expand our customer base and increased sales. Inventory
increased by $520,000 from $406,000 or 128% from December 31, 2000 balances.  As
we continue to enter into additional production contracts with companies such as
EPT,  Ford,  Ballard  and other,  we will  continue  to require  additional  raw
materials and finished goods to meet demand.

     Fixed assets increased by $219,000 or 28% before  depreciation for the year
ended  December 31, 2001 from the prior year balance of $784,220 as we increased
both the number of engineers and the  complexity  of our programs.  Increases in
test equipment,  production  machinery and both technical  hardware and software
attributed to the increase.

     Other  assets  increased  by  $668,000  during  2001 from  $68,000  in 2000
primarily  due to the  booking  of an  asset  in  relation  to  the  Ford  Value
Participation Agreement. We determined,  utilizing the Black Scholes method, the
value of the  initial  tranche of the  vested  warrants  under  this  program is
$577,000. As additional warrants become vested in the coming years, they will be
valued under the same methodology and booked as an expense and into stockholders
equity. Additionally,  increase were due to intellectual property expenses being
applied as they relate to several new patents on Enova technology.

     As of December 31, 2001,  we eliminated  our  antecedent  accounts  payable
which has a balance of $210,000 as of December 31, 2000.

     The future  unavailability  or inadequacy of financing to meet future needs
could  force us to delay,  modify,  suspend or cease some or all  aspects of our
planned operations.

RESULTS OF OPERATIONS

     Net sales of  $3,780,000  for the twelve  months  ended  December  31, 2001
increased  $897,000 or 31% from  $2,883,000  during the same period in 2000. Our
further expansion into production  programs of our Panther 120kw systems as well
as new contracts  with Ford and the DOT accounted for the increase in sales.  We
changed our fiscal year end from July 31 to December 31  effective  December 31,
1999. All  comparisons of  year-to-year  financial data for 2000 to 1999 are for
the twelve  months ended  December 31, 2000 and the twelve months ended July 31,
1999.  Net sales of  $2,883,000  for the twelve  months ended  December 31, 2000
increased $109,000 or 4% from $2,774,000 during the same period in 1999.


                                       18
<PAGE>

     Cost of sales of $2,783,000 for the year ended December 31, 2001 reflect an
increase of $770,000,  or 38%, from  $2,013,000  for the year ended December 31,
2000.  Cost of sales as a percentage of sales remained at  approximately  70% in
2001 which is  consistent  with 2000.  As our sales mix changes  from  primarily
development  contract  revenues to more  product  sales,  we believe  this gross
margin will remain the same or improve on a year-to-year basis. Cost of sales of
$2,013,000 for the year ended December 31, 2000 increased $553,000, or 37%, from
$1,460,000  during the same period ending July 31, 1999.  During the fiscal year
ended July 31, 1999, we sold a technology  license to Hyundai  Heavy  Industries
which did not have  associated  costs of sales  which  accounted  for the lesser
amount in 1999.

     Product  development  costs  incurred  in the  performance  of  engineering
development  contracts for the U.S. Government and private companies are charged
to cost of sales for this contract  revenue.  Non-funded  development  costs are
reported as research and development  expense.  Research and development expense
increased  in 2001 to $879,000  from  $626,000  for the same period in 2000,  an
increase of $253,000, or 40%. Research and development expense increased in 2000
to $626,000  from  $499,000 in fiscal  1999,  an increase of $127,000 or 25%. As
part of our  long-term  strategic  plan,  we will  continue to expend  funds for
research and development for new  technologies to enhance  existing  products as
well as  develop  new  products  in the areas of  mobile  and  stationary  power
management  and  conversion.  Examples of these  internally  funded  development
programs  include  the 240kW  drive  system and our  advanced  power  management
systems for fuel cells and turbines.

     Selling,  general and  administrative  expense  increased in the year ended
December 31, 2001 to $2,894,000  from $1,999,000 for the similar period in 2000.
Increased  legal and  accounting  fees for the  Fontal  matter of  approximately
$400,000, as well as increased regulatory requirements, account for the majority
of the rise in expense.  We do not anticipate this level of professional fees to
continue.  Additionally,  we continue to increase  sales,  marketing  and travel
expenses in relation to acquiring new business, creating alliances and servicing
current  customers,  which has  resulted in  additional  sales for 2001 and will
facilitate in increasing  sales for 2002.  During 2001 and 2000, we continued to
add employees to accommodate our increased sales and customer services.

     For the year ended December 31, 2001, interest and financing fees decreased
by  $61,000  to  $113,000,   a  decrease  of  35%.  The  reduction  was  due  to
restructuring  of our long-term debt by  forgiveness or conversion  into equity.
For the year ended  December 31, 2000,  interest and financing fees decreased by
$550,000 to $174,000,  a decrease of 76%. In 2000,  interest and financing  fees
decreased  to  $174,000  from  $724,000 in 1999,  a decrease of 76%,  due to the
forgiveness of $4,300,000 of debt,  formerly the Itochu debt, and the conversion
of $1,000,000 of Fontal debt.

     In 2001, we completed our  restructuring of the remainder of our antecedent
payables,  reducing those accounts to zero from $210,000 in 2000, which resulted
in  contributing  to an  extraordinary  gain  of  $354,000  for  the  year.  Our
liabilities  and long-term debt are now current.  During the year ended December
31, 2000,  several unsecured  creditors agreed to settle their trade debt claims
for amounts less than the original debt owed to them. Additionally,  other trade
debt,  which  has had no  activity  for  over  four  years  and  has now  become
uncollectible  pursuant to state statute of  limitations,  was  recaptured.  The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt  restructuring  of $1,551,000  during the year ended December 31,
2000.  Additional  settlements  resulted  in a gain  on  debt  restructuring  of
$140,000 in fiscal 1999.

     As noted in Item 3 above,  we settled a lawsuit  brought  against  Enova by
Fontal  International.  The settlement  requires us to issue  6,000,000 share of
common stock at a cost of $900,000,  non-cash, exclusive of our legal fees. This
expense is recorded as legal  settlements for 2001.  Legal  settlements for 2000
and 1999 were $75,000 and $125,000 respectively and related to matters involving
claims made in 1996 and 1998 respectively.

     During 2001, we incurred  several  non-recurring  professional  expenses of
$400,000  and the legal  settlement  of  $900,000  with  respect  to the  Fontal
International  lawsuit  for an increase in  operating  expense of  approximately
$1,300,000.  Without  these  charges,  our net  loss  from  operations  would be
$2,382,000,  an  increase  of  $372,000  or 18% from our  $2,010,000  loss  from
operations  for the  same  period  in 2000.  We do not  believe  these  types of
expenses  will occur in 2002.  The  increase  in net loss is  attributable  to a
number  of  factors  as  discussed  previously  in this Form 10K  including  the
increased  legal and accounting  fees, the legal  settlement with respect to the
Fontal  matter,  increased  research  and  development  expenses  and  increased
marketing and administrative expenses relating to further establishing ourselves
as a key player in the mobile power  conversion  and  management  markets and to
develop new systems for the  stationary  markets.  We shall continue to increase
engineering,  production, and support personnel as we deem necessary to meet our
current and  prospective  customer  needs.  The loss from operations for 2000 of
$2,010,000 increased


                                       19
<PAGE>

$1,001,000 or 99% from the  $1,009,000  loss in fiscal 1999,  which excludes the
recapture of approximately $474,000 of prior warranty reserves.

Recent Accounting Pronouncements

The  Financial  Accounting  Standards  Board has recently  issued the  following
Financial Accounting Standards (FAS):

FAS No. 140, " Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments of Liabilities", provides accounting and reporting standards for
transfers and servicing of financial assets and  extinguishments of liabilities.
This Statement replaces FAS No. 125,  "Accounting for Transfers and Servicing of
Financial Assets and  Extinguishments of Liabilities".  It revises the standards
for accounting for  securitizations  and other transfers of financial assets and
collateral  and requires  certain  disclosures.  This statement is effective for
transfers and servicing of financial assets and  extinguishments  of liabilities
occurring after March 31, 2001.

FAS  No.  141,  "Business  Combinations",  addresses  financial  accounting  and
reporting for business  combinations and supersedes  Accounting Principles Board
Opinion No. 16. This Statement requires that all business combinations are to be
accounted for using the purchase  method of  accounting.  The provisions of this
Statement apply to all business combinations initiated after June 30, 2001.

FAS No.  142,  "Goodwill  and  Other  Intangible  Assets",  addresses  financial
accounting and reporting for acquired  goodwill and other intangible  assets. It
addresses how intangible  assets that are acquired  individually or with a group
of other  assets (but not those  acquired in a business  combination)  should be
accounted for in financial  statements  upon their  acquisition.  This Statement
also addresses how goodwill and other intangible  assets should be accounted for
after they have been initially recognized in the financial statements.

FAS No. 143, " Accounting for Asset Retirement Obligations", addresses financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated  asset  retirement  costs.  This
Statement  is  effective  for  financial  statements  issued  for  fiscal  years
beginning after June 15, 2002.

FAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived  Assets",
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived assets.  This statement is effective for financial  statements issued
for fiscal years beginning after December 15, 2001.

Implementation of the above financial accounting  pronouncements is not expected
to have a material effect on our financial position or results of operations.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     This Form 10-K contains forward looking statements  concerning our existing
and future products,  markets, expenses,  revenues,  liquidity,  performance and
cash needs as well as our plans and strategies. These forward-looking statements
involve  risks  and  uncertainties   and  are  based  on  current   management's
expectations and we are not obligated to update this  information.  Many factors
could cause actual results and events to differ  significantly  from the results
anticipated by us and described in these forward looking  statements  including,
but not limited to, the following risk factors.

Net Operating Losses.  We have experienced  recurring losses from operations and
had an  accumulated  deficit of  $90,293,000  at December 31, 2001.  There is no
assurance, however, that any net operating losses will be available to us in the
future as an offset against future profits for income tax purposes.

Continued  Losses.  For the year ended  December  31, 2001 and 2000,  we had net
losses of  $3,428,000  and  $459,000  respectively  on sales of  $3,780,000  and
$2,883,000, respectively.

Nature of Industry.  The mobile and stationary power markets including  electric
vehicle  ("EV")  and  Hybrid  EVs  ("HEV")  continues  to be  subject  to  rapid
technological  change.  There are many large and small companies,  both domestic
and  foreign,  now in this  industry.  Most of the major  domestic  and  foreign
automobile manufacturers: (1) have produced electric and hybrid vehicles, and/or
(2) have developed  improved electric  storage,  propulsion and control systems,
and/or  (3)  are  now  entering  or  have  entered  into   production.   Various
non-automotive   companies  are  also  developing   improved  electric  storage,
propulsion  and  control  systems.  Growth of the  present  limited  demand  for


                                       20
<PAGE>

electric,  hybrid-electric  and fuel cell powered  vehicles  depends  upon:  (a)
future  regulation  and  legislation  requiring  more  use of  non-polluting  or
low-emission vehicles, (b) the environmental consciousness of customers, and (c)
the ability of electric and  hybrid-electric  vehicles to  successfully  compete
with vehicles powered with internal combustion engines on price and performance.
Furthermore,  the stationary  power market is still in its infancy.  A number of
established  energy  companies are developing new  technologies to capture early
market share in this promising field. Cost-effective methods to reduce price per
kilowatt must be established before this market becomes viable.

Changed  Legislative  Climate.  Because vehicles powered by internal  combustion
engines cause pollution,  there has been  significant  public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain  states,  to promote or mandate the use of vehicles with no
tailpipe  emissions  ("zero emission  vehicles") or reduced  tailpipe  emissions
("low  emission  vehicles").  Legislation  requiring  or  promoting  zero or low
emission  vehicles is  necessary  to create a  significant  market for  electric
vehicles.  The California Air Resources Board (CARB) has recently  confirmed its
mandatory  limits for zero emission and low emission  vehicles.  There can be no
assurance,  however,  that further  legislation  will be enacted or that current
legislation  or  state  mandates  will not be  repealed  or  amended,  or that a
different  form of zero  emission or low emission  vehicle will not be invented,
developed and produced,  and achieve  greater  market  acceptance  than electric
vehicles.  Extensions,  modifications or reductions of current federal and state
legislation,  mandates and potential tax incentives  could adversely  affect our
business prospects if implemented.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

None.

Item 8. Financial Statements and Supplementary Data

The response to this Item is submitted as a separate  section of this Form 10-K.
See Item 14.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

None.


                                       21
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The  following  table sets forth  certain  information  with respect to the
Directors and executive officers of Enova as of December 31, 2001:

================================================================================
Name                            Age     Position
--------------------------------------------------------------------------------
Anthony N. Rawlinson            47      Chairman of the Board
--------------------------------------------------------------------------------
Carl D. Perry                   68      Chief Executive Officer, President, CFO,
                                        Secretary and Director
--------------------------------------------------------------------------------
Edwin O. Riddell (1)            59      Director
--------------------------------------------------------------------------------
Dr. Malcolm Currie (1)          72      Director
--------------------------------------------------------------------------------
John J. Micek, III (2)          49      Director
--------------------------------------------------------------------------------
Donald H. Dreyer (2)            64      Director
--------------------------------------------------------------------------------
James M. Strock                 46      Director
================================================================================

(1)  Member of the Compensation Committee.
(2)  Member of the Audit Committee.

Anthony N. Rawlinson, Chairman of the Board

Mr. Rawlinson was appointed  Chairman of the Board in July, 1999. He is Managing
Director of The Global  Value  Investment  Portfolio  Management  Pte.  Ltd.,  a
Singapore-based  international  fund management  company managing  discretionary
equity  portfolios for  institutions,  pension funds and clients  globally.  Mr.
Rawlinson  is also  Chairman  of Matrix Oil NL.,  an  Australian  listed  public
company with Indonesian oil and gas interests,

Carl D. Perry, Director, Chief Executive Officer, President

Mr. Perry was elected Chairman, Chief Executive Officer, Chief Financial Officer
and Secretary of Enova in November  1997.  Mr. Perry served as a Director and as
an Executive  Vice  President of Enova from 1993 until 1997. In 1997,  Mr. Perry
was elected as Chairman of the Board and Chief Executive  Officer of Enova,  and
was elected  President in June,  1999.  In July,  1999,  Mr. Perry  resigned his
position  as  Chairman  of the Board to allow Mr.  Anthony  Rawlinson  to become
Chairman.  Previously,  he was  Executive  Vice  President of Canadair Ltd. (now
Bombadier), Canada's largest aerospace corporation responsible for all worldwide
joint ventures,  strategic planning and global operations. He was also Executive
Vice  President  of  Howard  Hughes  Helicopter  Company,  now  known as  Boeing
Helicopter  Company,  where he was  responsible  for all general  management and
worldwide  operations.  Mr.  Perry  has a B.S.  in  Political  Science  from the
University of California at Los Angeles.

Malcolm R. Currie, Ph.D., Director

Dr.  Currie was  re-elected  to the Board of Directors in 1999.  Dr.  Currie had
served as a Director of Enova from 1995 through 1997.  Since 1994, he has served
as Chairman of Currie  Technologies.,  a developer of electric  transportation .
From 1986 until 1992, Dr. Currie served as Chairman and Chief Executive  Officer
of Hughes  Aircraft  Co., and from 1985 until 1988,  he was the Chief  Executive
Officer of Delco  Electronics.  His career in  electronics  and  management  has
included  research with many patents and papers in microwave and millimeter wave
electronics, laser, space systems, and related fields. He has led major programs
in radar, commercial satellites, communication systems, and defense electronics.
He served as Undersecretary of Defense for Research and Engineering, the Defense
Science  Board,  and  currently  serves  on the  Boards of  Directors  of Inamed
Corporation , Investment  Company of America,  and LSI Logic. He is President of
the American Institute of Aeronautics and Astronautics,  and is a Member (former
Chairman) of the Board of Trustees of the University of Southern California.

John J. Micek III, Director

Mr.  Micek was elected a Director of Enova in 1999.  Mr. Micek served as Enova's
Vice President,  General Counsel,  and Secretary from 1994 to 1997. From 1997 to
1999, Mr. Micek served as Chief Operations  Officer of Protozoa,  Inc., and


                                       22
<PAGE>

from 1997 to the present, he has been President of Universal Assurors, Inc., and
Managing  Director of Silicon  Prairie  Partners,  a Venture Fund.  From 1987 to
1994, Mr. Micek held several positions with Armanino Foods of Distinction, Inc.,
including General Counsel and Chief Financial  Officer,  from 1987 to 1988, Vice
President  from 1989 to 1994,  and  Director  from 1988 to 1989.  Mr. Micek also
served as the President and Director of Catalina Capitol,  Inc. until its merger
into  Burst.com,  Inc. in 1992.  Mr.  Micek  continues to serve as a Director of
Burst. Mr. Micek is also a member of the State Bar of California.

Edwin O. Riddell, Director

Mr. Riddell has been a Director of Enova since 1995. Since 1999, Mr. Riddell has
been  President of CR  Transportation  Services,  a  consultant  to the electric
vehicle industry. From 1992 to 1999, Mr. Riddell was Product Line Manager of the
Transportation Business Unit at the Electric Power Research Institute,  and from
1985  until  1992,  he  served  with  the  Transportation  Group,  Inc.  as Vice
President,  Engineering, working on electric public transportation systems. From
1979 to 1985, he was Vice President,  General  Manager and COO of Lift-U,  Inc.,
the  leading  manufacturer  of  handicapped  wheelchair  lifts  for the  transit
industry. Mr. Riddell has also worked with Ford, Chrysler, and General Motors in
the area of auto design,  and has worked as a member of senior  management for a
number of public transit vehicle manufacturers. Mr. Riddell has been a member of
the  American  Public  Transportation   Association's  (APTA)  Member  Board  of
Governors for over 15 years,  and has served on APTA's Board of  Directors.  Mr.
Riddell was also Managing Partner of the U.S. Advanced Battery Consortium.

Donald H. Dreyer, Director

Mr. Dreyer was elected a Director of Enova in 1997.  Mr. Dreyer is President and
CEO of Dreyer & Company, Inc., a consultancy in credit,  accounts receivable and
insolvency  services  which was  established  in 1990.  Mr. Dreyer has served as
Chairman of the Board of Credit Managers  Association of California  during 1994
and 1995,  and continues to serve as a member of the Advisory  Committee of that
organization.  Mr. Dreyer is currently the co-Chair of the Creditors Committees'
Subcommittee of the American Bankruptcy Institute and is a member of the Western
Advisory Committee of Dun & Bradstreet, Inc. He is also a member of the Board of
the National Association of Credit Management.

James M. Strock, Director

Mr. Strock was elected a Director of Enova in June,  2000. From  1991-1997,  Mr.
Strock served in Governor Pete Wilson's cabinet as California's  first Secretary
for  Environmental  Protection.  He led an organization with an annual budget of
more than $800 million with 4,000  employees.  The Agency  includes  many of the
world's leading  environmental  improvement  programs  relating to air and water
quality, toxics and pesticide regulation, and solid waste. From 1989 until 1991,
Mr. Strock served in President Bush's subcabinet as Assistant  Administrator for
Enforcement (chief law enforcement officer) of the U.S. Environmental Protection
Agency.  Currently,  he is principal of  jamesstrock.com,  inc., a San Francisco
firm providing consulting,  communications and mediation services. Mr. Strock is
a graduate of Harvard  College  and  Harvard Law School,  and is a member of the
Council  on  Foreign  Relations.  He is the  author  of  Reagan  on  Leadership:
Executive Lessons from the Great Communicator, and Theodore Roosevelt: Executive
Lessons from the Bully Pulpit.

Relationships Among Directors or Executive Officers

     There are no family  relationships  among any of the Directors or executive
officers of Enova.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a)  of the  Exchange  Act  requires  our  Directors,  executive
officers  and persons who own more than 10% of our Common  Stock  (collectively,
"Reporting  Persons") to file  reports of ownership  and changes in ownership of
our Common Stock to the Securities and Exchange  Commission  ("SEC").  Copies of
these reports are also required to be delivered to Enova.

     We  believe,  based  solely  on our  review of the  copies of such  reports
received or written  representations from certain Reporting Persons, that during
2001, all Reporting Persons complied with all applicable filing requirements.


                                       23
<PAGE>

Item 11. Executive Compensation

Summary Compensation Table

     The  following  table  sets  forth  all  compensation  earned  by our Chief
Executive  Officer  and each of the  other  most  highly  compensated  executive
officers of Enova whose annual salary and bonus exceeded  $100,000 for the years
ended  December  31, 2001,  2000 and 1999  (collectively,  the "Named  Executive
Officers").  Mr.  Carl D. Perry is the sole  executive  officer  of Enova  whose
salary currently exceeds $100,000.

                           SUMMARY COMPENSATION TABLE

                                                   Annual Compensation
                                             ----------------------------------
                                                          Salary         Bonus
Name and Principal Position                  Year           ($)           ($)
---------------------------                  ----         -----          -----
Carl D. Perry (1)                            2001        136,118        $30,000
   Chief Executive Officer, Chief            2000         128,170         --
Financial                                    1999          75,000         --
   Officer, President and Secretary

(1) Mr.  Perry was  elected as Chief  Executive  Officer in November  1997.  Mr.
Perry's current salary is $150,000 per year,  approved by the Board of Directors
in June, 2000.

Option/SAR Grants

     No grants of stock options or stock appreciation  rights ("SARs") were made
during 2001 to the Named Executive Officers.

Option Exercises and Option Values

     The following  table sets forth  information  concerning  option  exercises
during 2001, and the aggregate  value of unexercised  options as of December 31,
2001, held by each of the Named Executive Officers:

                     Aggregated Option/SAR Exercises in 2001
                     and Option Values at December 31, 2001

<TABLE>
<CAPTION>
                                                        Number of Securities
                    Aggregate                          Underlying Unexercised        Value of Unexercised
                      Option                                 Options at             In-the-Money Options at
                 Exercises in 2001                      December 31, 2001 (#)      December 31, 2001 ($) (1)
                 -----------------                  ---------------------------   ---------------------------
                     Shares              Value
                   Acquired on          Realized
Name               Exercise (#)            ($)      Exercisable   Unexercisable   Exercisable   Unexercisable
                  -------------         --------    -----------   -------------   -----------   -------------
<S>                    <C>                 <C>       <C>               <C>         <C>               <C>
Carl D. Perry          --                  --        1,200,000         --          $72,000(1)        N/A
</TABLE>

(1)  Calculated on the basis of $0.16  (representing the average of the high bid
     and low ask prices of the Common  Stock on  December  31, 2001 of $0.16 per
     share), minus the exercise price.


                                       24
<PAGE>

Compensation of Directors

     In  September  1999,  our  Board  of  Directors   unanimously   approved  a
compensation package for outside directors consisting of the following: for each
meeting  attended in person,  each outside director is to receive $1,000 in cash
and  $2,000 of stock  valued on the date of the  meeting  at the  average of the
closing ask and bid prices;  for each  telephonic  Board  meeting,  each outside
director is to receive  $250 in cash and $250 of stock valued on the date of the
meeting at the average of the closing ask and bid prices;  for each meeting of a
Board committee attended in person, the committee chairman is to receive $500 in
cash and $500 of stock  valued on the date of the  meeting at the average of the
closing ask and bid prices.  All Directors are reimbursed for expenses  incurred
in connection with attending Board and committee meetings.

     As of March 8,  2002,  1,514,281  shares  had been  issued  under the above
compensation plan for Directors.

Compensation Committee Interlocks and Insider Participation

     The  Compensation  Committee  currently  consists of Mr. Edwin Riddell,  as
Chairman,  and Dr. Malcolm  Currie.  Mr. Riddell was elected  Chairman in August
1998.  Dr. Currie was elected to the  Compensation  Committee in July 1999.  Mr.
Ishag  served as a member of the  Compensation  Committee  during  all of Fiscal
1999. Dr. Malcolm Currie also served on the  Compensation  Committee  during his
prior term as a Director until his resignation in 1998.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       25
<PAGE>

Stock Performance Graph

     The graph below compares the  cumulative  total  shareholder  return on our
Common  Stock with the  cumulative  total  return on the Standard & Poor's Small
Capitalization  600 Index and an index of peer companies selected by us. A group
of five other electric vehicle companies comprise the peer group index.(1)

     The period shown  commences on December 31, 1996,  and ends on December 31,
2001,  the end of our last fiscal year.  The graph assumes an investment of $100
on December 31, 1996 and the  reinvestment of any dividends.  The comparisons in
the graph below are based upon  historical  data and are not  indicative of, nor
intended to forecast, future performance of our Common Stock.

                  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
             AMONG ENOVA SYSTEMS, INC., THE S & P SMALLCAP 600 INDEX
                                AND A PEER GROUP

   [The following table was depicted as a line chart in the printed material.]

                                                 Cumulative Total Return
                                                 -----------------------
                                   12/97     12/98     12/99     12/00     12/01
                                   -----     -----     -----     -----     -----
ENOVA SYATEMS, INC                 27.65     18.24    191.18    100.00     88.24
S & P SMALLCAP 600                125.58    129.01    145.01    162.13    195.17
PEER GROUP                         93.80     77.86    139.78    122.96     77.90


* $100  invested  on  12/31/96  in  stock  or  index-including  reinvestment  of
dividends. Fiscal year ending December 31.

Copyright(C)2002,  Standard & Poor's,  a division of The McGraw-Hill  Companies,
Inc. All rights reserved.

                     DECEMBER 31, 1996 TO DECEMBER 31, 2001

1)  Companies  included  in the peer  group  index are  Amerigon,  Inc.  (ARGN),
Electric Fuel Corp.  (EFCX),  Energy  Conversion  Devices,  Inc. (ENER),  Unique
Mobility (UQM), and Valence Technology, Inc. (VLNC).


                                       26
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding beneficial
ownership  of our stock as of March 8,  2002,  (i) by each  person  (or group of
affiliated  persons) who is known by Enova to own  beneficially  more than 5% of
any class of our voting securities, (ii) by each of our Directors, (iii) by each
of our Named Executive Officers listed in the Summary  Compensation Table below,
and (v) by our Directors and executive officers as a group.  Except as indicated
in the  footnotes  to this table and subject to  applicable  community  property
laws,  the persons  named in the table,  based on  information  provided by such
persons,  have sole voting and  investment  power with  respect to all shares of
stock beneficially owned by them.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                Name                               Shares                   Percentage of Shares            Voting
                                           Beneficially Owned (1)          Beneficially Owned (2)       Percentage (3)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                 <C>                 <C>
Jagen, Pty., Ltd.                                  125,000,000                         35.31%              40.52%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
-------------------------------------------------------------------------------------------------------------------------
Carl D. Perry                                       11,200,500 (4)                      3.16%               3.24%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------------------------------------------------------------------------------------------
Citibank N.A.                                       31,655,754                          8.94%              10.26%
111 Wall Street, 8th Floor
New York, NY  10043
-------------------------------------------------------------------------------------------------------------------------
Anthony N. Rawlinson                                25,208,873                          7.12%               8.17%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------------------------------------------------------------------------------------------
John J. Micek, III                                  817,383(5)                              *                   *
-------------------------------------------------------------------------------------------------------------------------
Edwin O. Riddell                                       447,445                              *                   *
-------------------------------------------------------------------------------------------------------------------------
Dr. Malcolm Currie                                     325,878                              *                   *
-------------------------------------------------------------------------------------------------------------------------
Donald H. Dreyer                                       212,646                              *                   *
-------------------------------------------------------------------------------------------------------------------------
James M. Strock                                         67,056                              *                   *
-------------------------------------------------------------------------------------------------------------------------
Delphi Delco Electronics (6)                         1,278,720                              *                   *
-------------------------------------------------------------------------------------------------------------------------
Jean Schulz (7)                                      1,329,111                              *               1.12%
-------------------------------------------------------------------------------------------------------------------------
All Directors and executive officers                38,279,781 (8)                     10.81%              12.04%
as a group (7 persons)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

*    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 February 28, 2002.

(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 February
     28, 2002.


                                       27
<PAGE>

(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  and each share of
     Series B Preferred Stock is entitled to two votes per share.

(4)  Includes  1,200,000  shares  of Common  Stock  issuable  pursuant  to stock
     options issued under an employee  stock option plan  exercisable at a price
     of $0.10 per share.  The option exercise  price,  for Mr. Perry's and other
     employees  under the 1996 Stock Option  Plan,  was reset to $0.10 per share
     from $0.30 per share on August 19,  1998 at the  direction  of the Board of
     Directors.

(5)  Includes 565,000 shares of Common Stock issuable  pursuant to stock options
     exercisable  at a price of $0.10 per share.  The option  exercise price was
     reset to $0.10 per  share  from  $0.30  per  share on June 10,  1999 at the
     direction of the Board of Directors.

(6)  The  shareholder  owns of  record  and  beneficially  shares  of  Series  B
     Preferred  Stock only.  Series B shares  represent  the  equivalent  of two
     shares of Common Stock for every one share of Series B Preferred Stock. The
     number of shares represents 53% of the outstanding Series B Preferred Stock
     as of March 8, 2002.

(7)  The  shareholder  owns of  record  and  beneficially  shares  of  Series  A
     Preferred Stock only. Series A shares represent the equivalent of one share
     of Common Stock for every one share of Series A Preferred Stock. The number
     of shares  represent 47% of the outstanding  Series A Preferred Stock as of
     March 8, 2002.

(8)  Includes  1,765,000  shares  of Common  Stock  issuable  pursuant  to stock
     options exercisable at price of $.10 per share.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       28
<PAGE>

Item 13. Certain Relationships and Related Transactions

     The following are certain  transactions  entered into between Enova and its
officers,  directors  and  principal  shareholders  and their  affiliates  since
January 1, 2001.

Transactions with Management and Others:

During 2001,  there were no  transactions  or series of similar  transactions to
which we were or are to be a party in which the amount involved  exceeds $60,000
and in which any of our directors, executive officers or holders of more than 5%
of our common stock, or an immediate family member of any of the foregoing,  had
or will have a direct or indirect interest other than:

     o    compensation  arrangements,  which are described  where required under
          "Management"; and

     o    the transactions described below.

In May 2001, Jagen Pty, Ltd. exercised warrants to purchase 41,666,666 shares of
common stock at $0.06 per share for a total of  $2,500,000  paid solely in cash.
Jagen  represented  that it was an accredited  investor under the definition set
forth by the  Securities  and  Exchange  Commission.  We  relied  on Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended, for the
exemption from registration of the sale of such shares.

In July 2001, Anthony Rawlinson  exercised warrants to purchase 8,333,334 shares
of common stock at $0.06 per share for a total of $500,000  paid solely in cash.
Mr.  Rawlinson  represented  that  he  was  an  accredited  investor  under  the
definition  set forth by the Securities  and Exchange  Commission.  We relied on
Rule 506 of  Regulation D and Section  4(2) of the  Securities  Act of 1933,  as
amended, for the exemption from registration of the sale of such shares.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       29
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K

(a)1.   Financial Statements

        The financial  statements  filed as a part of this report are identified
        in the Index to Financial Statements on page F-1.

(a)2.   Financial Statement Schedule

        No financial statement schedules are filed as a part of this report.

(a)3.   Exhibits

        See Item 14 (C) for Index of Exhibits.

(b)     Reports on Form 8-K

        None.l

(c)     Exhibits

Exhibit Number                             Description
--------------------------------------------------------------------------------

3.1        Amended and  Restated  Articles of  Incorporation  of the  Registrant
           (filed as Exhibit 3.1 to the  Registrant's  Annual Report on Form 10K
           for the year ended  December  31,  2000  filed on March 30,  2001 and
           incorporated herein by reference).

3.2        Bylaws of  Registrant  (filed  as  Exhibit  3.12 to the  Registration
           Statement  on Form 10 filed on November 29,  1994,  and  incorporated
           herein by reference).

4.1        Cashless  Exercise  Warrants  dated October 25, 1996 issued to Fontal
           International,  Ltd. (filed as Exhibit 4.1 to the Registrant's Annual
           Report on Form 10-K for the year  ended  July 31,  1996,  as filed on
           November 12, 1996, and incorporated herein by reference).

10.1       Form of Stock Option  Agreement  under 1993  Employee and  Consultant
           Stock Plan (filed as Exhibit 10.15 to the  Registration  Statement on
           Form 10 filed on  November  29,  1994,  and  incorporated  herein  by
           reference).

10.2       Form of Solar Electric Engineering, Inc. 1993 Employee and Consultant
           Stock Plan (filed as Exhibit 10.16 to the  Registration  Statement on
           Form 10 filed on  November  29,  1994,  and  incorporated  herein  by
           reference).

10.3       Form  of   Confidential   Private   Placement   Memorandum  and  Debt
           Restructuring  Disclosure Statement of U.S.  Electricar,  Inc., dated
           January 2, 1996, delivered by Enova to certain of its unsecured trade
           creditors,   including  exhibits  (filed  as  Exhibit  10.91  to  the
           Registrant's  Quarterly  Report  on Form 10-Q for the  quarter  ended
           January 31, 1996, as filed on March 18, 1996, and incorporated herein
           by reference).

10.4       Form of  Stock  Purchase,  Note  and Debt  Exchange  Agreement  dated
           January 2, 1996 between Enova and certain  unsecured  trade creditors
           (filed as Exhibit 10.92 to the Registrant's  Quarterly Report on Form
           10-Q for the quarter  ended  January 31, 1996,  as filed on March 18,
           1996, and incorporated herein by reference).

10.5       Form of  Indemnification  Agreement  (filed as  Exhibit  10.63 to the
           Registration  Statement on Form 10 filed on November  29,  1994,  and
           incorporated herein by reference).

10.6       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 the  Registrant's  Quarterly  Report on Form 24 10-Q for the
           quarter  ended  April  30,  1996,  as  filed on June  14,  1996,  and
           incorporated herein by reference).


                                       30
<PAGE>

10.7       Amended  1996  Employee  and  Consultant  Stock Option Plan (filed as
           Exhibit  10.7 to the  Registrant's  Annual  Report  on Form  10-K for
           fiscal year ended July 31, 1999,  as filed on October 29,  1999,  and
           incorporated herein by reference).

10.8       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
           the  Registrant's  Quarterly  Report on Form 10-Q for fiscal  quarter
           ended January 31, 1997, as filed on March 14, 1997, and  incorporated
           herein by reference).

10.9       Loan Agreement for $400,000  convertible  promissory note with Fontal
           International,  Ltd., dated April 30, 1997 (filed as Exhibit 10.99 to
           the  Registrant's  Quarterly  Report on Form 10-Q for fiscal  quarter
           ended April 30, 10997,  as filed on June 13, 1997,  and  incorporated
           herein by reference).

10.10      Agreement  of Debt  Forgiveness  by and between Carl D. Perry and the
           Registrant  dated  July  30,  1999  (filed  as  Exhibit  10.10 to the
           Registrant's  Annual  Report on Form 10-K for fiscal  year ended July
           31, 1999, as filed on October 29, 1999,  and  incorporated  herein by
           reference).

10.11      Agreement  of Terms by and between the  Registrant  and Carl D. Perry
           (filed as Exhibit  10.11 to the  Registrant's  Annual  Report on Form
           10-K for fiscal  year ended July 31,  1999,  as filed on October  29,
           1999, and incorporated herein by reference).

10.12      Securities  Purchase  Agreement  dated  as of  June 1,  1999,  by and
           between the  Registrant  and Jagen Pty, Ltd. and Anthony N. Rawlinson
           (filed as Exhibit  10.12 to the  Registrant's  Annual  Report on Form
           10-K for fiscal  year ended July 31,  1999,  as filed on October  29,
           1999, and incorporated herein by reference).

10.13      Shareholders'  Agreement dated as of June 1, 1999, by and among Jagen
           Pty, Ltd. and Anthony N. Rawlinson,  Carl D. Perry and the Registrant
           (filed as Exhibit  10.13 to the  Registrant's  Annual  Report on Form
           10-K for fiscal  year ended July 31,  1999,  as filed on October  29,
           1999, and incorporated herein by reference).

10.14      Loan and Security  Agreement  dated as of June 1, 1999,  by and among
           the  Registrant,  Jagen Pty, Ltd. and Anthony N. Rawlinson  (filed as
           Exhibit  10.14 to the  Registrant's  Annual  Report  on Form 10-K for
           fiscal year ended July 31, 1999,  as filed on October 29,  1999,  and
           incorporated herein by reference).

10.15      Convertible  Secured  Promissory  Note  dated  June  1,  1999  by the
           Registrant  in favor of Jagen Pty,  Ltd. in the  principal  amount of
           $400,000 (filed as Exhibit 10.15 to the Registrant's Annual Report on
           Form 10-K for fiscal  year ended July 31,  1999,  as filed on October
           29, 1999, and incorporated herein by reference).

10.16      Letter of Intent between  Registrant and a domestic  supplier,  dated
           December  9, 1999,  to design,  develop and  manufacture  low voltage
           electric  drive  system  components  (filed as  Exhibit  10.16 to the
           Registrant's  Annual  Report  on Form  10-K  for  fiscal  year  ended
           December 31, 2000 and incorporated herein by reference).

10.17      Put/Call Option to sell Itochu shares between  Registrant and Carl D.
           Perry  dated  September  1,  1999  (filed  as  Exhibit  10.16  to the
           Registrant's  Annual  Report  on Form  10-K  for  fiscal  year  ended
           December 31, 2000 and incorporated herein by reference).

23.1*      Consent of Moss Adams, LLC, Independent Auditors

24*        Power of Attorney (included on signature page)

----------------------
*       Filed herewith.


                                       31
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf of the undersigned, thereunto duly authorized, on March 28, 2002.

ENOVA SYSTEMS, INC.


By: /s/ Carl D. Perry
    ----------------------------------------------------------------------------
    Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer

Dated: March 28, 2002

                                POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below  constitutes and appoints Carl D. Perry, with full power to act alone, his
true and lawful  attorney-in-fact and agent, with full power of substitution for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments to the annual report on Form 10-K, and to file the same, with all
exhibits  thereto,  and  other  documents  in  connection  therewith,  with  the
Securities and Exchange  Commission,  granting unto said  attorney-in-fact  full
power and authority to do and perform each and every act and thing requisite and
necessary  to be done in  connection  as fully to all intents and purposes as he
might or could do in  person,  hereby  ratifying  and  confirming  all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.

        IN WITNESS  WHEREOF,  each of the undersigned has executed this Power of
Attorney  as of  the  date  indicated.  Pursuant  to  the  requirements  of  the
Securities  Exchange Act of 1934,  this report has been signed by the  following
persons  on  behalf  of the  registrant  and in the  capacities  and on the date
indicated.

Signature                          Title                          Date
---------                          -----                          ----

/s/ Carl D. Perry                  Chief Executive                March 28, 2002
--------------------------         Officer and Director
Carl D. Perry                      (Principal Executive Officer)

/s/ Anthony N. Rawlinson           Chairman                       March 28, 2002
--------------------------
Anthony N. Rawlinson

/s/ Malcolm Currie                 Director                       March 28, 2002
--------------------------
Malcolm Currie

/s/ Edwin O. Riddell               Director                       March 28, 2002
--------------------------
Edwin O. Riddell

/s/ John J. Micek, III             Director                       March 28, 2002
--------------------------
John J. Micek, III

/s/ Donald H. Dreyer               Director                       March 28, 2002
--------------------------
Donald H. Dreyer

/s/ James M. Strock                Director                       March 28, 2002
--------------------------
James M. Strock



                                       32
<PAGE>

--------------------------------------------------------------------------------

                               ENOVA SYSTEMS, INC.

                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<PAGE>

--------------------------------------------------------------------------------


                               ENOVA SYSTEMS, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE

INDEPENDENT AUDITOR'S REPORT.................................................F-1

BALANCE SHEETS AT DECEMBER 31, 2001 AND 2000.................................F-2

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
     DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
     DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-3

STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED
     DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
     DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-4

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
     DECEMBER 31, 2001 AND 2000, THE FIVE MONTHS ENDED
     DECEMBER 31, 1999, AND YEAR ENDED JULY 31, 1999 ........................F-5

NOTES TO FINANCIAL STATEMENTS................................................F-6


--------------------------------------------------------------------------------
<PAGE>

INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors
Enova Systems, Inc.

We have audited the accompanying balance sheets of Enova Systems, Inc., formerly
U.S.  Electricar,  Inc., as of December 31,  2001and 2000, and the statements of
operations,  stockholders'  deficit,  and cash  flows  for the two  years  ended
December 31, 2001,  the five months ended  December 31, 1999, and the year ended
July  31,  1999.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and  perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Enova  Systems,  Inc., as of
December 31, 2001 and 2000, and the results of its operations and cash flows for
the two years ended  December 31, 2001, the five months ended December 31, 1999,
and the year ended July 31,  1999,  in  conformity  with  accounting  principles
generally accepted in the United States.

                                           /s/  MOSS ADAMS LLP

Santa Rosa, California
February 22, 2002

                                                                        Page F-1
<PAGE>

<TABLE>
                                                                  ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                                                                        BALANCE SHEETS
                                                                                            December 31, 2001 and 2000

----------------------------------------------------------------------------------------------------------------------

                                                   ASSETS
<CAPTION>
                                                                                        2001                 2000
                                                                                    ------------         ------------
<S>                                                                                 <C>                  <C>
CURRENT ASSETS
     Cash                                                                           $  1,179,000         $  1,310,000
     Accounts receivable                                                               1,237,000            1,004,000
     Inventories and supplies                                                            926,000              406,000
     Related party receivable, current maturities                                         25,000               25,000
     Prepaids and other current assets                                                    87,000               68,000
                                                                                    ------------         ------------

            Total current assets                                                       3,454,000            2,813,000

PROPERTY AND EQUIPMENT                                                                   280,000              214,000

RELATED PARTY RECEIVABLE, less current maturities                                         32,000               57,000

OTHER ASSETS                                                                             574,000               10,000
                                                                                    ------------         ------------

            Total assets                                                            $  4,340,000         $  3,094,000
                                                                                    ============         ============


                                       LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                                               $    167,000         $    106,000
     Accrued payroll and related expenses                                                194,000              301,000
     Other accrued expenses                                                               53,000              119,000
     Current maturities of long-term debt                                                120,000              120,000
     Current maturities of capital lease obligations                                       9,000                9,000
                                                                                    ------------         ------------

            Total current liabilities                                                    543,000              655,000

ACCRUED INTEREST PAYABLE                                                                 677,000              514,000

LONG-TERM PAYABLES                                                                          --                210,000

CAPITAL LEASE OBLIGATIONS, less current maturities                                        20,000               31,000

LONG-TERM DEBT, less current maturities                                                3,332,000            3,332,000
                                                                                    ------------         ------------

            Total liabilities                                                          4,572,000            4,742,000
                                                                                    ------------         ------------

STOCKHOLDERS' DEFICIT
     Series A convertible preferred stock - no par value; 30,000,000 shares
         authorized; 2,844,000  shares issued and outstanding; liquidating
         preference at $0.60 per share aggregating $1,706,000                          1,867,000            1,867,000
     Series B convertible preferred stock - no par value; 5,000,000 shares
         authorized; 1,217,000  shares issued and outstanding; liquidating
         preference at $2.00 per share aggregating $2,434,000                          2,434,000            2,434,000
     Common stock - no par value; 500,000,000 shares authorized;
         302,502,000 and 244,249,000 shares issued and outstanding                    79,859,000           75,680,000
     Common stock subscribed                                                             160,000               13,000
     Stock notes receivable                                                           (1,208,000)          (1,149,000)
     Additional paid-in capital                                                        6,949,000            6,372,000
     Accumulated deficit                                                             (90,293,000)         (86,865,000)
                                                                                    ------------         ------------

            Total stockholders' deficit                                                 (232,000)          (1,648,000)
                                                                                    ------------         ------------

            Total liabilities and stockholders' deficit                             $  4,340,000         $  3,094,000
                                                                                    ============         ============

See accompanying notes.
----------------------------------------------------------------------------------------------------------------------
                                                                                                              Page F-2
</TABLE>
<PAGE>

<TABLE>
                                                                  ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                                                              STATEMENTS OF OPERATIONS
                                                               Years Ended December 31, 2001 and 2000, the Five Months
                                                             Ended December 31, 1999, and the Year Ended July 31, 1999
----------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                         December            July
                                                     2001               2000               1999              1999
                                                -------------      -------------      -------------      -------------

<S>                                             <C>                <C>                <C>                <C>
NET REVENUES                                    $   3,780,000      $   2,883,000      $     629,000      $   2,774,000

COST OF REVENUES                                    2,783,000          2,013,000            377,000          1,460,000
                                                -------------      -------------      -------------      -------------

GROSS PROFIT                                          997,000            870,000            252,000          1,314,000
                                                -------------      -------------      -------------      -------------

OTHER COSTS AND EXPENSES
    Research and development                          879,000            626,000            262,000            499,000
    Selling, general, and administrative            2,894,000          1,999,000            796,000          1,141,000
    Interest and financing fees                       113,000            174,000            244,000            724,000
    (Gain) loss on disposition of fixed assets         (7,000)             6,000               --                 --
    Legal settlements                                 900,000             75,000            125,000               --
    Gain on warranty accrual reevaluation                --                 --                 --             (474,000)
    Other (income)/expense                               --                 --                 --              (41,000)
                                                -------------      -------------      -------------      -------------

          Total other costs and expenses            4,779,000          2,880,000          1,427,000          1,849,000
                                                -------------      -------------      -------------      -------------

LOSS FROM CONTINUING OPERATIONS                    (3,782,000)        (2,010,000)        (1,175,000)          (535,000)

EXTRAORDINARY ITEM - GAIN ON DEBT
    RESTRUCTURING                                     354,000          1,551,000            214,000            140,000
                                                -------------      -------------      -------------      -------------

NET LOSS                                        $  (3,428,000)     $    (459,000)     $    (961,000)     $    (395,000)
                                                =============      =============      =============      =============

LOSS PER COMMON SHARE
    Loss from continuing operations             $       (0.01)     $       (0.01)     $       (0.01)     $       (0.01)
    Gain on debt restructuring                           --                 0.01               --                 --
                                                -------------      -------------      -------------      -------------
                                                $       (0.01)     $        --        $       (0.01)     $       (0.01)
                                                =============      =============      =============      =============

WEIGHTED AVERAGE OF COMMON
    SHARES OUTSTANDING                          $ 275,188,979      $ 235,199,406      $ 251,993,533      $ 152,076,615
                                                =============      =============      =============      =============

See accompanying notes.
----------------------------------------------------------------------------------------------------------------------
                                                                                                              Page F-3
</TABLE>

<PAGE>

<TABLE>
                                                                                ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                                                                 STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                                             Years Ended December 31, 2001 and 2000, the Five Months
                                                                           Ended December 31, 1999, and the Year Ended July 31, 1999
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                              Preferred Stock
                                       ------------------------------------------------------------
                                                   Series A                      Series B                      Common Stock
                                       ----------------------------    ----------------------------    ----------------------------
                                          Shares          Amount          Shares          Amount          Shares          Amount
                                       ------------    ------------    ------------    ------------    ------------    ------------

<S>                                       <C>          <C>                <C>          <C>              <C>            <C>
Balance, July 31, 1998                    3,321,000    $  2,258,000       1,291,000    $  2,584,000     151,767,000    $ 68,742,000

Common Stock Transactions
   Conversion of Series A
     preferred stock                        (62,000)        (67,000)           --              --            62,000          67,000
   Conversion of Series B
     preferred stock                           --              --           (49,000)        (98,000)        163,000          98,000
   Sale of stock                               --              --              --              --        83,333,000       2,375,000
   Conversion of debt                          --              --              --              --        16,667,000         219,000
   Issuance of common stock warrants           --              --              --              --              --              --
Debt forgiveness by stockholder                --              --              --              --              --              --
Net loss                                       --              --              --              --              --              --
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance, July 31, 1999                    3,259,000       2,191,000       1,242,000       2,486,000     251,992,000      71,501,000

Common Stock Transactions
   Conversion of Series A
     preferred stock                        (20,000)        (25,000)           --              --            20,000          25,000
   Stock issued for services                   --              --              --              --              --              --
   Conversion of debt                          --              --              --              --              --              --
Debt forgivness by stockholder                 --              --              --              --              --              --
Net loss                                       --              --              --              --              --              --
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance, December 31, 1999                3,239,000       2,166,000       1,242,000       2,486,000     252,012,000      71,526,000

Common Stock Transactions
   Conversion of Series A
     preferred stock                       (395,000)       (299,000)           --              --           395,000         299,000
   Conversion of Series B
     preferred stock                           --              --           (25,000)        (52,000)         71,000          52,000
   Stock options exercised                     --              --              --              --         3,315,000         392,000
   Sale of stock                               --              --              --              --         6,667,000       2,000,000
   Stock issued for services                   --              --              --              --         5,722,000       1,497,000
   Conversion of debt                          --              --              --              --            37,000          14,000
   Repurchase of stock from stockholder        --              --              --              --       (23,970,000)       (100,000
Debt forgiveness by stockholder                --              --              --              --              --              --
Net loss                                       --              --              --              --              --              --
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance, December 31, 2000                2,844,000       1,867,000       1,217,000       2,434,000     244,249,000      75,680,000

Common Stock Transactions
   Stock issued on exercise of warrants        --              --              --              --        50,000,000       3,000,000
   Stock options exercised                     --              --              --              --         1,805,000         181,000
   Stock issued for services                   --              --              --              --           448,000          98,000
   Stock issued in legal settlement            --              --              --              --         6,000,000         900,000
Warrants issued for value
  participation agreement                      --              --              --              --              --              --
Net loss                                       --              --              --              --              --              --
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance, December 31, 2001                2,844,000    $  1,867,000       1,217,000    $  2,434,000     302,502,000    $ 79,859,000
                                       ============    ============    ============    ============    ============    ============
</TABLE>
<TABLE>
<CAPTION>
                                              Common Stock
                                               Subscribed             Additional
                                       ---------------------------      Paid-In     Stock Notes     Accumulated
                                          Shares         Amount         Capital      Receivable       Deficit          Total
                                       ------------   ------------   ------------   ------------    ------------    ------------

<S>                                      <C>          <C>            <C>            <C>            <C>              <C>
Balance, July 31, 1998                         --     $       --     $       --     $(1,149,000)   $(85,050,000)    $(12,615,000)

Common Stock Transactions
   Conversion of Series A
     preferred stock                           --             --             --             --              --              --
   Conversion of Series B
     preferred stock                           --             --             --             --              --              --
   Sale of stock                               --             --             --             --              --         2,375,000
   Conversion of debt                          --             --             --             --              --           219,000
   Issuance of common stock warrants           --             --          406,000           --              --           406,000
Debt forgiveness by stockholder                --             --        2,694,000           --              --         2,694,000
Net loss                                       --             --             --             --          (395,000)       (395,000)
                                       ------------   ------------   ------------   ------------    ------------    ------------
Balance, July 31, 1999                         --             --        3,100,000     (1,149,000)    (85,445,000)     (7,316,000)

Common Stock Transactions
   Conversion of Series A
     preferred stock                           --             --             --             --              --              --
   Stock issued for services              1,317,000        148,000           --             --              --           148,000
   Conversion of debt                     4,246,000      1,297,000           --             --              --         1,297,000
Debt forgivness by stockholder                 --             --        1,817,000           --              --         1,817,000
Net loss                                       --             --             --             --          (961,000)       (961,000)
                                       ------------   ------------   ------------   ------------    ------------    ------------
Balance, December 31, 1999                5,563,000      1,445,000      4,917,000     (1,149,000)    (86,406,000)     (5,015,000)

Common Stock Transactions
   Conversion of Series A
     preferred stock                           --             --             --             --              --              --
   Conversion of Series B
     preferred stock                           --             --             --             --              --              --
   Stock options exercised                     --             --             --             --              --           392,000
   Sale of stock                               --             --             --             --              --         2,000,000
   Stock issued for services             (5,518,000)    (1,432,000)           --             --             --            65,000
   Conversion of debt                          --             --             --             --              --            14,000
   Repurchase of stock from stockholder        --             --             --             --              --          (100,000)
Debt forgiveness by stockholder                --             --        1,455,000           --              --         1,455,000
Net loss                                       --             --             --             --          (459,000)       (459,000)
                                       ------------   ------------   ------------   ------------    ------------    ------------
Balance, December 31, 2000                   45,000         13,000      6,372,000     (1,149,000)    (86,865,000)     (1,648,000)

Common Stock Transactions
   Stock issued on exercise of warrants        --             --             --             --              --         3,000,000
   Stock options exercised                     --             --             --          (59,000)           --           122,000
   Stock issued for services                955,000        147,000           --             --              --           245,000
   Stock issued in legal settlement            --             --             --             --              --           900,000
Warrants issued for value
  participation agreement                      --             --          577,000           --              --           577,000
Net loss                                       --             --             --             --        (3,428,000)     (3,428,000)
                                       ------------   ------------   ------------   ------------    ------------    ------------
Balance, December 31, 2001                1,000,000   $    160,000   $  6,949,000   $ (1,208,000)   $(90,293,000)   $   (232,000)
                                       ============   ============   ============   ============    ============    ============

See accompanying notes.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-4
</TABLE>

<PAGE>

<TABLE>
                                                                  ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                                                              STATEMENTS OF CASH FLOWS
                                                               Years Ended December 31, 2001 and 2000, the Five Months
                                                             Ended December 31, 1999, and the Year Ended July 31, 1999
----------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                             December          July
                                                               2001            2000            1999            1999
                                                           -----------     -----------     -----------     -----------
<S>                                                        <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                               $(3,428,000)    $  (459,000)    $  (961,000)    $  (395,000)
    Adjustments to reconcile net loss to net cash from
       operating activities:
          Depreciation and amortization                        205,000         136,000          60,000         179,000
          Loss on disposition of fixed assets                     --             6,000            --              --
          Gain on debt restructuring and extinguishment       (210,000)     (1,551,000)       (214,000)       (140,000)
          Stock issued for services                            245,000          66,000         148,000            --
          Stock issued for legal settlement                    900,000            --              --              --
          Accrued interest forgiven                               --           156,000         219,000            --
          Change in allowance for doubtful accounts               --              --              --          (108,000)
          Provision to reduce inventory values                    --              --              --           (36,000)
          Changes in valuation allowances and reserves            --              --              --          (640,000)
       Change in operating assets and liabilities:
          Accounts receivable                                 (233,000)       (432,000)        185,000        (560,000)
          Inventories                                         (520,000)       (151,000)        (33,000)        329,000
          Related party receivable                              25,000          25,000          12,000            --
          Note receivable                                         --              --              --           250,000
          Prepaids and other current assets                    (19,000)         (7,000)         21,000          32,000
          Other assets                                         (39,000)           --              --              --
          Accounts payable and accrued expenses               (112,000)       (120,000)        (77,000)        678,000
          Accrued interest payable                             163,000          75,000        (154,000)           --
          Customer deposits                                       --          (102,000)        102,000        (387,000)
                                                           -----------     -----------     -----------     -----------

            Net cash from operating activities              (3,023,000)     (2,358,000)       (692,000)       (798,000)
                                                           -----------     -----------     -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Equipment acquisitions                                    (219,000)        (88,000)         (3,000)         (1,000)
                                                           -----------     -----------     -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings on notes payable                                   --              --              --           400,000
    Proceeds from exercise of warrants and options           3,122,000            --              --              --
    Proceeds from sale of stock                                   --         2,392,000            --              --
    Purchase of common stock                                      --          (100,000)           --         2,600,000
    Payments on notes payable and capital lease obligations    (11,000)         (1,000)       (307,000)           --
                                                           -----------     -----------     -----------     -----------

            Net cash from financing activities               3,111,000       2,291,000        (307,000)      3,000,000
                                                           -----------     -----------     -----------     -----------

NET CHANGE IN CASH                                            (131,000)       (155,000)     (1,002,000)      2,201,000

CASH,  beginning of the period                               1,310,000       1,465,000       2,467,000         266,000
                                                           -----------     -----------     -----------     -----------

CASH,  end of the period                                   $ 1,179,000     $ 1,310,000     $ 1,465,000     $ 2,467,000
                                                           ===========     ===========     ===========     ===========

SUPPLEMENTAL CASH-FLOW INFORMATION
    Cash paid during the year for interest                 $     5,000     $    40,000     $     9,000     $      --
    Non-cash investing and financing activities:
       Conversion of preferred stock to common stock       $      --       $   351,000     $    25,000     $   166,000
       Conversion of debt and accrued interest to equity   $      --       $ 1,470,000     $ 2,894,000     $   400,000
       Issuance of warrants                                $      --       $      --       $      --       $   406,000
       Equipment acquired under capital lease              $      --       $    41,000     $      --       $      --

See accompanying notes.
-----------------------------------------------------------------------------------------------------------------------
                                                                                                               Page F-5
</TABLE>

<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 -  DESCRIPTION  OF  OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING
          POLICIES

Description of operations - Enova Systems, Inc., formerly U.S. Electricar, Inc.,
is a California  corporation  that develops drive trains and related  components
for electric,  hybrid electric,  and fuel cell systems for mobile and stationary
applications.  The Company retains development and manufacturing  rights to many
of the technologies created, whether such research and development is internally
or externally  funded.  The change in the Company's name to Enova Systems became
effective  January 1, 2000.  The Company  develops and sells  components  in the
United States and Asia and sells components in Europe.

Change in fiscal year - Effective  December  31, 1999,  the Company  changed its
fiscal year-end from July 31 to December 31.

Cash equivalents - Highly liquid  investments with an original  maturity debt of
three  months  or less  are  considered  cash  equivalents.  There  were no cash
equivalents at December 31, 2001 or 2000.

Inventory  -  Inventory  is  comprised  of  materials  used  in the  design  and
development of electric drive systems under ongoing development  contracts,  and
is stated at the lower of cost (first-in, first-out) or market.

Property  and  equipment  -  Property  and  equipment  are  stated  at cost  and
depreciated  using the  straight-line  method over the estimated useful lives of
the related assets, which range from three to seven years. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate the
sum of  expected  cash  flows  from use of the asset is less  than its  carrying
value.  Long-lived  assets that  management has committed to sell or abandon are
reported at the lower of carrying amount or fair value less cost to sell.

Income taxes - Deferred income taxes are recognized  using enacted tax rates and
are  composed of taxes on  financial  accounting  income  that is  adjusted  for
requirements  of current  tax law and  deferred  taxes.  Deferred  taxes are the
expected future tax consequences of temporary  differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.

Revenue  recognition  -  The  Company  is  obligated  to  perform  research  and
development   activities  under  development  and  licensing   agreements.   The
agreements  require the Company to design,  develop,  and test drive systems and
deliver  working  prototypes.  The Company  retains  all rights to the  products
developed  and  will  license  their  use  to  the  counter-party.   Revenue  on
engineering  and  research  and  development  contracts  is  recognized  at  the
completion of specified engineering or billing milestones,  as set forth in each
agreement.  Revenues from sales of components  are  recognized  when shipped and
title passes to the  customer.  During  1999,  revenue from the sale of electric
vehicles was recognized when the vehicle was delivered to the customer.

Loss per common  share - Loss per common  share is computed  using the  weighted
average  number  of common  shares  outstanding.  Since a loss  from  operations
exists,  a diluted  earnings  per  share  number is not  presented  because  the
inclusion of common stock  equivalents in the computation would be antidilutive.
Common stock equivalents  associated with Series A and B preferred stock,  stock
options,  and warrants,  which are exercisable into 37,230,000  shares of common
stock, could potentially dilute earnings per share in future years.

Concentrations  of  risk -  Financial  instruments  potentially  subjecting  the
Company to  concentrations  of credit  risk  consist  primarily  of bank  demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and  trade  receivables.  Demand  deposits  are  placed  with  known  creditable
financial  institutions.  A customer,  Hyundai, is also a stockholder that holds
less than 5% of the outstanding  common stock.  For the years ended December 31,
2001  and  2000,  Hyundai  accounted  for  approximately  13% and  58% of  total
revenues.  Revenues  associated  with Hyundai for the five months ended December
31, 1999, and the twelve months ended July 31, 1999, were 63% and 44%.

Use of estimates - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted in the United  States  requires  the
Company make estimates and assumptions affecting the reported amounts of assets,
liabilities,  revenues and expenses, and the disclosure of contingent assets and
liabilities.  The amounts  estimated could differ from actual  results,  and the
difference could have a significant impact on the financial statements.

--------------------------------------------------------------------------------
                                                                        Page F-6
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Shipping costs - Shipping and handling are included in costs of goods sold.

Warranties - In 1999,  electric vehicle  warranties were provided by the Company
on vehicles sold when the Company was U.S. Electricar.  The warranties generally
extended for one year from the time of sale.  Warranties for  substantially  all
vehicles  sold  by  the  Company  had  elapsed,  resulting  in a  $474,000  gain
concurrent with the reevaluation of the warranty accrual.

Fair value of financial  instruments - The Company measures its financial assets
and liabilities in accordance with accounting  principles  generally accepted in
the United  States.  The fair value of a financial  instrument  is the amount at
which the instrument could be exchanged in a current transaction between willing
parties.  For certain of the Company's  financial  instruments,  including cash,
accounts receivable and accounts payable,  the carrying amount approximates fair
value  because  of the  short  maturities.  The  fair  value  of  the  Company's
short-term and long-term debt may be substantially  less than the carrying value
since there is no readily  ascertainable market for the debt given the financial
position of the Company.

Stock-based  compensation  -  The  Company  accounts  for  stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles  Board Opinion No. 25 (APB No. 25),  "Accounting  for Stock Issued to
Employees,"  and  complies  with  the  disclosure  provisions  of  Statement  of
Financial  Accounting  Standards  No.  123  (SFAS  No.  123),   "Accounting  for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement  date over the
amount  that must be paid to  acquire  the stock.  SFAS No. 123  requires a fair
value method to be used when determining  compensation expense for stock options
and similar  equity  instruments.  SFAS No. 123 permits a company to continue to
use the provisions of APB No. 25 when accounting for stock-based compensation to
employees, but proforma disclosures of net income and earnings or loss per share
must be made as if SFAS No. 123 had been adopted in its entirety.  Stock options
issued to non-employees are valued under the provisions of SFAS No. 123.

Recent  accounting  pronouncements  - The Financial  Accounting  Standards Board
(FASB) has issued the following accounting pronouncements:

SFAS No.  141,  "Business  Combinations."  This  Statement  addresses  financial
accounting and reporting for business  combinations  and  supersedes  Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38,
"Accounting for  Preacquisition  Contingencies  of Purchased  Enterprises."  All
business  combinations  in the scope of this  Statement  are to be accounted for
using one method, the purchase method. The provisions of this Statement apply to
all business  combinations  initiated  after June 30, 2001. The adoption of SFAS
No. 141 is not  expected to have a material  effect on the  Company's  financial
statements.

SFAS No. 142, "Goodwill and Other Intangible  Assets." This Statement  addresses
financial  accounting and reporting for acquired  goodwill and other  intangible
assets  and  supersedes  APB No.  17,  "Intangible  Assets."  It  addresses  how
intangible assets that are acquired individually or with a group of other assets
(but not those  acquired in a business  combination)  should be accounted for in
financial  statements upon their acquisition.  This Statement also addresses how
goodwill and other  intangible  assets  should be accounted  for after they have
been initially  recognized in the financial  statements.  The provisions of this
Statement are required to be applied  starting with fiscal years beginning after
December  15,  2001.  The  adoption  of SFAS No. 142 is not  expected  to have a
material effect on the Company's financial statements.

SFAS No. 143,  "Accounting  for Asset  Retirement  Obligations."  This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  This  Statement  applies  to  legal  obligations   associated  with  the
retirement of long-lived assets that result from the acquisition,  construction,
development and (or) the normal operation of a long-lived  asset. The provisions
of this  Statement  are  required  to be  applied  starting  with  fiscal  years
beginning  after June 15, 2002.  The adoption of SFAS No. 143 is not expected to
have a material effect on the Company's financial statements.

SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets."
This statement addresses  financial  accounting and reporting for the impairment
or disposal of long-lived assets.  SFAS 144 replaces SFAS 121 and amends certain
other accounting pronouncements.  The provisions of this Statement are effective
for financial  statements  issued for fiscal years  beginning after December 15,
2001. The adoption of SFAS No. 144 is not expected to have a material  effect on
the Company's financial statements.

--------------------------------------------------------------------------------
                                                                        Page F-7
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 2 - MANAGEMENT'S PLANS

The  Company  has  experienced  cash  flow  shortages  due to  operating  losses
primarily attributable to research and development,  marketing,  and other costs
associated with its strategic plan to become an  international  manufacturer and
supplier of electric  propulsion and power  management  systems and  components.
Additional  outside  financing  is  anticipated  until  the  Company  reaches  a
breakeven  volume  in sales and  develops  and/or  acquires  the  capability  to
manufacture  and sell  products  profitably.  While the  Company  continues  its
efforts to obtain additional  equity funding,  a major stockholder has committed
up to $2 million to fund operations during 2002.

The future  unavailability or inadequacy of financing to meet future needs could
force the Company to delay, modify, suspend, or cease some or all aspects of its
planned operations.

NOTE 3 - PROPERTY AND EQUIPMENT

                                                           2001          2000
                                                        ----------    ----------

Computers                                               $  154,000    $  124,000
Machinery and equipment                                    407,000       285,000
Furniture and office equipment                             186,000       126,000
Demonstration vehicles and buses                           147,000       142,000
Leasehold improvements                                      68,000        66,000
Equipment under capital lease                               41,000        41,000
                                                        ----------    ----------
                                                         1,003,000       784,000
Less accumulated depreciation and amortization             723,000       570,000
                                                        ----------    ----------
                                                        $  280,000    $  214,000
                                                        ==========    ==========

NOTE 4 - RELATED PARTY RECEIVABLE

Hyundai, a stockholder,  acquired certain  technology  licensing rights from the
Company in 1997. Part of the  consideration  for these rights included  periodic
installment  payments of $25,000 per year for six years,  with the final payment
expected in February 2003.


NOTE 5 - OTHER ASSETS

The Company is in the process of  obtaining  patents for several  products.  The
legal costs associated with the patents,  $49,000 to date, have been capitalized
and will be amortized over the life of the patents upon receiving the patent.

In June 2001, the Company entered into a strategic  relationship with Ford Motor
Company to develop and manufacture a high power, high voltage  conversion module
for Ford's fuel cell  vehicle.  Warrants  were  issued to Ford Motor  Company in
exchange  for Ford's  commitment  to enter into this  five-year  agreement.  The
issuance of the warrants was recorded as a noncurrent asset (Value Participation
Agreement)  at its fair market value of $ 577,000,  and is being  amortized on a
straight-line  basis  over the  life of the  contract.  Fair  market  value  was
determined using the Black-Scholes option pricing model.

                                                          2001            2000
                                                        --------        --------

Patents                                                 $ 49,000        $ 10,000
Valuation Participation Agreement                        577,000            --
                                                        --------        --------
                                                         626,000          10,000
Less accumulated  amortization                            52,000            --
                                                        --------        --------
                                                        $574,000        $ 10,000
                                                        ========        ========

--------------------------------------------------------------------------------
                                                                        Page F-8
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6 - LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                           2001            2000
                                                                        ----------      ----------
<S>                                                                     <C>             <C>
Secured promissory note to Credit Managers Association of
California, with interest at 3% for the first five years beginning
June 1996, 6% for years six and seven, and then at prime plus 3%
through maturity; interest payments are made upon payment of
principal, which is due no later than April 2016; a sinking fund
escrow is required to be funded with 10% of future equity financing,
as defined in the agreement                                             $3,332,000      $3,332,000

Unsecured promissory note with interest at 10%, note is past due           120,000         120,000
                                                                        ----------      ----------

                                                                         3,452,000       3,452,000
Less current maturities                                                    120,000         120,000
                                                                        ----------      ----------

                                                                        $3,332,000      $3,332,000
                                                                        ==========      ==========
</TABLE>

NOTE 7 - CAPITAL LEASE OBLIGATIONS

The Company rents manufacturing and office equipment under various capital lease
agreements  that expire  beginning in 2003.  Future minimum lease payments under
these capital lease agreements are as follows:

                                    Year Ending December 31,
                                    ------------------------

                                              2002                   $ 14,000
                                              2003                     16,000
                                              2004                      6,000
                                              2005                      7,000
                                                                     --------

                                                                       43,000
                Less amounts representing interest                     14,000
                                                                     --------

                Present value of minimum lease payments                29,000
                Less current maturities                                 9,000
                                                                     --------

                                                                     $ 20,000
                                                                     ========

NOTE 8 - OPERATING LEASES

The Company's lease on its Torrance,  California,  facility  expires in February
2003.  Rent expense was  $210,000 and $177,000 for the years ended  December 31,
2001 and 2000.  Rent for the five months ended December 31, 1999, and the twelve
months ended July 31,  1999,  was $40,000 and  $144,000.  Future  minimum  lease
payments are as follows:

                                    Year Ending December 31,
                                    ------------------------

                                              2002                   $ 163,000
                                              2003                      27,000
                                                                     ----------

                                                                     $ 190,000
                                                                     ==========

--------------------------------------------------------------------------------
                                                                        Page F-9
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' DEFICIT

Series A preferred  stock - Series A preferred  stock is currently  unregistered
and convertible  into common stock on a one-to-one  basis at the election of the
holder or automatically upon the occurrence of certain events including: sale of
stock  in an  underwritten  public  offering;  registration  of  the  underlying
conversion stock; or the merger, consolidation,  or sale of more than 50% of the
Company.  Holders of Series A  preferred  stock have the same  voting  rights as
common stockholders.  The stock has a liquidation  preference of $0.60 per share
plus any accrued and unpaid  dividends in the event of voluntary or  involuntary
liquidation  of the Company.  Dividends  are  non-cumulative  and payable at the
annual  rate of $0.036  per share if,  when,  and as  declared  by, the Board of
Directors. No dividends have been declared on the Series A preferred stock.

Substantially  all of the stock notes  receivable stem from a Board of Directors
plan for the sale of  shares  of  Series A  preferred  stock in 1993 to  certain
officers  and  directors  (Participants).  In general,  the  Participants  could
purchase the preferred stock for a combination of cash, promissory notes payable
to the Company,  and  conversion  of debt and deferred  compensation  due to the
Participants.  All shares  issued under this plan were pledged to the Company as
security for the notes.  The notes provided for interest at 8% per annum payable
annually,  with the full principal amount and any unpaid interest due on January
31,  1997.  The notes remain  outstanding.  The  likelihood  of  collecting  the
interest  on these notes is remote;  therefore,  accrued  interest  has not been
recorded since the fiscal year ended July 31, 1997.

Series B preferred  stock - Series B preferred  stock is currently  unregistered
and each share is convertible into shares of common stock on a two-for-one basis
at the election of the holder or  automatically  upon the  occurrence of certain
events  including:  sale of stock in an  underwritten  public  offering,  if the
offering  results in net  proceeds  of  $10,000,000,  and the per share price of
common stock is at least $2.00; and the merger, consolidation, or sale of common
stock or sale of  substantially  all of the  Company's  assets  in  which  gross
proceeds  received are at least  $10,000,000.  The Series B preferred  stock has
certain liquidation and dividend rights prior and in preference to the rights of
the  common  stock and Series A  preferred  stock.  The stock has a  liquidation
preference of $2.00 per share together with an amount equal to, generally, $0.14
per share  compounded  annually  at 7% per year from the filing  date,  less any
dividends paid. Dividends on the Series B preferred stock are non-cumulative and
payable at the annual rate of $0.14 per share if, when,  and as declared by, the
Board of  Directors.  No dividends  have been declared on the Series B preferred
stock.

Stock issued for legal  settlement - In December  2001,  the Company  settled an
outstanding lawsuit related to warrants that were issued during 1996 in exchange
for services  performed.  The warrants  contained a cashless exercise option and
were  originally set to expire in 1997.  The holders of these warrants  claimed,
however,  that the Company had agreed to extend the term. To settle the lawsuit,
the Company agreed to issue to the warrant  holders  6,000,000  shares of common
stock with a fair market value on the date of issuance of $900,000.

NOTE 10 - STOCK OPTIONS AND WARRANTS

The 1993 Employee and Consultant Stock Plan expires in 2003. Under the Plan, the
Company  has  reserved  30,000,000  shares of common  stock  for  incentive  and
nonstatutory  stock  options.  Options under the Plan expire over periods not to
exceed ten years from date of grant.  Options  that expire or are  canceled  may
become  available  for future  grants under the Plan.  In addition,  the Company
grants other nonstatutory stock options.

Under the Director Stock Option Plan, the Company  reserved  1,500,000 shares of
common stock for nonstatutory stock options for nonemployee  directors.  Options
under this Plan are fully vested upon the granting of the options and expire ten
years from the date of grant unless terminated sooner or upon termination of the
optionee's status as a director.  Options that expire or are canceled may become
available  for future  grants  under the Director  Option  Plan.  No options are
outstanding under this Plan.

The 1996  Stock  Option  Plan  reserves  45,000,000  shares  for  incentive  and
nonstatutory stock options during the period of the Plan, which expires in 2006.
Options under the 1996 Plan expire over a period not to exceed ten years.

--------------------------------------------------------------------------------
                                                                       Page F-10
<PAGE>

<TABLE>
                                                                                ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                                                                       NOTES TO FINANCIAL STATEMENTS

------------------------------------------------------------------------------------------------------------------------------------

The following summarizes common stock option activity (shares in thousands):

<CAPTION>
                                                          1996 Plan                   1993 Plan                     Other
                                                 --------------------------  --------------------------- --------------------------
                                                    Shares         Price         Shares         Price        Shares         Price
                                                 -----------    -----------  -------------   -----------  ------------   -----------
<S>                                               <C>           <C>            <C>           <C>            <C>          <C>
Options outstanding at July 31, 1998               8,439,000    $ 0.10-0.30    11,383,000    $ 0.10-0.60     1,495,000   $ 0.60-2.80

Granted                                            1,765,000           0.10          --             --            --            --
Exercised                                         (1,765,000)          0.30      (113,000)          0.30          --            --
Forfeited                                            (49,000)          0.30      (159,000)          0.30          --            --
                                                 -----------                  -----------                  -----------

Options outstanding at July 31, 1999               8,390,000                   11,111,000                    1,495,000    0.60-2.80

Granted                                           12,339,000    $      0.11          --             --            --            --
Forfeited                                           (234,000)   0.11-0.30            --             --            --            --
                                                 -----------                  -----------                  -----------

Options outstanding at December 31, 1999          20,495,000    $ 0.10-0.30    11,111,000    $ 0.10-0.60     1,495,000   $ 0.60-2.80

Granted                                            3,600,000    0.17-0.30            --             --            --            --
Exercised                                         (3,286,000)   0.10-0.30            --             --            --            --
Forfeited                                           (344,000)   0.10-0.30      (1,457,000)          --            --            --
                                                 -----------                  -----------                  -----------

Options outstanding at December 31, 2000          20,465,000    $ 0.10-0.30     9,654,000    $ 0.10-0.60     1,495,000   $ 0.60-2.80

Granted                                            7,472,000    0.11-0.18            --             --            --            --
Exercised                                         (1,805,000)   0.06-0.11            --             --            --            --
Forfeited                                         (5,266,000)   0.11-030             --             --            --            --
                                                 -----------                  -----------                  -----------

Options outstanding at December 31, 2001          20,866,000    $ 0.10-0.30     9,654,000    $ 0.10-0.60     1,495,000   $ 0.60-2.80
                                                 ===========                  ===========                  ===========

Weighted average remaining
 contractual life                                  3.5 years                    1.5 years                    1.5 years
                                                 ===========                  ===========                  ===========
</TABLE>

Options  exercisable  were 26,293,358 and 24,106,626 as of December 31, 2001 and
2000.  Options  exercisable  at  December  31,  1999,  and July 31,  1999,  were
20,879,245 and 18,567,454.

The Company measures its employee  stock-based  compensation  arrangements under
the  provisions of APB No. 25. Had  compensation  costs for the Company's  stock
option  plans  been  determined  based upon the fair value at the grant date for
awards under these plans  consistent with the methodology  prescribed under SFAS
No. 123, the Company's net loss would have been as follows:

<TABLE>
<CAPTION>
                                                                                     December              July
                                                  2001              2000               1999                1999
                                              -----------        -----------        -----------        -----------
<S>                                           <C>                <C>                <C>                <C>
Net loss for the year                         $(3,428,000)       $ (459,000))       $ (961,000)0)      $  (395,000)
Compensation expense, net of tax effect           776,500             88,000            174,000            640,700
                                              -----------        -----------        -----------        -----------

Proforma net loss                             $(4,204,500)       $  (547,000)       $(1,135,000)       $   245,700
                                              ===========        ===========        ===========        ===========

Proforma earnings per common share            $     (0.01)       $     (0.01)       $     (0.01)       $     (0.01)
</TABLE>

The fair value of options  granted were estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                                 December            July
                                2001              2000             1999              1999
                           ---------------   --------------  ----------------  ---------------
<S>                                <C>              <C>         <C>              <C>
Dividends                               0%               0%                0%               0%
Expected volatility                   125%             124%              164%             164%
Risk-free interest rate                 5%               5%     5.88% - 6.69%    5.88% - 6.59%
Expected life                      5 years          5 years           5 years          5 years
</TABLE>

--------------------------------------------------------------------------------
                                                                       Page F-11
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

The agreement with Ford Motor Company,  as discussed in Note 4, included issuing
warrants to Ford to purchase  4.6% of the fully  diluted  common  stock of Enova
Systems  over a 66 month  period.  The number of shares to be  acquired  will be
adjusted from time to time for increases in the Company's  fully diluted  common
stock.  The vesting of these  warrants is dependent  upon Ford meeting  specific
purchase  agreements.  Warrants  issued and vested under this agreement  totaled
2,500,000 at an exercise price of $0.29 per share during the year ended December
31, 2001. Initially, the exercise price of the warrants is equal to the price of
the stock on the date of issuance,  with the exercise  price  adjusted  when the
aggregate number of shares is adjusted. Warrants may not be exercised until July
2003.  The fair value of warrants  granted  were  estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: (1)
dividend yield of 0%, (2) expected  volatility of 102%,  (3) risk-free  interest
rate of 4.76%, and (4) an expected life of the warrants of 66 months.

NOTE 11 - INCOME TAXES

Federal and state income tax regulations impose  restrictions on the utilization
of net  operating  losses in the event of an  ownership  change,  as  defined by
Section  382 of the  Internal  Revenue  Code of  1986.  Ownership  changes  have
occurred,  with the changes  limiting the future  availability  of net operating
loss carryforwards. The extent of the limitation has not been determined.

A valuation  allowance  is required  for those  deferred tax assets that are not
likely to be realized.  Realization is dependent upon future earnings during the
period  that  temporary   differences  and  carryforwards  are  expected  to  be
available. Because of the uncertain nature of their ultimate utilization,  based
upon the Company's past  performance  and the possible  limitation on the future
availability  of net operating  losses,  as discussed  above,  a full  valuation
allowance is recorded against these deferred tax assets.

                                                       2001              2000
                                                   -----------       -----------

Deferred tax assets
     Federal tax loss carryforward                 $25,692,000       $24,666,000
     State tax loss carryforward                       674,000           920,000
     Basis difference                                1,610,000         1,610,000
     Other, net                                        290,000           218,000
                                                   -----------       -----------
                                                    28,266,000        27,414,000
Less valuation allowance                            28,266,000        27,414,000
                                                   -----------       -----------
Net deferred tax asset                             $      --         $      --
                                                   ===========       ===========

Net operating losses expire as follows:

                                                      Net Operating Loss
                                                -----------------------------

             Date of Expiration                    Federal        California
             ------------------                 -------------    ------------

                   2002                             $ 11,000     $ 2,778,000
                   2003                               64,000       1,541,000
                   2004                              322,000         709,000
                   2005                              443,000         655,000
                   2006                              680,000               -
                   2007                            2,552,000               -
                   2008                           24,221,000               -
                   2009                           33,460,000               -
                   2010                            9,083,000         177,000
                   2011                            5,557,000       1,770,000
                   2012                            2,998,000               -
                   2013                            1,418,000               -
                   2014                            1,965,000               -
                   2015                              322,000               -
                   2016                            3,217,000               -
                                                -------------    ------------
                                                $ 86,313,000     $ 7,630,000
                                                =============    ============

--------------------------------------------------------------------------------
                                                                       Page F-12
<PAGE>

                            ENOVA SYSTEMS, INC. (Formerly U.S. Electricar, Inc.)
                                                   NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 12 - EXTRAORDINARY ITEM

The Company has been negotiating  repayment of long-term trade payables for less
than the amounts originally recorded. The gain from these negotiated payments is
reflected as an extraordinary item.

In consultation with legal counsel,  the Company  extinguished  certain payables
under a provision of the California Code of Civil Procedures. The code's statute
of  limitations  precludes  the  ability of a creditor  to commence an action to
recover stale  account  balances.  Upon  reviewing  the code's  provisions,  the
Company determined that conditions surrounding the application of the statute of
limitations had been met; accordingly,  the extraordinary item includes the gain
from the extinguishments.

NOTE 13 - GEOGRAPHIC AREA DATA

The Company operates as a single reportable  segment and attributes  revenues to
countries based upon the location of the entity  originating the sale.  Revenues
by geographic area are as follows:

                                                        December         July
                            2001           2000           1999           1999
                         ----------     ----------     ----------     ----------

United States            $2,854,000     $1,003,000     $  235,000     $1,564,000
Korea                       483,000      1,670,000        394,000      1,210,000
England                      84,000           --             --             --
Canada                        --          110,000           --             --
Italy                      359,000        100,000           --             --
                         ----------     ----------     ----------     ----------
                         $3,780,000     $2,883,000     $  629,000     $2,774,000
                         ==========     ==========     ==========     ==========

--------------------------------------------------------------------------------
                                                                       Page F-13